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School of Hard Cash

As public higher ed gets pinched, for-profit schools get flush


Anyone who has watched TV in the wee hours of the morning has likely come across an ad for one of the nation's roughly 3,000 for-profit institutions of higher ed--private businesses like University of Phoenix, ITT Technical Institute or Stevens-Henager College.

The typical narrative: Students in their mid- to late-20s, more than likely non-white and female, wax eloquent about the amazing life changes they've experienced since enrolling in a program that's put them on the fast track to becoming a dental hygienist, nurse practitioner or computer technician.

Some of the commercials feature testimonials from family members, while others show montages of confident, successful suits giving boardroom presentations, pointing at blueprints or striding before a phalanx of important-looking, paper-shuffling aides.

Regardless, the message is that no matter how much money you have, how old you are or what your transcript looks like, you have the opportunity to turn it all around--"and with a schedule that fits your busy life."

It is a vision that has become ever-more attractive as the economy continues to displace hundreds of thousands of workers. The for-profit education industry is booming even as state funding for public higher ed takes a beating.

And Idaho has been no exception. Lawmakers approved a 7.8 percent cut to the higher ed budget this year and, in response, state university and college officials asked for and received a raise in tuition and fees up to 9.5 percent. Those tuition hikes are sure to fall on the most economically challenged students--the population most served by the for-profits.

That raises a pretty basic question: With declining public investment, are we on the road to privatized higher ed?

Bring me your poor ...

Higher tuition and fees at public institutions may well be driving lower-income students into the arms of for-profits. According to federal analysis and the education industry's own literature, more than half of students at for-profits are age 25 or older, 76 percent are independent financially, 50 percent are white and 63 percent are female. More than half of all dependent career-college students come from families with an income of less than $40,000, and almost half are the first in their families to pursue higher ed, according to the Career College Association.

Paradoxically, even as for-profits attract lower-income students, their graduates end up with higher debt loads. According to the 2007-2008 National Postsecondary Student Aid Study, analyzed by the College Board, 60 percent of bachelor's degree-earners from for-profit institutions finish with $30,000 or more in debt. In comparison, only 20 percent of students graduate from public four-year institutions owing that much.

What makes for-profits attractive despite their high costs are flexible class hours, streamlined degree programs, career-oriented areas of study and readily available financial aid in the form of federal loans and grants designed to benefit low-income students.

With money tight and public school tuitions in an upswing, the for-profits provide an alternative and promise big rewards.

"I can't say we've seen a significant jump for any particular reason, but probably all of those factors play a part," said Bill Bach, Boise campus director at the University of Phoenix, which has 2,600 students in Idaho. "Mostly our students are discovering the accessibility of higher education through our programs."

A growth industry

Enrollments at for-profits have indeed soared. Though most for-profit schools jealously guard their growth figures, education watchers estimate the for-profit sector has enjoyed an average 9 percent yearly increase for the past 30 years. Compare that with a growth rate of 1.5 percent for public higher ed enrollments, according to analysis from the Chronicle of Higher Education, and it's clear that schooling for profit is a growth industry.

Today, for-profits account for about 2.8 million of the nation's higher ed students--about 10 percent of the total enrollment--and the University of Phoenix is now the second largest university system in the country, with more than 455,000 students--topped only by the State University of New York.

According to data cited by the Chronicle of Higher Ed, the industry brought in about $26 billion in 2009.

Gena Wikstrom, executive director of the Redmond, Wash.-based Northwest Career College Federation, which represents 80 for-profit schools in the region, echoed Bach's assessment that tough times are driving enrollments. But beyond the current downturn, she said for-profits have a vital role educating the work force.

"In Idaho, as in the whole nation, the plant closures and the downsizing and the layoffs have been huge--no one sector of education can absorb and meet the needs of all those people," Wikstrom said. "I think that the public institutions are full and private career colleges are training a large number of people for new careers."

The feds have picked up on that trend and called for a boost in the number of college grads. Under the Health Care and Education Reconciliation Act of 2010--commonly known as the health-care reform bill, which President Barack Obama signed on March 30--a full $36 billion will be pumped into the federal Pell Grant program to help low-income students access higher ed.

The new law also enacted provisions to help students repay their federal loan debt and shifted lending from private institutions like Sallie Mae to the Federal Treasury. In total, the act provides about $43 billion for education over the next 10 years.

Federal muscle behind college affordability stands to provide big benefits to for-profits.

According to the National Postsecondary Student Aid Study, more than 95 percent of students at two- and four-year for-profits took student loans and nearly 71 percent got grants.

That means for-profit schools rely almost exclusively on federal money for their revenue, and that lies at the heart of a simmering debate over whether public monies should swell the profit margins of private corporations.

Money train

For-Profit Higher Education: By the Numbers, a report released in January by the National Consumer Law Center, underscored the importance of Pell and other "Title IV" federal aid programs.

Citing 2009 Securities and Exchange Commission filings, the report showed that almost 89 percent of for-profit Corinthian College's revenues come from federal student aid, while the University of Phoenix (UOPX) taps Title IV for 86 percent of its revenues. UOPX took by far the largest chunk of 2008-2009 Pell Grants--pulling in nearly $657 million.

Boise State President Bob Kustra has some qualms with that.

"For those of us who have spent our lives in public higher education--where the states have made significant investments--now to see those investments diminishing, it's difficult to understand how a for-profit company can come along and its students participate in the same funding system that benefits the students at the publics," Kustra said.

Wikstrom and Bach point out that Pell Grants go directly to students based on need, and it just so happens that for-profits serve a student population that is more needy.

"We're not taking federal money that would be going to somebody else," Wikstrom said. "It's market-driven, based on student choice."

Kustra agreed that Pell money flowing to for-profits is "less of a university issue and more of a student and family issue," but added that he still finds it unsettling.

"When you take that Pell Grant and give it to a private company, that troubles me a bit," he said.

An 'unexamined cultural bias'

Kustra's misgivings about the for-profit business model are nothing new; for at least the past 30 years, for-profits and public institutions have had an uneasy coexistence. Though for-profits have operated in the United States for more than 150 years, it was in the 1970s that legislation opened Title IV federal student aid to for-profit students.

By the mid-1990s, 59 percent of the growth in higher ed enrollments was attributed to for-profit schools, according to the 2006 report, For-Profit Higher Education in the United States. But with growth came controversy.

Back in the wild privatized days of the 1980s, for-profit colleges and universities were subject to few regulations. And in that go-go capitalist climate, many suffered from few scruples. Some undoubtedly apocryphal--but still persistent--stories tell of fly-by-night diploma mills signing people up for expensive, non-existent classes right off the welfare lines.

Accreditation rules and regulations have done a lot to legitimize for-profit schools, but traces of the stigma remain. Even big name systems like University of Phoenix still find themselves accused of shady practices. Most recently, UOPX was sued by two former employees alleging the company improperly obtained federal aid by pressuring counselors to enroll as many students as possible. The suit was settled in 2009 for $67.5 million, without the company acknowledging any wrongdoing.

"There's something in our collective psyche that somebody making profit off education isn't right. It's an unexamined cultural bias," said Robert Tucker, a former UOPX senior vice president who provides higher ed consulting through his firm, InterEd, in McCall.

Cultural bias it may be, but Tucker added that it's unfounded.

"Are there abuses in those career college systems? Absolutely. But I don't think that they're any larger than those going on in other institutions," he said. "Being not-for-profit doesn't mean you don't take a lot of money from people."

Using a model he constructed in the mid- to late-1990s, Tucker said when a student attends a public college, taxpayers subsidize that choice to the tune of at least $9,500--a figure that includes allocations for direct and indirect taxpayer funding, grants, loan forgiveness, loan defaults and income, property, sales and use taxes.

In comparison, his model states, when a student attends a for-profit institution, taxpayers actually come out about $500 ahead--benefitting from the federal, state and local taxes paid by the institutions.

"One important component to that bias [against for-profits] is that we don't understand the true taxpayer support profiles of these different types of institutions," Tucker said.

Critics say that any tax benefits accrued from for-profits are outweighed by the cost of federal student loan default rates, which are out of proportion to the industry's share of total enrollments.

According to the Institute for College Access and Success, even though for-profit students only make up between 7 percent and 10 percent of total enrollments, as a student population they're responsible for 44 percent of all federal loan defaults.

That's 1 percentage point higher than all students at two-year and four-year public institutions, which account for a combined 74 percent of total enrollments.

Regardless of the type of institution, when students default, taxpayers are on the hook. But Tucker said that's no fault of the college or university. It's the responsibility of the student to borrow and repay responsibly.

"Default rates are due to the students, not the institutions. To blame the institutions--it's as unscientific as it comes," he said.

Can't we all just get along?

Bach said he understands why some may be critical of for-profit education's healthy share of federal student aid.

"Those criticisms exist because of the shrinking tax funding available to public institutions, and they've got to be concerned and looking for any way possible to continue to provide services for their students," he said. "But the reality is we're putting money back into the economy, back into the community."

Kustra, despite his unease with them raking in federal dough, also said for-profits "have performed a service in certain states or communities," but added that local community colleges are increasingly filling their niche.

Jennifer Couch, communications director at the College of Western Idaho, said demand for the new community college is still increasing, and it isn't under any direct threat from the valley's for-profits.

"Community colleges act a little differently. They are really established to help open public access and are often more affordable," she said, adding that CWI's enrollment reached 4,800 in the spring semester. "Definitely times are tough, but we've been very fortunate to work with a lot of local businesses and other education institutions."

According to Bach, the for-profits aren't out to privatize the education system--they're just giving customers what they want.

"I just see us as a viable solution and an opportunity to take on additional students and fill needs," he said. "Thank heavens we have a country that allows those kinds of private sector solutions to national needs."