Senate Bill Would Bar Colleges From Using Federal Student Aid for Marketing

April 18, 2012

Colleges and universities would be banned from using revenue from federal student aid for their advertising and marketing expenses, under a bill introduced on Wednesday by two Senate Democrats.

The legislation, sponsored by Sen. Kay Hagan of North Carolina and Sen. Tom Harkin of Iowa, would prohibit institutions from using federal aid such as Pell Grants and Post-9/11 GI Bill funds for advertising, marketing, and recruitment. The bill is similar to a law that bans the use of federal higher-education funds for lobbying, but it was not immediately clear how such money could be readily separated from colleges' other revenue streams, or how the new rules would be policed.

Mr. Harkin, who is chairman of the Senate Health, Education, Labor, and Pensions Committee, said the federal dollars would be better spent on the direct costs of education, such as instruction, and career-placement services rather than recruiting.

"There is nothing wrong with advertising and marketing," he said at a news conference. "What we're saying here is that you just won't be allowed to use taxpayers' dollars to do so."

The legislation covers all colleges eligible to receive federal student aid, but the bill is seen as taking aim in particular at for-profit colleges, many of which rely heavily on federal aid money to stay in business. Fifteen of the largest for-profit higher-education companies receive an average of 86 percent of their revenues from federal student-aid funds, and spent an average of 23 percent of their budgets on marketing, according to an analysis conducted by Senator Harkin's committee.

The committee's analysis of for-profit colleges' revenue statements found that Bridgepoint Education spent more than $2,000 per student on recruiting in 2009, but only $700 per student on instruction.

The Apollo Group, which owns the University of Phoenix, spent 22.5 percent of its revenue, or more than $1-billion, on sales and marketing in the 2011 fiscal year, according to Jeffrey M. Silber, an analyst with BMO Capital Markets.

While marketing budgets in the for-profit sector can approach 40 percent of revenues, nonprofit institutions spend an average of 0.5 percent of their revenues on marketing, the committee's analysis found.

A statement issued by the Association of Private Sector Colleges and Universities, the chief lobbying group for the for-profit sector, denounced the bill and argued that for-profit colleges needed larger marketing budgets because the nontraditional students they cater to are more difficult to recruit than are the high-school students that apply to public universities.

"It is clearly another attempt by some policy makers to try and put private-sector colleges and universities out of business," Steve Gunderson, the group's president, said in the statement. "It also reflects a fundamental misunderstanding of the students we serve and the public service we provide."

While Senator Hagan said this issue should receive bipartisan support, Terry Hartle, senior vice president for government and public affairs at the American Council on Education, expressed doubt that the bill would gain momentum on Capitol Hill.

"While the goals of the legislation are admirable, the bill would be extraordinarily complex to implement," he said. "It will not be enacted this year, but continues a conversation that will extend into the next Congress."