College for sale?
By Ben Forman and Samantha Vidal
MassINC’s recent report, Planning for College: A Consumer Approach to the Higher Education Marketplace, described the challenges families face getting the most from their investment in a college degree and argued for more transparency and consumer protection.
This week Frontline took a critical look at the for-profit higher education industry echoing many of themes explored in MassINC’s report.
To compete in a changing economy, more American students will need to complete post-secondary degrees. With the cost of attending private colleges and universities soaring and public and community college enrollment bursting at the seams, for-profit college have filled a large void.
While they offer opportunities to thousands of low-income students underserved by traditional higher education, for-profits often charge five to six times the cost of community colleges and twice the cost of a typical four-year state university.
Much of this added cost supports aggressive marketing as opposed to higher quality education. According to Frontline, for-profits devote an estimated 20 to 25 percent of revenue to marketing efforts. In the case of University of Phoenix, this figure reached $130 million in 2008 alone.
Many for-profit colleges have been accused of using high pressure sales tactics to enroll potential students. Critics also argue that these schools lure unprepared students and saddle them with debt.
According to Frontline, students are either not completing their programs or they are finding that the programs are not adequate preparation. Graduates of one nursing program profiled had been repeatedly turned down for interviews because they had no actual hospital training.
It is difficult to know how many students default on this debt. Current Department of Education default rates only cover students for two years after they complete their studies. According to Frontline, even though these for-profit college students represent just 10 percent of college students, they account for 44 percent of all defaulted loans.
These are dollars owed mostly to the taxpayers. Federal grants and loans account for 75 percent of revenue at for-profit colleges, nearly $27 billion in 2009. This gives the DOE cause to act more aggressively to protect students.
The Obama administration has proposed a regulation called gainful employment, which would revoke federal financial aid from for-profit programs that cannot demonstrate that their graduates earn enough money to pay off their student loans.
With total student debt approaching $750 billion dollars, nearly the equivalent of the nation’s total outstanding credit card debt, many are fearful that growing default rates pose yet another systemic risk to the economy, equivalent to the housing market bubble. Given this exposure and the for-profit industry’s rapid growth, new protections to guard against defaults make a lot of sense.However, regulators must be careful not to cause undue harm to successful for-profits educating thousands of students that public institutions have been unable to reach. For-profit higher education can often scale-up important innovations in how we educate students, especially working adults, more quickly and efficiently. As long as the consumer—the student—is protected from scams, the competition is good for the marketplace.