For-profit collegesWe want to think that all colleges and universities have their students’ best interests in mind and use them as guiding principles. In recent years, it has become blatantly obvious that there are for-profit colleges and universities who are more concerned with increasing profits and shareholder value and willing to sacrifice their students to that end. In the past, oversight by the US Department of Education has been hindered by for-profit colleges’ lobbying arm, Association of Private Sector Colleges and Universities. Recently, attorney generals from across the country have placed for-profit schools under scrutiny, and lawsuits are underway.

These unethical for-profit colleges and universities are accused of burdening students with heavy loan debt, high prices and knowingly admitting students incapable of succeeding in the programs. The program quality and reputations are weak, inadequately preparing students for the workforce. Employees of one for-profit school allege that their employer told them to take actions that were deceiving to students and potential employers. Records were falsified to enroll students and keep them enrolled… keeping government grant and loan dollars rolling in.

If a student does make it to graduation, the colleges’ placement efforts are almost nonexistent and graduates’ expectations of better jobs and salaries burst. The commercials we all see on TV promising the career you’ve always dreamed of, more money and stability are a far cry from reality. Approximately 13 percent of students attend for-profit schools, and these same schools are responsible for nearly half of ALL student loan defaults. (HuffingtonPost.com)

A Senate investigation found in 2009, CEOs of publicly traded for-profit college earned $7 million on average. That’s more than double than the $3 million paid on average to the highest earners at non-profit universities and colleges during the same time period. Additionally as we’ve discussed, for-profit schools are known for their commercials. They spent $4.2 billion on marketing and recruiting compared to just $3.2 billion on instruction. (NewRepublic.com)

For-profit colleges under scrutiny include:

  • Harris and parent company, Premier Education Group (owner of more than two dozen trade schools and community colleges)
  • ITT Education Services (ITT Technical Institute and Daniel Webster College)
  • Career Education Corp
  • Corinthian Colleges
  • Education Management Corp

In addition to the investigations under way and lawsuits taking place, new regulation has been introduced. The final draft of the Gainful Employment Rule was released on Friday, March 14, 2014. This is the second time this rule has been introduced. When initially introduced in 2011, it did not pass a court challenge. It has since been revised and is believed to be strong enough to withstand opposition.

There are two aspects to the new Gainful Employment Rule. First is a debt-to-earnings ratio test which requires that the estimated loan payment must be less than 12 percent of a student’s total income and 30 percent of discretionary income. Second and new to the rule, is a loan default rate. Less than 30 percent of a program’s graduates can be in default. Schools which fail the debt-to-earnings test in any two out of three consecutive years or fail the loan default rate test for any three consecutive years become ineligible to receive federal grants and scholarships. This is a harsh sentence as schools rely upon these federal dollars, but is it worse to leave students prey to sub par and deceptive programs, as well as waste already limited tax dollars and funds? Many hope for-profit schools will take this as an opportunity to improve.

Improvements and fixes will not be immediate. Students and the government have been struggling with for-profit colleges and universities taking advantage of them for years. Involvement by the states and the new Gainful Employment Rule is just the beginning, as more lawsuits are expected to emerge. Follow the Legal Funds Now blog for the latest news on this topic.

 

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