Senate Report Paints a Damning Portrait of For-Profit Higher Education

[Updated (7/30/2012, 5:46 p.m.) with material on accreditation issues in the report.]

For-profit colleges can play an important role in educating nontraditional students, but the colleges often operate as aggressive recruiting machines focused on generating shareholder profits at the expense of a quality education for their students.

That’s the unflattering portrait of the for-profit higher-education industry detailed in a voluminous report officially released on Monday by the Senate Health, Education, Labor, and Pensions Committee. The report, which also criticizes the accrediting agencies that evaluate the colleges, concludes a two-year investigation into the operations of 30 for-profit higher-education companies from 2006 to 2010.

The effort was led by Sen. Tom Harkin, the Iowa Democrat who is chairman of the committee and has been a vocal supporter of increased government oversight of the for-profit industry.

Mr. Harkin said at a news conference on Monday that federal student aid spent at for-profit colleges, which totaled $32-billion in 2009-10, had in many cases been “squandered” by companies that failed to graduate a majority of their students and poorly prepared them for jobs.

“These practices are not the exception,” Mr. Harkin said. “They are the norm.”

Profits Over Students

The report says that more than half of the 1.1 million students who enrolled in the colleges under scrutiny in 2008-9 had withdrawn by mid-2010. Those retention rates varied between publicly traded and privately held for-profit colleges. At the 15 publicly traded companies 55 percent of students withdrew, compared with 46 percent at the 15 privately held companies, many of which are owned by private-equity firms.

“While community colleges and two-year for-profit programs have similarly low retention rates, the cost of the for-profit programs makes those programs more risky for students and federal taxpayers,” the report says. Nearly all students attending a for-profit college take out loans to attend, the report says, compared with just 13 percent of community-college students.

Internal company documents examined by the investigation reveal that decisions to increase tuition at for-profit colleges were driven by profit goals rather than increasing costs of instruction. The educational interests of students rarely, if at all, figured into that decision making, the report says.

One of the most significant themes of the report is the role of marketing and recruiting at for-profit colleges. The investigation found that most for-profit companies devote more resources to attracting students than they do to instructing them.

In 2009 the education companies that the investigation studied spent $4.2-billion, or nearly 23 percent of their revenue, on “marketing, advertising, recruiting, and admissions staffing,” compared with $3.2-billion, or more than 17 percent of revenue, on instruction. During the same period, the companies’ pretax profit amounted to slightly less than 20 percent of their revenue.

Of the five most profitable for-profit education companies in 2009, four spent more on marketing per student than they did on instruction per student.

The report also criticizes for-profit colleges for engaging in aggressive recruiting tactics that take aim at vulnerable populations. The companies created a “boiler-room sales atmosphere” for their recruiters, who were trained to capitalize on prospective students’ fear and emotions, the report says.

Praise for Some Colleges

Still, Senator Harkin singled out several institutions, including Strayer, Walden, National American University, and American Public University, as companies that are, in fact, doing a good job of educating students. He also cited Kaplan, DeVry, and the Apollo Group as companies that had “very serious shortcomings in the past” but are making improvements.

For-profit colleges disproportionately enroll nontraditional students from disadvantaged populations, Senator Harkin said, but “if that’s who they’re going to recruit, they have to build into their system decent support services to help those students.”

The 176-page report, which was released along with thousands of pages of supporting documents, makes several recommendations for legislative action, including prohibiting colleges from using federal financial-aid dollars for marketing and lobbying, calling for more transparent disclosures of the cost of attendance, and requiring the Education Department to better track student outcomes.

Many of the recommendations—such as tightening the “90/10" rule (which caps colleges’ receipt of federal student aid at 90 percent of their revenue) and allowing borrowers to discharge private student loans in bankruptcy—have already been introduced in Congress.

Few of those proposals are likely to be passed this year. Senator Harkin said that while some may be involved in budget negotiations in December, most of the legislation surrounding for-profit colleges would be considered next year as part of the reauthorization of the Higher Education Act.

The committee’s Republican staff and the main trade group representing for-profit colleges criticized the report as an unfair and partisan attack on an entire industry that disproportionately serves nontraditional college students.

“The report twists the facts to fit a narrative, proving that this is nothing more than continued political attacks on private-sector colleges and universities,” Steve Gunderson, president and chief executive officer of the Association of Private Sector Colleges and Universities, said in a written statement.

Mr. Gunderson added that “more students—particularly working adults, parents, and veterans—are independently selecting” for-profit colleges because they offer “flexible course scheduling, career-specific instruction, and a pathway to employment in high-demand occupations.”

Criticism of Accreditors

While Senator Harkin’s report identifies regulatory problems at the federal and state level, it takes special aim at the regional and national accreditors that have come under harsh scrutiny during several committee hearings.

The flaws attributed to accreditation in the report largely echo the committee’s previous criticism of the process, including that accrediting agencies are guided by industry insiders who have an interest in preserving their peers, that accreditors do not have the capacity to adequately evaluate the largest for-profit institutions, and that their policies have not kept pace with the deceptive tactics that some for-profit colleges are accused of using to maximize profits.

“The self-reporting and peer-review nature of the accreditation process exposes it to manipulation by companies that are more concerned with their bottom line than with academic quality and improvement,” the report says.

Judith S. Eaton, president of the Council for Higher Education Accreditation, which represents some 3,000 degree-granting institutions and recognizes 60 institutional and programmatic accreditors, said accreditors and colleges were well aware of the criticisms. “We have been discussing many of the issues raised in the report for the past few years,” she said in a written statement. “They are important to our future, to students and to society.”

Representatives of one accrediting organization highlighted in the report, however, took exception to it. Albert C. Gray, executive director of the Accrediting Council for Independent Colleges and Schools, said some of the characterizations in the report “seem to show a fundamental lack of understanding of accreditation process and standards.”

The report accuses the Accrediting Council of having standards that are the “least stringent” among accreditors of degree-granting institutions.

Mr. Gray said the report doesn’t back up that assertion with evidence. He also said that comparisons among accreditors would be difficult because the council is the only national accreditor with a majority of members that grant degrees. Most national accreditors assess colleges and programs that don’t grant degrees.

Mr. Gray’s organization, which accredits more than 850 career-oriented colleges, has been in the spotlight recently, since the Career Education Corporation reported problems with the claimed job-placement rates at 49 of its health and art-and-design colleges. The Accrediting Council accredits the colleges.

To deal with that concern, the council has started a pilot program that involves hiring two “well known” auditing firms to more thoroughly verify the 2011 job-placement reports of 10 member colleges. The findings will be used to examine how the council evaluates those figures, Mr. Gray said.

Eric Kelderman contributed to this article.