For-Profit Colleges Face More State Scrutiny

 
University of Phoenix photo
With more than 400,000 undergraduates and more than 200 campuses, the University of Phoenix is the nation's largest for-profit institution of higher learning.

Last fall, the federal government started drafting new rules to rein in the recruiting practices of for-profit colleges. That effort followed a report by the U.S. Government Accountability Office that found the colleges deceived potential students about graduation and job placement rates in the process of getting them to enroll and sign up for state and federal loans. The colleges called the report flawed, but that didn't keep Education Secretary Arne Duncan from vowing to change the way the schools do business.


Now, however, the Education Department has postponed publishing the new rules after facing heavy pressure from for-profit education lobbyists and opposition in Congress. That has led several states, tired of waiting for action from the federal government, to take matters into their own hands. Legislators say they are simply trying to protect students and consumers in their states. Backers of the for-profit schools say fiscally troubled state governments are seeking to save money by restricting the amount of public aid that for-profit schools are entitled to.


Deanne Loonin, an attorney for the National Consumer Law Center who tracks for-profit schools, says that while the bulk of the lobbying has been at the federal level so far, the action on this issue is shifting to state capitals. She expects that movement to continue. "There's definitely been a lot of resources poured into the states," she says, "and I expect there will be more."

According to the National Conference of State Legislatures, lawmakers in 17 states have introduced bills on for-profit colleges this year, many of them designed to tighten regulation of the schools. Earlier this month, Maryland's House and Senate enacted measures that would eliminate all state aid to for-profit schools, ban commissions or bonuses for student recruiting, and make all for-profit schools in the state contribute to a fund to protect students if any college in their group breaches a contract. Governor Martin O'Malley says he supports the bills and intends to sign the ultimate version into law.

California lawmakers approved legislation recently that would restrict a for-profit college's eligibility to receive state aid in the form of Cal Grants. According to The Sacramento Bee , the state has been sending $20 million more in Cal Grants to for-profit schools each year than to public community colleges. This is not the first time California regulators have taken on this issue. Legislation mandating the schools to meet certain graduation job-placement goals to gain accreditation expired in 2007 when lawmakers and Governor Arnold Schwarzenegger failed to reach an agreement to extend it. Now that for-profit schools are back in the spotlight, state officials are once again trying to regulate them.

Enrollment boom

Like many higher education institutions, for-profit schools such as the University of Phoenix and Kaplan and DeVry universities have seen an enrollment boom since the start of the recession. More than 2.2 million students enrolled in a private for-profit institution in the fall of 2009, almost 25 percent more than the previous year, according to a federal study.


Many of those students take their courses online. Slightly more than half of the students at for-profit schools received Pell Grants, federal aid that helps low-income students attend college. The study found that students in private for-profit schools were less likely to graduate with a four-year degree than those in other schools, although they were more likely to earn a two-year degree than their peers in other institutions.

Last year's GAO study set off a storm of controversy around the schools. Using undercover testing, the agency found some schools encouraging students to falsify their financial aid applications in order to qualify for federal grants. Other schools misrepresented their programs' graduation rates, job-placement rates and costs while recruiting students.

State consumer protection laws have long given officials authority to regulate the business practices of for-profit schools to combat fraud. But not many of them looked at the schools very closely until recently, when they realized that increasingly large numbers of their students were signing up at these institutions.

Most of this year's legislation is designed to go further than previous enforcement efforts by making changes similar to the ones in Maryland: explicitly targeting for-profit schools, giving state education agencies oversight jurisdiction to monitor their practices and requiring the schools to contribute to student loan guarantee funds.

Nebraska's approach

 Some states are using the controversy to re-examine their full range of higher education institutions. In Nebraska, state senators are poised to approve a measure that would update the state's regulatory mechanism dealing with higher education. The bill's sponsor, state Senator Greg Adams, says it would streamline the application process that schools, whether for-profit or not, have to follow in order to pass muster with the Nebraska Commission for Post-Secondary Education. At the same time, the legislation would increase the accountability to the state that the schools would face once they were approved. Some similar efforts have been unsuccessful; bills to more tightly control the accreditation of for-profit colleges failed this year in North Dakota.

Scrutiny is now spreading, however, beyond the legislative branch. Attorneys general in Florida, Illinois, Iowa and Kentucky have launched investigations of for-profit schools. "It is my job to ensure that businesses and these schools are businesses are following Kentucky's consumer protection laws," Kentucky Attorney General Jack Conway wrote in an op-ed for the Lexington Herald-Leader .

Harris Miller, president of the Association of Private Sector Colleges and Universities, which represents for-profit schools, says he does not object to states updating a regulatory system that has had trouble keeping up with the colleges' growth. But he questioned the motives of some state politicians who, he says, are more concerned with state budgets than with educational practices.

"Anywhere that there are financial problems, which is virtually everywhere at this point," Miller says, "people are running around like chickens with their heads cut off, saying, 'Can we find some way to cut funding?' and coming up with special rules to make it harder for the schools to be eligible for student aid. "

Miller believes that the controversy over for-profit schools will not go away even if the economy recovers. "I'm not sure state colleges and community colleges will ever see a major uptick in their revenue, even when state coffers do better," he says. "So that's going to lead some of them to see us as competitors that they'd rather restrict."

 
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