When a quarter of an industry depends on public money for 80 percent or more of its income, government oversight should be expected. That's not been the case with for-profit colleges, where unscrupulous salesmen at some institutions oversell the curriculum and make inflated promises of jobs to convince students to sign up for expensive tuition and thousands of dollars in federal financial aid they have little hope of paying back.
Two recent congressional reports highlighting the recruitment and enrollment tactics at some for-profit colleges have spurred consumer-oriented investigations, including one by Florida Attorney General Bill McCollum. That's a start. But only additional federal regulation will reform an industry where too many players appear to have gotten rich exploiting the taxpayers' largesse and preying on adults looking for better jobs.
For-profit colleges represent a small but rapidly growing fraction of higher education in America. Growth has been fueled in part by the expansion of publicly traded chains that have heavily lobbied Washington for federal student aid and lax regulation. Enrollment at 14 publicly traded chains grew 225 percent, to 1.4 million students, between 1998 and 2008. During that period the Education Department under President George W. Bush lifted prohibitions against paying recruiters based on the number of students they enrolled.
The impact of that change is clear. A 2009 study by the nonpartisan Government Accountability Office found some schools rigged entrance tests required under federal financial aid rules to enroll students who weren't prepared for college-level work. And a 2010 GAO investigation into 15 for-profit colleges found multiple examples of deception and coercion among recruiters, including coaching students to lie on financial aid forms and gross misrepresentations of job prospects upon graduation.
The result: For-profit colleges received 23 percent of all federal student grants and loans in 2008-09, but educated only 12 percent of the country's college students. What's more: The default rate in two-year programs was 82 percent higher than at public colleges and 145 percent higher than at four-year public colleges or universities. (Default rates at private nonprofit colleges are lower than both for-profit colleges and public institutions.)
Now the Obama administration is pushing reforms, including prohibiting schools from providing per-student compensation to recruiters. And it's seeking, at schools where 65 percent of students are in default, to cut off financial aid. Also on the table would be limits on students' borrowing based on their anticipated income after graduation.
Those proposed rules are already drawing critics in Washington, who argue as the for-profit schools do that this education sector fills a key void. For-profit college students are often low-income working adults and the first in their families to go to college, and they benefit from smaller classes and more flexible class schedules.
That may be the case, but the current system exploits both students and taxpayers. As long as taxpayers account for 80 percent of the income at some of these schools, the government has an interest in making sure that money is a good investment in a student's future potential, not just a means to redistribute tax dollars to the schools' owners.