Fraud, Deception and Unfulfilled Promise in the For-Profit College Industry

November 29, 2010
Education Policy
Guest Post

By Senator Tom Harkin (D-IA). Sen. Harkin is Chairman of the Senate Health, Education, Labor and Pensions Committee.
For-profit colleges have seen explosive growth in recent years. Top executives have made fabulous fortunes, and shareholders have profited richly. But for many students at for-profit colleges, it has been a very different story. Despite glowing promises of a diploma followed by a good job, most students leave without graduating, many with few employment prospects, and nearly all with massive debts that could follow them the rest of their lives.

This is a shame, because many for-profit colleges offer innovative options for students juggling work and family obligations. With more focus on students and less on shareholders, they could be a more valuable part of our higher education system. Regrettably, an ongoing investigation by my Committee has exposed an industry stained by widespread fraudulent and deceptive recruiting practices, overpriced programs, and staggering dropout rates.

Just as subprime lenders used the promise of homeownership to lure Americans into loans they couldn't afford, some for-profit schools are using the promise of higher education to lure students into taking on large amounts of student loan debt without delivering the promised increase in earning power.

An undercover General Accountability Office investigation found that all 15 schools they visited in May/June 2010 were using deceptive recruiting practices to convince students to enroll and take out loans. Witnesses at HELP Committee hearings have told horrifying stories of taking on massive debt only to find that the programs they enrolled in weren't accredited or that the clinical programs they had been promised did not exist.

In addition, our committee investigation has revealed that for-profit colleges are often much more expensive than comparable public ones. Ninety-five percent of for-profit college students borrow to attend school compared to just 16 percent of community college students. The average tuition at a for-profit institution is six times that of community colleges and roughly twice that of public four-year schools. For-profits account for only 10 percent of higher education students, but eat up 23 percent of the federal student loan budget, and account for 44 percent of defaults on these loans.

The Committee has documented that, at 16 large for-profit schools, 57 percent of students who enrolled in 2008 -2009 had departed by the following year within an average of four and a half months. At the largest for-profit school, more than 64 percent of those seeking an associate's degree dropped out within a year and averaged only a four-month stay. Because for-profit colleges continually lose so many students, they must aggressively enroll tens of thousands of new students throughout the year in order to keep their enrollment levels up and the federal subsidies rolling in.

Despite poor student success rates, for-profit institutions are raking in record profits, overwhelmingly drawn from taxpayer dollars intended to support student success. More than 87 percent of revenue at the 14 largest schools comes from taxpayer dollars, with profits at 16 of the largest for-profit schools totaling $2.7 billion in 2009.

While low-income students targeted by these schools struggle with staggering debts, for-profit colleges reward their CEOs with mega-million-dollar, taxpayer-funded salaries. For example, Strayer, a chain of for-profit colleges that receives three-quarters of its revenue from U.S. taxpayers, paid its chairman and CEO $41.9 million last year. That's nearly 60 times the compensation of Harvard's president.

Meanwhile, spending to educate students at many of these institutions takes a back seat to spending that drives profit. Eight large schools devoted nearly 50 percent of their spending to marketing, recruiting and non-education expenses. Their expensive and manipulative marketing campaigns are effective. The largest for-profit school reports current enrollment of 458,600 - larger than the undergraduate enrollment of the entire Big Ten conference.

What is the bottom line, here? For-profit higher education must fulfill its promise of flexible and affordable education that meets the needs of our students. Unfortunately, the for-profit higher education industry is rife with manipulative and misleading marketing campaigns, educational programs far more expensive than comparable public or non-profit programs, and sky-high dropout rates. Yet the industry is reaping huge profits, almost entirely drawn from taxpayer dollars. Many of these schools are working for the benefit of their CEOs and shareholders, not their students. They churn through a steady stream of new recruits, suck in billions in taxpayer dollars, and leaving in their wake millions of dropouts saddled with large debts - debts that are not dischargeable in bankruptcy.

My deep concern is that while millions of subprime mortgage borrowers lost their homes, millions of for-profit students stand to lose their future. In recent years, inadequate federal oversight has allowed a dangerous bubble to grow in the for-profit college industry. The challenge before us is to crack down on abusive practices, while preserving the positive options and innovations that many for-profit colleges have pioneered.