RUNNING HEAD: FOR-PROFIT COLLEGES: ACCESS OR ANXIETY?

ARE FPCs
CREATING DEBT OR OPPORTUNITY FOR NON TRADITIONAL STUDENTS?

FOR-PROFIT COLLEGES: ACCESS OR ANXIETY? ARE FOR-PROFIT COLLEGES

CREATING DEBT OR OPPORTUNITY FOR NON TRADITIONAL STUDENTS?

SCOTT MAURO

UNIVESITY OF CENTRAL FLORIDA

EDH 6505
FOR-PROFIT COLLEGES: ACCESS OR ANXIETY? ARE FPCs CREATING DEBT OR
OPPORTUNITY FOR NON TRADITIONAL STUDENTS?

Walking along sidewalks, corridors, and residence halls of a public four-year institution

gives a student affairs professional a unique look at the worries of a typical college student. The

body language, energetic facial expressions, and rapid movement provide you some insight to

the cacophony of thoughts racing through their minds. However, for more than a decade now

another type of student has a decidedly different look and feel and does not typically have a

sprawling campus to walk around. Indeed, the worries of the For-profit college student of today

are draped in sobering reality. These students are typically older. They are parents, and laborers

from lower socioeconomic sectors. Not only are they carrying the burden of knowing their

degree may not be as valuable as a traditional college students, they are shouldering a heavy

financial load.

Brubacher and Rudy (2002) trace the underpinnings of technical, vocational, or for-profit

colleges all the way back to the first quarter of the 19th Century when New York landowner and

business man Stephen Van Rensselaer founded Rensselaer Polytechnic Institute. Students

attending the school would learn theory and sciences to earn teaching certificates to education

the children of families working farms across the region (Brubacher et al., 2002). The very idea

of training an individual to meet the workforce needs of the region, state or country is a tenet

many for-profit advocates point out is what makes these accessible institutions a venerable part

of the American dream. However are these students turning their dreams into reality or are they

facing an uphill climb of mounting debt and never ending job searches? Dr. Tressie McMillan-

Cottom (2017) a former for-profit recruiter turned sociologist describes the burden students are

feeling as “risk shift” (McMillan-Cottom, 2017, p. 11) where employers change business models

and shift responsibility for training and education to their employees. For-profit colleges offer

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easier access to non-traditional students but over a period of 15 years costly tuition, risky loans,

predatory and unethical recruiting practices have disenfranchised burgeoning students. This

overview of for-profit colleges will look at the very real possibility that these institutions are

creating more burden and anxiety then access for students counting on these multi-million dollar

companies to lead them to the promised land.

Problems with for-profit colleges are not just relegated to the 21st century. Questions

surrounding the legitimacy of for-profit colleges are as old as the United States itself. The 18th

and 19th centuries saw a steady rise in American colleges including technical colleges. Like

many colonial colleges these technical schools modeled themselves after their European

predecessors (Brubacher et al., 2002). Educators at these schools trained clergyman, and other

specialties like agriculture and mining. Similar to the For-profit certificate granting institutions

the mission of these schools was to serve the needs of the growing communities. Schools like

Rensselaer gave way to eventual private-school giants like the Massachusetts Institute of

Technology established in 1865.

The Morrill Act of 1862 and the Second Morrill Act of 1890 both played important roles

in for-profit history. These historic Land-Grant acts gave way to federal aid to build schools. It

also provided regulatory oversight over institutions using race to influence admissions practices.

The Morrill Acts were post-antebellum era and in the 100 year period before the Land-Grant

colleges (1760-1860) fraudulent for-profit practices like higher costs for substandard educations

was as common a theme as in the 21st century (Cooley & Cooley, 2009, p. 508).

The for-profits colleges of today have a business model shaped by two other important

government measures. The Servicemen's Readjustment Act of 1944. The G.I. Bill gave more

access to education to veterans returning from war and directly led to the growth of community

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colleges and vocational, and technical for-profit schools to train the workforce in specialized

skills. (Breneman, Callan, Finney, & Zumeta, 2015, p. 61). The Higher Education Act of 1965

created a federal funding mechanism for these institutions. Title IV of the act provides federal

financial aid and Pell grants for the for-profit sector. Deming, Goldin and Katz (2013) estimated

nearly 74% of the revenues of for-profit colleges a decade before came from Title IV (Deming et

al., 2013). Today the revenues are ten to 15% higher and a primary reason for the 90/10 rule

which prohibits for-profits from having more than 90% of tuition revenues come from federally

backed aid (Zumeta et al., 2015). In the ten years following the Higher Education Act vocational

training schools benefited from the federal financial packages leading to a new wave of

workforce education (Altbach, Bastedo, & Gumport, 2016).

In last decade for-profit institutions are “well capitalized with stock listed on the stock

exchanges” (Zumeta et al., 2015, p 143). Multi-million dollar chain schools like Ashford, DeVry,

Grand Canyon, Strayer and the University of Phoenix and institutions that either merged, like

Kaplan, or fell under the pressure of federal investigations due to financial mismanagement like

Corinthian and ITT Technical College. The University of Phoenix Online programs have access

to more than 530,000 students in the 2009. However, the scale of Phoenix is an anomaly in most

of the for-profit sector. Median enrollments in 2009 were a little more than 170 students

(Deming et al., 2013, p. 138). For-profits receive national accreditation but no state

appropriations. The National Center of Education Statistics estimates for-profit colleges have

tripled in growth in the past decade growing 200% to more than 3,200 institutions. There are

several variables for the rise of these schools including: the convenience of online learning,

affordable commercial real-estate to build facilities, lower overhead costs, part-time faculty,

periodic changes in the job market and the corresponding need to train new workers (Zumeta et

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al., 2015). McMillan-Cottom (2017) pinpoints three social reasons for the rapid rise of For-

profits including. First, the k-12 system producing more students who only had the academic

chops to gain acceptance to lower tier post-secondary schools. Secondly, a reduction in the size

of the U.S. military just before the September 11, 2001 attacks gave students one less option to

avoid college for career training, and finally employers willing to spend time and money to train

their workers (McMillan-Cottom, 2017, p. 15).

For-profits colleges typically serve older, non-traditional students from lower socioeconomic

backgrounds or underrepresented communities of people. The latest data from the NCES reports more

than 40% of the students are white, nearly 22% are Black or African American, and nearly 13%

are Hispanic or Latino. 2014-2015 data from the National Clearinghouse Student Research

Center shows more than 60% of students enrolled at for-profits are female and most students are

twenty-four years and older. Deming et al. (2013) looked at a longitudinal five-year study from

the first decade of the 21st century and found 75% of the for-profit, first-time in college students

did not have high school diplomas, compare that to 85% of community college students and 95%

of students attending public or non-profit four-year schools. 29% of students are single parents

(Deming et al., 2013), and young couples and older adults of modest means.

As we peel back the layers of demographics we get a closer look at the business model of

for-profit institutions and the type of student they are trying to recruit. Students who are looking

for opportunity, a better way of life, a higher paying wage, and a career that restores hope.

However, in the past 15 years critics, opponents and more importantly federal investigators have

found that some for-profits are taking advantage of these students with little regard to what

happens to them after recruiters “close the sale” (McMillan-Cottom, 2017, p. 6). Predatory,

abusive and aggressive recruitment of students is one of three common concerns of for-profits

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over the past decade. Additionally, students enrolled in For-profits have a lower percentage

chance of actually landing a job in their chosen field and earning a higher wage. Finally, the

higher costs of these institutions led to student loans that became difficult to payback in when

students were unable to find work with their new degrees. For-profit college students represent

ten percent of all the higher education loans in the United States, but these students are

responsible for 44% of the all defaults (Bastedo et al., 2016).

The root of for-profit predatory recruiting practices that has soured public confidence in

comes from the Diploma Mills scandals at the turn of the 21st century. Students looking for

opportunities to get ahead in the workforce used the world wide web to purchase fake diplomas,

websites like Phonydiploma.com barely tried to hide what they were selling to consumers. In

fact, the website overtly laced disclaimers mentioning not to use the documents for, “anything

other than amusement” (Cooley et. al, 2009, p. 506). The diploma mills were a cheaper

alternative than paying for the education to obtain real degrees. The U.S. General Accounting

Office cracked down on these websites after discovering nearly 30 senior-level employees

bought degrees from unaccredited institutions. Overall federal investigators found more than 460

government employees who skirted the system (Cooley et al., 2009, p. 510-512). A 2005

investigation led to the eventual closing of St. Regis University over phony diplomas. Cooley et

al. (2009) estimates the founders of St. Regis (who both served prison time) grew their profits

nearly 33,000% in the first decade of the century.

Federal regulators in the past 20 years have also clamped down on for-profits executives

who promised incentives to their recruiters for every student they enrolled. Despite regulations

unethical recruiting practices still exist. In fact, Danilova and Lardner (2018) say it is one of the

primary reasons for a declining enrollment in the for-profit college sector over the last five years.

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McMillan-Cottom (2017) writes about her former career as a recruiter and having to close a sale

on students she knew could not afford the education they were applying for. Recruiting practice

at this technical college included passing students on pre-admission assessment tests but scored

no higher than fifth grade level, asking family members by phone to co-sign risky short-term

loans to offset tuition balances which federal aid did not cover, and school financial officers who

would avoid giving students a payment plan option to attend the institution (McMillan-Cottom,

2017, p. 4-5).

In 2010 the U.S. GAO investigated 15 For-profits by sending 15 fake students through

the online application process of these schools. The investigation uncovered four schools which

asked applicants to falsify financial aid paperwork in order to enroll the applicant. The

investigation also found questionable ethics in recruiting, failure to disclose tuition rates, and

past graduation rates (Deming et al., 2013).

One of the most troubling trends for for-profit colleges is student career outcomes. The

NCES estimates for-profit students are more likely to receive a certificate then a bachelor’s

degree, and earn less money than students graduating from traditional nonprofit institutions.

These students are more likely to face unemployment, and are less satisfied with their return on

investment (Deming et al., 2013). Most for-profit colleges offer completion certificates for a two

year vocational experience, two-year Associate’s degrees and four-year Bachelor’s degrees. 2009

NCES data shows a 53% completion rate for students seeking career certificates, but rarely did

those students go on to earn a bachelor’s degree. 40% of students pursuing a certificate dropped

out of school. For students pursuing an Associate Degree, less than 28% receive a degree, and

another 53% dropout. Finally, of students trying to earn a Bachelor’s degree 26% attain a

diploma and nearly 60% drop out (Deming et al., 2013). If they are able to graduate with a

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certificate, two-year associate degree, and on the rare occasion a bachelor degree “little solid

evidence exists of the economic returns of a for-profit education” (Deming et. al, 2013, p. 142).

In fact the fudging of job placement numbers spurred on the Federal Government’s nearly $30-

millioin dollar lawsuit against Corinthian Colleges in 2015. The government shutdown

Corinthian schools and started working on loan forgiveness packages for the thousands of

students left in the lurch.

2003 to 2013 saw a rapid period of growth in federal funding for these institutions to help

increase access to the non-traditional student. A decade before, President Bill Clinton helped to

establish a new direct loan option for students that would compete with the Family Federal

Education Loan program which provides lenders to students as a holdover from the Higher

Education Act. In 2010, President Barack Obama sought to save billions of dollars in subsidies

the federal government paid out to lenders by ending the FFEL program. Six years later the

federal government shutdown ITT Technical College for fraudulent financial practices involving

student loans. Cases like ITT Tech are rare and the For Profit College report spearheaded by

Deming et al. (2013) points out students often default due to their own poor financial situations.

However, the same report mentions the government’s efforts to lower risk of the taxpayers

shouldering the burden of unpaid student loans. One such regulatory measure is the Gainful

Employment rule. The rule means 35% of students in a cohort are in repayment of their loan.

Those loans must either be 12% of a student’s annual earnings or 30% or less of their

discretionary income. Additionally, if the cohort’s default rate is more than 40% over one year,

or 25% in three consecutive years the Federal Government strips institutions of the its aid for 1-3

years (Deming et al., 2013, pp. 153-154).

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FOR-PROFIT COLLEGES: ACCESS OR ANXIETY? ARE FPCs CREATING DEBT OR
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2011 data from the U.S. Department of Education Federal Student Aid Data Center

shows more than 21% of all students in For-profit Independents failed to make enough

discretionary income to pay back loans, 12% of failed to make repayments all-together.

Compared to more than 29% of students at for-profit chains who didn’t have enough

discretionary income to pay back loans, and nearly 26% who failed to make repayment.

Additionally for-profit institutions with at least 30 graduates, 10% of students at independents

for-profits did not earn enough to pay back the loans, 62% did not have enough discretionary

income and more than 36% of students failed to make repayment. Compare that to students at

chain schools, where more than 12% failed to make enough money, 56% failed to the

discretionary income metric, and nearly 49% defaulted on their loans. For-profit executives must

be able to review these startling metrics and take inventory to find new best practices and

collaborate with leaders in Washington amid political change.

So what is next in the for-profit college sector? A 2015 report by a Washington think tank

exposed a new potentially fraudulent practice by for-profits called covert for-profit. The

institutions reclassify as nonprofits in an effort to avoid penalties and regulation from the Gainful

Employment rules but continue to operate as a for-profit (Shireman, 2015). In this model, the

college appoints a Board of Trustees to make decisions in the best interest of school. The U.S.

Department of Education and the Internal Revenue Service partner to regulate the practice. The

IRS determines which schools are in compliance based on tax filings. If investigators find a

school in violation they can revoke their tax exempt status. Shireman (2015) reports the

downside to the regulation is the IRS investigates so few cases within any given year it could be

years before the Federal Government penalizes an institution. Danilova and Lardner (2018)

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called this the covert for-profits the next problem for Education Secretary Betsy DeVos in an

April 2018 Associated Press report.

The promise land must seem out of reach at times for students enrolled or graduating

from for-profit institutions. These high-profile institutions are mired in bad publicity, endless

questions about regulation, consumer skepticism over business practices, and disbelief over

lower career placement outcomes. The mission of these institutions is to provide access to

students who would not traditionally have a post-secondary education option and it is to this

point we can begin to draw three main conclusions. First, historically for-profit colleges have a

difficult time escaping their own dark shadows. They are the very measure of the brand identity

(how a business wants consumers to perceive their brand) versus brand image (how the

consumer actually perceives your brand). The confluence of these two constructs simply does not

match. The business model of the institutions makes it difficult for executives leading these

schools to worry more about student career outcomes then the bottom-line. If someone in the

industry separates themselves from the pack and becomes a believable advocate for non-

traditional students then perhaps the needle will move. Secondly, there is trouble in paradise in

the for-profit sector. Danilova and Lardner (2018) report stiffer competition from traditional

public and nonprofit institutions (mostly due to more innovations in online learning), bad

publicity due to the Corinthian and ITT Tech fallouts, and a stronger economy have lead to a

decline in enrollment at for-profits. In fact, the latest data from the National Student

Clearinghouse Research Center shows an eight percent drop in for-profit enrollment to just under

1-million students. It is hard to imagine for-profit colleges will go the way of Oldsmobile

anytime soon, but it is equally hard to imagine the industry’s can recover quickly if covert non-

profits set the industry further back. Finally, regulation of the for-profit industry rides the wave

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of the political election cycle. Just three years ago President Obama’s administration started

forgiving the debt from student loans in the Corinthian and ITT Tech scandals. Fast forward to

2018 and President Trump’s Education Secretary has tweaked the loan forgiveness regulations

putting more burdens on the students with the debt and less responsibility for the institutions

responsible for the fraudulent behavior (Danilova and Lardner, 2018). The reality of the situation

is a shift to either side of the aisle in Congress or the White House could change regulations,

financial aid assistance and priorities. History has shown us that for-profits find a way to survive.

Can they find a way back into the hearts of the students who watched the dreams shattered by

profit margins?

References:

Altbach, P.N., Bastedo, M.N., P.J. Gumport. (2016). American higher education in the twenty-

first century (4th ed). Baltimore: Johns Hopkins University Press.

Breneman, D., Callan, P., Finney, J., Hunt, & Zumeta, W. (2015). Financing American Higher

Education in the era of globalization. Cambridge, Massachusetts: Harvard Education

Press.

Brubacher, J.S., & Rudy, W. (2002). Higher education in transition: A history of American

Colleges and Universities. (4th ed). New Brunswick: Transaction Publishers.

Cooley, A. H., & Cooley, A. (2009). From Diploma Mills to For-Profit Colleges and

Universities: Business Opportunities, Regulatory Challenges, and Consumer

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OPPORTUNITY FOR NON TRADITIONAL STUDENTS?
Responsibility in Higher Education. Southern California Interdisciplinary Law Journal,

18(3), 505-526.

Deming, D., Goldin, C., & Katz, L. (2013). For-Profit Colleges. The Future of Children. (1) 137-

163

Danilova, M. & Lardner. (2018, April 7). For-profit colleges struggle despite assist from DeVos.

Associated Press. Retrieved from:

https://apnews.com/5e8fa04c469b4a5daa6640ee79584c4d

McMillan-Cottom, T. (2017). Lower Ed: The troubling rise of for-profit colleges in the new

economy. New York-London: The New Press.

National Center for Education Statistics (2016, July). Postsecondary Institutions and Cost of

Attendance in 2015-16; Degrees and Other Awards Conferred, 2014–15; and 12-Month

Enrollment, 2014–15 First Look (Preliminary Data). Retrieved from:

https://nces.ed.gov/pubs2016/2016112.pdf

Shireman, R. (2015, September 2015). The Century Foundation. The cover for-profit: How

college owners escape oversight through regulatory blind spot. Retrieved from:

https://tcf.org/content/report/covert-for-profit/

The National Student Clearinghouse Research Center: (2014,

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OPPORTUNITY FOR NON TRADITIONAL STUDENTS?
December 10). Current Term Report-Fall 2014 Retrieved from:

http://nscresearchcenter.org/currenttermenrollmentestimate-fall2014/

Zain, P. (2011, October 23). Insidehighered.com. Retrieved from:

https://www.insidehighered.com/news/2011/11/23/gao-releases-new-investigation-profit-

colleges

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