For-profit colleges hauling in US aid

By Justin Pope
Associated Press / November 30, 2009

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RALEIGH, N.C. - Students are not the only ones benefiting from the billions of new dollars Washington is spending on college aid for the poor.

An Associated Press analysis shows surging proportions of both low-income students and the recently boosted government money that follows them are ending up at for-profit schools, from local career colleges to giant publicly traded chains such as the University of Phoenix, Kaplan, and Devry.

Last year, the five institutions that received the most federal Pell Grant dollars were all for-profit colleges, collecting more than $1 billion among them. That was 2 1/2 times what those schools hauled in two years prior, the AP found, analyzing Department of Education data on disbursements from the Pell program, Washington’s main form of college aid to the poor.

This year, the trend is accelerating: In the first quarter after the maximum Pell Grant was increased last July 1, Washington paid out 45 percent more through the program than during the same period a year ago, the AP found. But the amount of dollars heading to for-profit, or proprietary, schools is up even more - about 67 percent.

For-profit colleges say the country has little choice but to accept their help to achieve President Obama’s goal of getting every American to enroll in some form of education beyond high school.

The for-profit schools have space while community colleges are bursting at the seams. Convenience and career-focused curriculum are clearly winning customers, who are free to use their aid where they choose.

But critics say the increased federal aid has unleashed a new gold rush. They contend the industry has too many incentives simply to enroll students and tap the spigot from Washington - and not enough to make sure students succeed.

The industry is “an aggressive sales operation that has a voracious appetite for recruiting the poorest students,’’ said Barmak Nassirian, associate executive director of AACRAO, a group representing admissions officers and registrars at traditional colleges. “The victims here are the students themselves and the taxpayers, who have to pick up the tab.’’

Regardless of how AP’s findings are interpreted, they underscore the extent to which the United States has ramped up its support for low-income college students in recent years, but increasingly outsourced the job to the private sector.

■ Last year, Washington paid out a record $18.3 billion in Pell Grants, which typically go to families earning under $40,000. Proprietary colleges collected about $4.3 billion of that, or about 24 percent - roughly double the proportion a decade ago.

■ In the first quarter of the current academic year, for-profit colleges collected $1.65 billion, or 67 percent more than in the same period a year ago. On July 1, the government made more students eligible for Pell grants and increased the maximum award by $600 to $5,350.

■ For-profits are also grabbing a growing share of loans subsidized by the government to help low-income students. They collected about $7 billion in subsidized Stafford loans in 2008-2009, up from $4.7 billion two years before. Taxpayers subsidize the interest rate and take the hit when students default. Nearly one-quarter of students at for-profit schools default within four years, more that double the rate of other schools.

Overall, the sector enrolled about 2.7 million students in 2007-2008, the latest year with complete federal data available. That was only about 10 percent of total enrollment in higher education, but it’s about 2 million more than a decade before.

The numbers are more striking for low-income students: The number of Pell recipientsat for-profit schools is 50 percent higher than two years ago.

Phoenix alone had more than 230,000 Pell recipients last year (and received $657 million Pell dollars, roughly its parent company’s yearly profit). Its campuses educate nearly four times more low-income students than the entire Big 10, and more than 30 times the Ivy League, the AP found. Unlike proprietary schools, those traditional colleges enjoy tax-free status for supposedly providing a public service, notes Harris Miller, president and CEO of the Career College Association.

Critics acknowledge for-profit schools can be a good match for some. But they point out median graduation rates of just 38 percent.

Students who don’t graduate will be hard pressed to repay their debts. On average, for-profit schools cost 5 1/2 times the price of community colleges.