For-Profit School
Encyclopedia
For-profit education refers to education
al institutions operated by private, profit-seeking business
es.
There are two major types of for-profit school
s. One type is known as an educational management organization, or EMO, and these are primary and secondary educational institutions. EMOs work with school district
s or charter school
s, using public funds to finance operations. The majority of for-profit schools in the K-12 sector in America
function as EMOs, and have grown in number in recent years. The other category of for-profit schools are post-secondary institutions which operate as business
es, receiving fees from each student they enroll.
EMOs function differently from charter schools created in order to carry out a particular teaching pedagogy
; most charter schools are mission-oriented, while EMOs and other for-profit institutions are market-oriented. While supporters argue that the profit motive encourages efficiency it has also drawn controversy and criticism. For-profit schools often lack admission standards that public and private colleges and universities use.
Committee on Education and the Workforce created a federal regulation known as the "90-10 rule" and defined "institution of higher education" for the purposes of federal-aid eligibility as including for-profit institutions. The idea behind the 90-10 rule was that if a proprietary school's offerings were truly valuable—for example, if they filled some niche that traditional State and private non-profit educational institutions did not—then surely 10% of their students would be willing to pay completely out-of-pocket, i.e., those who fell above federal guidelines for receiving taxpayer subsidies to attend college. Traditional educational institutions routinely met this bar without even paying attention.
For-profit schools make up a small percentage of America's educational institutions, but the number of schools is growing. In February 2000, there were hundreds of thousands of students being taught at 200 for-profit postsecondary facilities, with approximately six percent of students nationally enrolled at a for-profit institution. Eduventures
, a higher education research and consulting firm, states that nine percent of all U.S. college and graduate students attend for-profit institutions.
Between 1998 and 2000 a Boston
-based company named Advantage Schools (since taken over by Mosaica Education
) saw its revenue increase from $4 million to approximately $60 million. Between 1995 and 2000 the Edison Schools
' yearly revenues grew from $12 million to $217 million. In 2000 Edison Schools projected that by 2006 it would manage about 423 schools with 260,000 students, giving it revenue of $1.8 billion.
Supporters argue that for-profit schools rely on attracting students rather than compelling attendance and therefore tend to be more responsive to parents' wishes, and are especially flexible and responsive to the needs of adult learners, and that they also encourage policies that address bottom-line academic performance allowing them to focus on what consumers (students) want—if parents or students do not like the service being offered, they are able to take their business elsewhere. Supporters also argue that the schools' drive to attract new customers pushes them to innovate and improve at a faster rate than traditional public schools.
Proponents of for-profit schools claim that market operations governing the school promote effective decision- and policy-making. By their example, for-profit schools have the potential to encourage reform in public institutions. Thus, for-profit schools theoretically benefit children, parents, investors, and those who rely on public education.
Opponents say that the fundamental purpose of an educational institution should be to educate, not to turn a profit. In 2000, Bob Chase, president of the National Education Association
, stated: "Educating children is very different from producing a product."
Others claim that because for-profit schools have never been a mainstream idea, no complete blueprint
for running a for-profit institution really exists, which could lead school administration to make costly errors. For example, in order to maximize profits, valuable services and activities are often eliminated. Extracurricular activities such as sports teams or volunteer clubs are left with little or no budgeting in order to keep costs low. This loss of non-academic activities might hurt a student's ability to enroll in some college
s or universities
later on. The two largest EMOs in operation today, Edison and Advantage, claimed to have high school juniors completing college-level coursework, but recent studies have shown that many of these students are performing at or below the 11th-grade level. Some former students claim that for-profit colleges make them feel like they went to the flea market and bought themselves a degree.
According to James G. Andrews in a American Association of University Professors
article corporate models of education harm the mission of education.
Some critics have called for-profit education 'subprime education', in an analogy with the subprime mortgages bubble at the heart of the Great Recession - finding uninformed borrowers and loading them with debt they cannot afford, then securitizing and passing the loan onto third party investors. Short Seller Steve Eisman
(famous for being a character in Michael Lewis' The Big Short
) has described the accreditation situation regarding for-profits like ITT as follows: "The scandal here is exactly akin to the rating agency role in subprime securitizations."
have national accreditation rather than regional accreditation
. Regionally accredited schools are predominantly academically oriented, non-profit institutions. Nationally accredited schools are predominantly for-profit and offer vocational, career, or technical programs. Many regionally accredited schools will not accept transfer credits earned at a nationally accredited school.
In the 2005 Congressional discussions concerning reauthorization of the Higher Education Act and in the US Secretary of Education's Commission on the Future of Higher Education, there have been proposals to mandate that regional accrediting agencies bar the schools they accredit from basing decisions on whether or not to accept credits for transfer solely on the accreditation of the "sending" school. They could still reject the credits, but they would have to have additional reasons.
The American Commission of Career Schools and Colleges (ACCSC), a nonprofit organization created for the purpose of accrediting for-profit schools, supports the proposed rule. It and other nationally accrediting institutions and have been lobbying for it for some time. The ACCSC claims regionally accredited schools will not accept nationally accredited schools credits for purely arbitrary, prejudicial and/or anti-competitive reasons. It further states that, since the Department of Education recognizes both national and regional accreditation, there is no reason for regionals to differentiate between the two and to do so amounts to an unwarranted denial of access.
The position of the American Association of Collegiate Registrars and Admissions Officials (AACRAO) is that national accrediting standards are not as rigorous and, though they might be well-suited for vocational and career education, they are ill-suited for academic institutions. AACRAO alleges that this proposed rule is unnecessary and unjustified, could threaten the autonomy and potentially lower the standards of regionally accredited schools, and drive up their costs. Furthermore, it states the proposed rule is an attempt by the for-profits' "well-funded lobbyists" to obscure the difference between for-profits' "lax academic criteria for accreditation" and non-profits' higher standards. AACRAO claims only six percent of American students attend for-profits and only four percent attempt to transfer to non-profits. Eduventures, Inc, a Boston research firm, states that nine percent of all U.S. college and graduate students attend for-profit institutions.
Admission representatives at Crown College (Tacoma)
and Florida Metropolitan University
allegedly made various misrepresentations concerning the transferability of their credits to entice students to enroll in those schools.
Several of the larger for-profit schools have sought and received regional accreditation, including the following:
reported on an investigation randomly sampled student-recruiting practices of several for-profit institutions. Investigators who posed as prospective students documented deceptive recruiting practices, including misleading information about costs and potential future earnings. They also reported that some recruiters had urged them to provide false information on applications for financial aid.
Out of the fifteen sampled, all were found to have engaged in deceptive practices, improperly promising unrealistically high pay for graduating students, and four engaged in outright fraud
, per a GAO report released at a hearing of the Health, Education, Labor and Pensions Committee held on August 4, 2010. Examples of misconduct include:
The four for-profit colleges found to be engaging in fradulent practices were:
It was found that 14 out of 15 times, the tuition at a for-profit sample was more expensive than its public counterpart, and 11 out of 15 times, it was more expensive than the private counterpart. Examples of the disparity in full tuition per program include: $14,000 for a certificate at the for-profit institution, when the same diploma cost $500 at a public college; $38,000 for an Associate's at the for-profit institution, when the comparable program at the public college cost $5,000; $61,000 for a Bachelor's at the for-profit institution, compared to $36,000 for the same degree at the public college.
This is counter to International Education Corporation CEO Fardad Fateri's claims of the lack of use of unorthodox recruiting practices and a for-profit's "value" in an IEC open letter to Congress, the tuition cost of certificates and Associate's degrees being 28 and 6 times more than at a public college, respectively; Fateri writes, "Credit should be given to non-profit universities that have been able to convince students and their sophisticated parents to pay approximately $400,000.00 for an undergraduate degree that will seldom lead to an academically-related career." However, the most expensive college in the US, Sarah Lawrence College in Bronxville, NY, had a tuition cost of $41,040 for 2009 fiscal year, bringing the tuition of a four-year Bachelor's degree to just above $160,000.
The institutions identified in the Committee hearing in respect to the GAO report numeration were:
Students at for-profit institutions represent only 9% of all college students, but receive roughly 25% of all Federal Pell Grants and loans, and are responsible for 44% of all student loan defaults. University of Phoenix tops this list with Pell Grant revenue of $656.9 million with second and third place held by Everest Colleges at $256.6 million and Kaplan College at $202.1 million for the 2008-2009 fiscal year, respectively. In 2003, a Government Accountability Office
report estimated that overpayments of Pell Grants were running at about 3% annually, amounting to around $300 million per year. Some of the universities that are top recipients of Pell Grants have low graduation rates, leaving students degreeless, and graduating alumni may find it excessively difficult to find work with their degrees, leading some former students to accuse recruiters of being "duplicitous", and bringing into serious question the effectiveness of awarding Pell Grants and other Title IV
funds to for-profit colleges. University of Phoenix's graduation rate is 15%. Strayer University
, which reports its loan repayment rate to be 55.4%, only has a repayment rate of roughly 25%, according to data released by the U.S. Department of Education on August 13, 2010. The low repayment rate makes Strayer ineligible for receiving further Title IV funds in accordance with new "Gainful employment" regulations brought forth by the Department of Education, which are to take effect on July 2011. If passed, the minimum loan repayment requirement for any institution receiving Title IV funds, subject to suspension and expulsion if not compliant, will be 45%.
For-profits top the Department of Education's list for the 2005-2007 cohort default rates, with campuses at ATI and Kaplan reporting default rates far above 20%. Most of the for-profits' expansion has been in the states of California, Arizona, Texas and Florida, with the metro areas of Los Angeles, Phoenix, Dallas and Miami-West Palm Beach being centers of their growth. For comparison, in Miami, Everest Institute reports a default rate for two of its campuses to be 18.1% and 20%; Miami Dade College
, the district's community college, which serves as a primary channel for local beginning students, reports a default rate of roughly 10%; Florida International University
, a public university serving the Miami metropolitan area, reports approximately 5%.
In an August 4, 2010 Health, Education, Labor and Pensions Committee hearing, Gregory Kutz of the GAO stated that the fraudulent practices may be widespread in the For-Profit industry, noting a University of Phoenix executive chart that encouraged deceptive practices. Joshua Pruyn, a former admissions representative, disclosed to the committee hearing several internal emails distributed among admissions officers in March 2008 which encouraged applications and enrollments through the use of a commissions reward system. Chairman of the committee Senator Thomas Harkin noted the conflict of interest
due to the ACCSC, a national accrediting agency that accredits many for-profit colleges nationwide, receiving compensation directly from the institutions to which it awards accreditation. The Inspector General
issued an assessment in late 2009 recommending the limiting and possible suspension or expulsion of the Higher Learning Commission of the North Central Association of Colleges and Schools
due to conflicts in the manner in which the accrediting agency reviews credit hours and program length for online-colleges, specifically American InterContinental University, a For-Profit college. The NCA HLC accredits the University of Phoenix and Everest in Phoenix, Arizona. The Department of Education Inspector General is currently reviewing the GAO's documents and report on for-profit colleges dated August 4, 2010.
On November 30, 2010, the GAO issued a revised report, softening several examples from an undercover investigation and changing some key passages, but stood by its central finding that colleges had encouraged fraud and misled potential applicants.
1. Geographic scope:
2. Ownership dimension:
3. Highest degree granted:
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
al institutions operated by private, profit-seeking business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es.
There are two major types of for-profit school
School
A school is an institution designed for the teaching of students under the direction of teachers. Most countries have systems of formal education, which is commonly compulsory. In these systems, students progress through a series of schools...
s. One type is known as an educational management organization, or EMO, and these are primary and secondary educational institutions. EMOs work with school district
School district
School districts are a form of special-purpose district which serves to operate the local public primary and secondary schools.-United States:...
s or charter school
Charter school
Charter schools are primary or secondary schools that receive public money but are not subject to some of the rules, regulations, and statutes that apply to other public schools in exchange for some type of accountability for producing certain results, which are set forth in each school's charter...
s, using public funds to finance operations. The majority of for-profit schools in the K-12 sector in America
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
function as EMOs, and have grown in number in recent years. The other category of for-profit schools are post-secondary institutions which operate as business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es, receiving fees from each student they enroll.
EMOs function differently from charter schools created in order to carry out a particular teaching pedagogy
Pedagogy
Pedagogy is the study of being a teacher or the process of teaching. The term generally refers to strategies of instruction, or a style of instruction....
; most charter schools are mission-oriented, while EMOs and other for-profit institutions are market-oriented. While supporters argue that the profit motive encourages efficiency it has also drawn controversy and criticism. For-profit schools often lack admission standards that public and private colleges and universities use.
Growth
While to some extent for-profit colleges have always existed, their numbers exploded after 1992, when after the United States House of RepresentativesUnited States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
Committee on Education and the Workforce created a federal regulation known as the "90-10 rule" and defined "institution of higher education" for the purposes of federal-aid eligibility as including for-profit institutions. The idea behind the 90-10 rule was that if a proprietary school's offerings were truly valuable—for example, if they filled some niche that traditional State and private non-profit educational institutions did not—then surely 10% of their students would be willing to pay completely out-of-pocket, i.e., those who fell above federal guidelines for receiving taxpayer subsidies to attend college. Traditional educational institutions routinely met this bar without even paying attention.
For-profit schools make up a small percentage of America's educational institutions, but the number of schools is growing. In February 2000, there were hundreds of thousands of students being taught at 200 for-profit postsecondary facilities, with approximately six percent of students nationally enrolled at a for-profit institution. Eduventures
Eduventures
Eduventures, Inc. is a privately held research and consulting firm that provides data, analysis and consulting to institutions of higher education and the higher education community...
, a higher education research and consulting firm, states that nine percent of all U.S. college and graduate students attend for-profit institutions.
Between 1998 and 2000 a Boston
Boston
Boston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
-based company named Advantage Schools (since taken over by Mosaica Education
Mosaica Education
Mosaica Education, Inc. is a for-profit school company that currently operates elementary, middle and high school programs across the globe , India, Turkey, and the United Arab Emirates. Originating in 1997, Mosaica Education built its first school in fall of that same year and has been growing...
) saw its revenue increase from $4 million to approximately $60 million. Between 1995 and 2000 the Edison Schools
Edison Schools
EdisonLearning Inc., formerly known as Edison Schools Inc., is a for-profit education management organization for public schools in the United States and the United Kingdom. It was founded in 1992 as The Edison Project, largely the brainchild of Chris Whittle...
' yearly revenues grew from $12 million to $217 million. In 2000 Edison Schools projected that by 2006 it would manage about 423 schools with 260,000 students, giving it revenue of $1.8 billion.
Potential benefits
Supporters claim that for-profit school operate more efficiently, and that these increases in efficiency can lead to lower fees. Moreover, they argue that financial competition encourages the schools to seek out better qualified teachers.Supporters argue that for-profit schools rely on attracting students rather than compelling attendance and therefore tend to be more responsive to parents' wishes, and are especially flexible and responsive to the needs of adult learners, and that they also encourage policies that address bottom-line academic performance allowing them to focus on what consumers (students) want—if parents or students do not like the service being offered, they are able to take their business elsewhere. Supporters also argue that the schools' drive to attract new customers pushes them to innovate and improve at a faster rate than traditional public schools.
Proponents of for-profit schools claim that market operations governing the school promote effective decision- and policy-making. By their example, for-profit schools have the potential to encourage reform in public institutions. Thus, for-profit schools theoretically benefit children, parents, investors, and those who rely on public education.
Potential drawbacks
Due to the very fast growth of for-profit schools, there have been few systematic studies of their long term impact and effectiveness. The few existing reports show mixed results.Opponents say that the fundamental purpose of an educational institution should be to educate, not to turn a profit. In 2000, Bob Chase, president of the National Education Association
National Education Association
The National Education Association is the largest professional organization and largest labor union in the United States, representing public school teachers and other support personnel, faculty and staffers at colleges and universities, retired educators, and college students preparing to become...
, stated: "Educating children is very different from producing a product."
Others claim that because for-profit schools have never been a mainstream idea, no complete blueprint
Blueprint
A blueprint is a type of paper-based reproduction usually of a technical drawing, documenting an architecture or an engineering design. More generally, the term "blueprint" has come to be used to refer to any detailed plan....
for running a for-profit institution really exists, which could lead school administration to make costly errors. For example, in order to maximize profits, valuable services and activities are often eliminated. Extracurricular activities such as sports teams or volunteer clubs are left with little or no budgeting in order to keep costs low. This loss of non-academic activities might hurt a student's ability to enroll in some college
College
A college is an educational institution or a constituent part of an educational institution. Usage varies in English-speaking nations...
s or universities
University
A university is an institution of higher education and research, which grants academic degrees in a variety of subjects. A university is an organisation that provides both undergraduate education and postgraduate education...
later on. The two largest EMOs in operation today, Edison and Advantage, claimed to have high school juniors completing college-level coursework, but recent studies have shown that many of these students are performing at or below the 11th-grade level. Some former students claim that for-profit colleges make them feel like they went to the flea market and bought themselves a degree.
According to James G. Andrews in a American Association of University Professors
American Association of University Professors
The American Association of University Professors is an organization of professors and other academics in the United States. AAUP membership is about 47,000, with over 500 local campus chapters and 39 state organizations...
article corporate models of education harm the mission of education.
Some critics have called for-profit education 'subprime education', in an analogy with the subprime mortgages bubble at the heart of the Great Recession - finding uninformed borrowers and loading them with debt they cannot afford, then securitizing and passing the loan onto third party investors. Short Seller Steve Eisman
Steve Eisman
Steve Eisman is a money manager famous for shorting securitized subprime home mortgages. Eisman currently works for FrontPoint Partners, a subsidiary of Morgan Stanley.-FrontPoint Partners:...
(famous for being a character in Michael Lewis' The Big Short
The Big Short
The Big Short: Inside the Doomsday Machine is a 2010 non-fiction book by Michael Lewis about the build-up of the housing and credit bubble during the 2000s...
) has described the accreditation situation regarding for-profits like ITT as follows: "The scandal here is exactly akin to the rating agency role in subprime securitizations."
Accreditation and transfer-of-credits
Many for-profit institutions of higher educationHigher education
Higher, post-secondary, tertiary, or third level education refers to the stage of learning that occurs at universities, academies, colleges, seminaries, and institutes of technology...
have national accreditation rather than regional accreditation
Regional accreditation
Regional accreditation is a term used in the United States to refer to educational accreditation conducted by any of several accreditation bodies established to serve six defined geographic areas of the country for accreditation of schools, colleges, and universities...
. Regionally accredited schools are predominantly academically oriented, non-profit institutions. Nationally accredited schools are predominantly for-profit and offer vocational, career, or technical programs. Many regionally accredited schools will not accept transfer credits earned at a nationally accredited school.
In the 2005 Congressional discussions concerning reauthorization of the Higher Education Act and in the US Secretary of Education's Commission on the Future of Higher Education, there have been proposals to mandate that regional accrediting agencies bar the schools they accredit from basing decisions on whether or not to accept credits for transfer solely on the accreditation of the "sending" school. They could still reject the credits, but they would have to have additional reasons.
The American Commission of Career Schools and Colleges (ACCSC), a nonprofit organization created for the purpose of accrediting for-profit schools, supports the proposed rule. It and other nationally accrediting institutions and have been lobbying for it for some time. The ACCSC claims regionally accredited schools will not accept nationally accredited schools credits for purely arbitrary, prejudicial and/or anti-competitive reasons. It further states that, since the Department of Education recognizes both national and regional accreditation, there is no reason for regionals to differentiate between the two and to do so amounts to an unwarranted denial of access.
The position of the American Association of Collegiate Registrars and Admissions Officials (AACRAO) is that national accrediting standards are not as rigorous and, though they might be well-suited for vocational and career education, they are ill-suited for academic institutions. AACRAO alleges that this proposed rule is unnecessary and unjustified, could threaten the autonomy and potentially lower the standards of regionally accredited schools, and drive up their costs. Furthermore, it states the proposed rule is an attempt by the for-profits' "well-funded lobbyists" to obscure the difference between for-profits' "lax academic criteria for accreditation" and non-profits' higher standards. AACRAO claims only six percent of American students attend for-profits and only four percent attempt to transfer to non-profits. Eduventures, Inc, a Boston research firm, states that nine percent of all U.S. college and graduate students attend for-profit institutions.
Admission representatives at Crown College (Tacoma)
Crown College (Tacoma)
Crown College was a small, for-profit, predominantly online college located in Tacoma, Washington. Crown College lost its educational accreditation on July 31, 2007 and it suspended operations on August 10, 2007.- History :...
and Florida Metropolitan University
Florida Metropolitan University
Everest University, formerly Florida Metropolitan University is a system of for-profit universities with most of their campuses located in the state of Florida in the United States. The Everest University System also has campuses located throughout the United States and Canada, making it one of...
allegedly made various misrepresentations concerning the transferability of their credits to entice students to enroll in those schools.
Several of the larger for-profit schools have sought and received regional accreditation, including the following:
- American InterContinental UniversityAmerican InterContinental UniversityAmerican InterContinental University, commonly called AIU, is an international for-profit university with open admissions owned by Career Education Corporation ....
- Art Institute of AtlantaArt Institute of AtlantaThe Art Institute of Atlanta is one of The Art Institutes, a system of over 40 For-Profit Colleges located in major cities throughout North America, all owned and operated by Education Management Corporation...
- Art Institute of PittsburghArt Institute of PittsburghThe Art Institute of Pittsburgh is a private, for-profit, higher education institute located in Pittsburgh, Pennsylvania, that emphasizes design education and career preparation for the creative job market. It was founded in 1921.-History:...
- Capella UniversityCapella UniversityCapella University is a for-profit co-educational university with partial residency requirements during the course of study, based in Minneapolis, Minnesota.The school is owned by the publicly traded Capella Education Company...
- DeVry UniversityDeVry UniversityDeVry University and DeVry Institute of Technology are divisions of DeVry Inc , a proprietary, for-profit higher education organization that is also the parent organization for Keller Graduate School of Management, Ross University, American University of the Caribbean, Apollo College, Western...
- Fashion Institute of Design & MerchandisingFashion Institute of Design & MerchandisingFIDM, Fashion Institute of Design & Merchandising, is a specialized for-profit private college located in California dedicated to educating students for the Fashion, Entertainment, Beauty, Interior Design, and Graphic Design industries....
(FIDM) - Heald CollegeHeald CollegeHeald College is a for-profit, business-career college with multiple campuses in the Western United States. Prior to its acquisition by Corinthian Colleges Heald was a non-profit private College....
- Kaplan UniversityKaplan UniversityKaplan University is the "doing business as" name of the Iowa College Acquisition Corporation, a company that owns and operates for-profit colleges...
- Miami International University of Art & DesignMiami International University of Art & DesignMiami International University of Art & Design – is a for-profit institution and one of The Art Institutes, a corporate system of more than 40 educational institutions located throughout North America, providing education in design, media and visual arts, fashion, and culinary arts...
- Pittsburgh Technical InstitutePittsburgh Technical InstitutePittsburgh Technical Institute is a private two-year post-secondary school in Pittsburgh, Pennsylvania, USA offering associate degrees and short-term certificate programs....
- Post UniversityPost UniversityPost University is a small university located in Waterbury, Connecticut. Post University was established in 1890. Prior to May 1990, it was known as Post College...
- Strayer UniversityStrayer UniversityStrayer University, formerly Strayer College of Baltimore, Maryland, is a private, for-profit educational institution. The Strayer University campuses are owned by Strayer Education, Inc. , headquartered in Herndon, Virginia....
- University of PhoenixUniversity of PhoenixThe University of Phoenix is a for-profit institution of higher learning. It is a wholly owned subsidiary of Apollo Group Inc. which is publicly traded , an S&P 500 corporation based in Phoenix, Arizona...
- Walden UniversityWalden UniversityWalden University is a private, for-profit, specialized distance learning institution of higher education. Headquartered in the Mills District in Minneapolis, Minnesota, Walden University offers Bachelor of Science, Master of Science, Master of Business Administration, Master of Public...
Business failures
There have been failures of for-profit schools, including Business Computer Technology Institute (BCTI) and Court Reporting Institute (CRI). These two schools allegedly violated numerous federal statutes, were funded mainly from federal and state loans and grants given to attending students, and then closed, abandoning many of their students.2010 Pell Grant fraud controversy
For-profit higher education in the US has been the focus of concern regarding business practices. In August 2010, the Government Accountability OfficeGovernment Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...
reported on an investigation randomly sampled student-recruiting practices of several for-profit institutions. Investigators who posed as prospective students documented deceptive recruiting practices, including misleading information about costs and potential future earnings. They also reported that some recruiters had urged them to provide false information on applications for financial aid.
Out of the fifteen sampled, all were found to have engaged in deceptive practices, improperly promising unrealistically high pay for graduating students, and four engaged in outright fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
, per a GAO report released at a hearing of the Health, Education, Labor and Pensions Committee held on August 4, 2010. Examples of misconduct include:
- offering commissionsCommission (remuneration)The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold...
to admissions officers, - employing deceptive marketing tactics by refusing to disclose total tuition cost to prospective students before signing a binding agreement,
- lying about accreditation,
- encouraging outright fraud by enticing students to take out student loans even when the applicant had $250,000 in savings,
- promising extravagant, unlikely high pay to students,
- failing to disclose graduation rate, and
- offering tuition cost equivalent to 9 months of credit hours per year, when total program length was 12 months.
The four for-profit colleges found to be engaging in fradulent practices were:
- Westech, California: Encouraging undercoverUndercoverBeing undercover is disguising one's own identity or using an assumed identity for the purposes of gaining the trust of an individual or organization to learn secret information or to gain the trust of targeted individuals in order to gain information or evidence...
applicant with falsified $250,000 in savings to falsely increase the number of dependents in the household in order to qualify for a Pell Grant, as well as take out the maximum amount in student loans; - Medvance Institute in Miami, FloridaMiami, FloridaMiami is a city located on the Atlantic coast in southeastern Florida and the county seat of Miami-Dade County, the most populous county in Florida and the eighth-most populous county in the United States with a population of 2,500,625...
: Financial aid representative told an applicant not to report $250,000 in savings, comparing student loans to a car payment in that, "no one will come after you if you don’t pay.” In fact, a student loan default may remain in the debtor's credit history, prevent them from taking out a car loan, mortgage or rent, and may have their pay garnished up to 15%, until the student loan is paid in full. Another admissions officer at Kaplan College in Pembroke Pines, Florida, alluded to fraudulent behaviour stating to the applicant when inquiring about the repayment of loans, "You gotta look at it...I owe $85,000 to the University of Florida. Will I pay it back? Probably not...I look at life as tomorrows never promised... Education is an investment, you’re going to get paid back ten-fold, no matter what."; - Anthem Institute in Springfield, PennsylvaniaSpringfield Township, Delaware County, PennsylvaniaSpringfield Township, or simply Springfield, is a township and a Census Designated Place in Delaware County in the U.S. state of Pennsylvania. The population was 23,677 at the 2000 census...
: Financial aid representative editing applicant's FAFSA form by omitting $250,000 in savings; - Westwood CollegeWestwood CollegeWestwood College, owned by Alta Colleges Inc., is a United States for-profit institution of higher learning with 17 campus locations in six states and online learning options. Westwood is accredited by national organizations including the Accrediting Commission of Career Schools and Colleges of...
in Dallas, TexasDallas, TexasDallas is the third-largest city in Texas and the ninth-largest in the United States. The Dallas-Fort Worth Metroplex is the largest metropolitan area in the South and fourth-largest metropolitan area in the United States...
: Admissions representative telling applicant to falsely add dependents to qualify for Pell Grants, assuring the applicant that the dependents would not be verified through previous income tax returns nor Social Security numbers, and financial aid representative encouraging applicant not to report the $250,000 in savings, stating that "it was not the government’s business how much money the undercover applicant had in a bank account.", when the Department of Education requires students to report such assets, along with income, to determine how much and what type of financial aid will be awarded.
It was found that 14 out of 15 times, the tuition at a for-profit sample was more expensive than its public counterpart, and 11 out of 15 times, it was more expensive than the private counterpart. Examples of the disparity in full tuition per program include: $14,000 for a certificate at the for-profit institution, when the same diploma cost $500 at a public college; $38,000 for an Associate's at the for-profit institution, when the comparable program at the public college cost $5,000; $61,000 for a Bachelor's at the for-profit institution, compared to $36,000 for the same degree at the public college.
This is counter to International Education Corporation CEO Fardad Fateri's claims of the lack of use of unorthodox recruiting practices and a for-profit's "value" in an IEC open letter to Congress, the tuition cost of certificates and Associate's degrees being 28 and 6 times more than at a public college, respectively; Fateri writes, "Credit should be given to non-profit universities that have been able to convince students and their sophisticated parents to pay approximately $400,000.00 for an undergraduate degree that will seldom lead to an academically-related career." However, the most expensive college in the US, Sarah Lawrence College in Bronxville, NY, had a tuition cost of $41,040 for 2009 fiscal year, bringing the tuition of a four-year Bachelor's degree to just above $160,000.
The institutions identified in the Committee hearing in respect to the GAO report numeration were:
- University of PhoenixUniversity of PhoenixThe University of Phoenix is a for-profit institution of higher learning. It is a wholly owned subsidiary of Apollo Group Inc. which is publicly traded , an S&P 500 corporation based in Phoenix, Arizona...
- Phoenix, ArizonaPhoenix, ArizonaPhoenix is the capital, and largest city, of the U.S. state of Arizona, as well as the sixth most populated city in the United States. Phoenix is home to 1,445,632 people according to the official 2010 U.S. Census Bureau data... - Everest Institute - Mesa, ArizonaMesa, ArizonaAccording to the 2010 Census, the racial composition of Mesa was as follows:* White: 77.1% * Hispanic or Latino : 26.54%* Black or African American: 3.5%* Two or more races: 3.4%* Native American: 2.4%...
- Westech College - Victorville, Ontario, Moreno Valley, California
- KaplanKaplan, Inc.Kaplan, Inc. is a for-profit corporation headquartered in New York City and was founded in 1938 by Stanley Kaplan. Kaplan provides higher education programs, professional training courses, test preparation materials and other services for various levels of education...
- Riverside, CaliforniaRiverside, CaliforniaRiverside is a city in Riverside County, California, United States, and the county seat of the eponymous county. Named for its location beside the Santa Ana River, it is the largest city in the Riverside-San Bernardino-Ontario metropolitan area of Southern California, 4th largest inland California... - Potomac CollegePotomac CollegePotomac College is a for-profit higher education institution in Washington, DC, and Herndon, Virginia. The school offers Associate of Science and Bachelor of Science degrees in accounting, international business, government contract management, management, and information systems, with more than 40...
- Washington D.C. - Bennett Career Institute - Washington D.C.
- Kaplan - Pembroke Pines, FloridaPembroke Pines, FloridaPembroke Pines is a city in Broward County, Florida, United States. The city had a population of 154,750 at the 2010 census, making it the second most populous city in Broward County, the tenth most populous in Florida, and the 150th most populous in the United States...
- College of Office Technology - Chicago, Illinois
- Argosy UniversityArgosy UniversityArgosy University is a for-profit university owned by Education Management Corporation, with 19 locations in 13 U.S. states and online. The university offers numerous programs at various levels, including certification; associates, bachelors, masters, specialist, and doctoral degrees, postdoctoral...
- Chicago, Illinois - University of Phoenix - Philadelphia, PennsylvaniaPhiladelphia, PennsylvaniaPhiladelphia is the largest city in the Commonwealth of Pennsylvania and the county seat of Philadelphia County, with which it is coterminous. The city is located in the Northeastern United States along the Delaware and Schuylkill rivers. It is the fifth-most-populous city in the United States,...
- Anthem Institute - Springfield, Pennsylvania
- Westwood CollegeWestwood CollegeWestwood College, owned by Alta Colleges Inc., is a United States for-profit institution of higher learning with 17 campus locations in six states and online learning options. Westwood is accredited by national organizations including the Accrediting Commission of Career Schools and Colleges of...
- Dallas, TexasDallas, TexasDallas is the third-largest city in Texas and the ninth-largest in the United States. The Dallas-Fort Worth Metroplex is the largest metropolitan area in the South and fourth-largest metropolitan area in the United States... - Everest Institute - Dallas, TexasDallas, TexasDallas is the third-largest city in Texas and the ninth-largest in the United States. The Dallas-Fort Worth Metroplex is the largest metropolitan area in the South and fourth-largest metropolitan area in the United States...
- ATI Career Training - Dallas, TexasDallas, TexasDallas is the third-largest city in Texas and the ninth-largest in the United States. The Dallas-Fort Worth Metroplex is the largest metropolitan area in the South and fourth-largest metropolitan area in the United States...
Students at for-profit institutions represent only 9% of all college students, but receive roughly 25% of all Federal Pell Grants and loans, and are responsible for 44% of all student loan defaults. University of Phoenix tops this list with Pell Grant revenue of $656.9 million with second and third place held by Everest Colleges at $256.6 million and Kaplan College at $202.1 million for the 2008-2009 fiscal year, respectively. In 2003, a Government Accountability Office
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...
report estimated that overpayments of Pell Grants were running at about 3% annually, amounting to around $300 million per year. Some of the universities that are top recipients of Pell Grants have low graduation rates, leaving students degreeless, and graduating alumni may find it excessively difficult to find work with their degrees, leading some former students to accuse recruiters of being "duplicitous", and bringing into serious question the effectiveness of awarding Pell Grants and other Title IV
Title IV
Title IV of the Higher Education Act of 1965 covers the administration of the United States federal student financial aid programs....
funds to for-profit colleges. University of Phoenix's graduation rate is 15%. Strayer University
Strayer University
Strayer University, formerly Strayer College of Baltimore, Maryland, is a private, for-profit educational institution. The Strayer University campuses are owned by Strayer Education, Inc. , headquartered in Herndon, Virginia....
, which reports its loan repayment rate to be 55.4%, only has a repayment rate of roughly 25%, according to data released by the U.S. Department of Education on August 13, 2010. The low repayment rate makes Strayer ineligible for receiving further Title IV funds in accordance with new "Gainful employment" regulations brought forth by the Department of Education, which are to take effect on July 2011. If passed, the minimum loan repayment requirement for any institution receiving Title IV funds, subject to suspension and expulsion if not compliant, will be 45%.
For-profits top the Department of Education's list for the 2005-2007 cohort default rates, with campuses at ATI and Kaplan reporting default rates far above 20%. Most of the for-profits' expansion has been in the states of California, Arizona, Texas and Florida, with the metro areas of Los Angeles, Phoenix, Dallas and Miami-West Palm Beach being centers of their growth. For comparison, in Miami, Everest Institute reports a default rate for two of its campuses to be 18.1% and 20%; Miami Dade College
Miami Dade College
Miami Dade College, or simply Miami Dade or MDC, is a state college with eight campuses and twenty-one outreach centers located throughout Miami-Dade County, Florida in the United States. It is part of the Florida College System. Miami Dade College is the largest school in the Florida College...
, the district's community college, which serves as a primary channel for local beginning students, reports a default rate of roughly 10%; Florida International University
Florida International University
Florida International University is an American public research university in metropolitan Miami, Florida, in the United States, with its main campus in University Park...
, a public university serving the Miami metropolitan area, reports approximately 5%.
In an August 4, 2010 Health, Education, Labor and Pensions Committee hearing, Gregory Kutz of the GAO stated that the fraudulent practices may be widespread in the For-Profit industry, noting a University of Phoenix executive chart that encouraged deceptive practices. Joshua Pruyn, a former admissions representative, disclosed to the committee hearing several internal emails distributed among admissions officers in March 2008 which encouraged applications and enrollments through the use of a commissions reward system. Chairman of the committee Senator Thomas Harkin noted the conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
due to the ACCSC, a national accrediting agency that accredits many for-profit colleges nationwide, receiving compensation directly from the institutions to which it awards accreditation. The Inspector General
Inspector General
An Inspector General is an investigative official in a civil or military organization. The plural of the term is Inspectors General.-Bangladesh:...
issued an assessment in late 2009 recommending the limiting and possible suspension or expulsion of the Higher Learning Commission of the North Central Association of Colleges and Schools
North Central Association of Colleges and Schools
The North Central Association of Colleges and Schools , also known as the North Central Association, is a membership organization, consisting of colleges, universities, and schools in 19 U.S. states, that is engaged in educational accreditation...
due to conflicts in the manner in which the accrediting agency reviews credit hours and program length for online-colleges, specifically American InterContinental University, a For-Profit college. The NCA HLC accredits the University of Phoenix and Everest in Phoenix, Arizona. The Department of Education Inspector General is currently reviewing the GAO's documents and report on for-profit colleges dated August 4, 2010.
On November 30, 2010, the GAO issued a revised report, softening several examples from an undercover investigation and changing some key passages, but stood by its central finding that colleges had encouraged fraud and misled potential applicants.
Classification of for-profit institutions
Kevin Kinser, assistant professor of educational administration and policy at the University at Albany, has proposed a "Multidimensional classification" scheme of for-profit higher education. Kinser's classes of proprietary colleges are organized by these criteria:1. Geographic scope:
- "Neighborhood" - close geographic proximity, in a single state
- "Regional" - two or more campuses in neighboring states
- "National" - including in states across the United StatesUnited StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
and virtual colleges
2. Ownership dimension:
- "Publicly traded" corporations
- Family-owned "enterprise institution(s)"
- "Venture institutions" held by private investorInvestorAn investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
s
3. Highest degree granted:
- Schools that give non-degree certificates
- Institutes that grant associate's degreeAssociate's degreeAn associate degree is an undergraduate academic degree awarded by community colleges, junior colleges, technical colleges, and bachelor's degree-granting colleges and universities upon completion of a course of study usually lasting two years...
-- such as L.P.N., A.O.S., or A.A.S. - Colleges that grant a bachelor's degreeBachelor's degreeA bachelor's degree is usually an academic degree awarded for an undergraduate course or major that generally lasts for three or four years, but can range anywhere from two to six years depending on the region of the world...
-- usually a B.S. or B.B.A. - Universities that grant graduate degrees - a master's or doctorateDoctorateA doctorate is an academic degree or professional degree that in most countries refers to a class of degrees which qualify the holder to teach in a specific field, A doctorate is an academic degree or professional degree that in most countries refers to a class of degrees which qualify the holder...
.
See also
- List of for-profit universities and colleges
- Business collegeBusiness collegeA business college is a school that provides education above the high school level but could not be compared to that of a regular University or College...
- Career college
Further reading
- "New Default Rate Data for Federal Student Loans: 44% of Defaulters Attended For-Profit Institutions", The Pew Charitable TrustsThe Pew Charitable TrustsThe Pew Charitable Trusts is an independent non-profit, non-governmental organization , founded in 1948. With over US$5 billion in assets, its current mission is to serve the public interest by "improving public policy, informing the public, and stimulating civic life."-History:The Trusts, a single...
, Project on Student Debt, Berkeley, California, December 15, 2009 - "It is set up like a call center": former employee of Ashford University describes unethical telemarketing techniques employed to increase enrollment.
- http://www.justmeans.com/tag/for-profit-school:Op-Ed articles on for-profit colleges and universities.
External links
- "College, Inc.", PBS Frontline documentary, May 4, 2010, describing controversies and failures of post secondary for-profit institutions.
- Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices United States Government Accountability Office
- For Profit EDU http://www.forprofitedu.com -- Industry Blog and user group specific to For-Profit Education
- For Profit Colleges Independent Blog on For-Profit Colleges and Universities