With $32 billion in subsidies, over half of for-profit students drop out

By Kay Steiger
Monday, July 30, 2012 11:58 EDT
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Sen. Tom Harkin (D-IA) via  Talk Radio News Service / Flickr
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A two-year investigation found that for-profit colleges, while receiving $32 billion in federal student aid and other taxpayer funds in the most recent year, also boast the highest dropout rates at 54 percent across all programs, according to a major report the Senate Health, Education, Labor and Pensions (HELP) committee released on Sunday.

According to the report (PDF), released by HELP chairman Sen. Tom Harkin (D-IA), more than half a million for-profit students left before earning a degree or certificate, which breaks down across program types as 63 percent of students in associate degree programs, 54 percent of bachelor’s students and 38 percent of certificate students. Publicly traded companies had, on average withdrawal rates 9 percent higher than privately held for-profit companies.

And students who leave without earning a degree are often in much worse financial shape because for-profit colleges tend to be dramatically more expensive than their nonprofit or public counterparts. A certificate program, for example, usually designed to be one-year program at a for-profit college, costs nearly $20,000. By comparison, certificate programs at public community colleges typically cost less than $5,000. Nearly 60 percent of students who graduate from a for-profit college with a bachelor’s degree have outstanding debt of $30,000 or more. This is compared with 25 percent of private, nonprofit graduates and just 12 percent of public school graduates.

Previous studies have found that for-profit college students experience some of the highest default rates, more than three times those of private nonprofits and public universities. For-profit students are also much more likely to be unemployed than their nonprofit peers, with an unemployment rate of 23 percent — more than three times the national average.

The HELP report found that for-profit colleges like the University of Phoenix or Kaplan University are far more likely to spend money on recruitment than student success. The 30 for-profit college companies the committee examined employed a total of 35,202 recruiters, or one recruiter for every 53 students. Recruitment and marketing made up $4.2 billion, or nearly 23 percent, of schools’ total revenues. That far outpaces the amount spent on instruction, which accounted for $3.2 billion, or 17.2 percent, of revenues, according to the HELP report’s findings. When calculating federal student grants, federal student loans and veteran GI Bill benefits, taxpayer funds make up 86 percent of for-profit college revenues.

Prior to bans on abusive recruiting practices that were implemented in 2011, recruiters often faced a “boiler room” atmosphere, which resulted in firings for recruiters who didn’t hit recruitment quotas. A 2010 Government Accountability Office report found that recruiters often mislead prospective students on how much a program cost, the school’s accreditation and job placement rates, among other tactics.

A preliminary report from another committee, from House Oversight and Government Reform, found on Friday (PDF) that executive compensation at for-profit colleges is largely unrelated to student performance and instead depends heavily on profit generation.

The Association of Private Sector Colleges and Universities (APSCU), formerly known as the Career College Association, which lobbies on behalf of for-profit colleges, refuted the findings of the HELP committee report, calling Harkin’s scrutiny of for-profit colleges “ideological” and disputed many of the report’s findings.

“Today’s students already face enough challenges accessing postsecondary education without these sorts of distractions. Instead, let’s work together to develop partnerships and agree that all higher education institutions need to be held to the same high standards in the best interests of our students and future workforce,” said APSCU president and CEO Steve Gunderson.

The Department of Education attempted to regulate access to federal funding based on student loan default rates through something called the “gainful employment” rule, but that rule was largely gutted by a federal judge earlier this year.

[Sen. Tom Harkin (D-IA) via Talk Radio News Service / Flickr]

Kay Steiger
Kay Steiger
Kay Steiger is the managing editor of Raw Story. Her contributions have appeared in The American Prospect, The Atlantic, Campus Progress, The Guardian, In These Times, Jezebel, Religion Dispatches, RH Reality Check, and others. You can follow her on Twitter @kaysteiger.
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