For-profit colleges have earned billions of dollars in federal aid by admitting low-income and mediocre students, but education officials worry that the investments are little more than a money pit.
The schools – institutions such as Arlington’s Strayer University and the Washington Post Co.’s Kaplan Inc. – reaped about $24 billion from students’ federal loans and grants in 2008-09, out of about $105 billion spent overall for financial aid for higher education, according to the Department of Education.
But as they collected nearly 25 percent of total federal aid, they served less than 10 percent of all higher education students – many of whom were not required to meet any standard of admission.
About $4 billion of the aid to for-profit schools was in the form of Pell grants for low-income students — about 40 percent of the $10.2 billion spent on Pell grants overall. Unlike loans, grants do not need to be paid back.
As the money has flowed in, observers worry that for-profit schools’ outputs have been less than reassuring. First-time students at Kaplan University have a graduation rate of 23 percent. At Strayer, only 14 percent make it through.
“This is now a sector in which the vast majority of participants are actually engaged in what I view as counterfeiting of degrees and consumer fraud … overadvertised, overpromised, overcharged and underdelivered,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, speaking on a recent panel held by the New America Foundation.
A recent Government Accountability Office investigation of 15 for-profit schools, including two operated by Kaplan, revealed admissions officers who appeared more interested in applicants’ money than in their ability to complete the programs.
At a Kaplan school in Florida, an undercover investigator was fed false information and harassed by two admissions representatives when he inquired about costs.
The representatives “would not answer but debated with him about his commitment level for the next 30 minutes,” the GAO report said.
In response to skepticism about the schools’ results, the U.S. Department of Education proposed new rules barring them from federal funds unless they can prove that students are finding jobs and paying back their loans.
The new rules came several months after new legislation attached to the health care overhaul corralled all student financial aid lending within the federal government, instead of through private lenders.
Streamlining the lending is supposed to lead to $80 billion in government savings, but it also puts the federal government on the hook for money never paid back, or students’ late payments.
“There are a lot of taxpayer dollars at stake in [for-profit] institutions,” said James Kvall, deputy undersecretary at the Department of Education, and a chief architect of the new rules.
For-profits “are institutions that the federal government inherently has a strong stake in,” he said.
