For-Profits Draining Federal Education Funds and Leaving Students Broke and Empty-Handed

Tamar Lewin at the NYTimes calls these predatory corporate diploma mills "commercial colleges." How quaint. 

Think Progess has the real story:

The Education Department today released new data on the rate at which higher education students default on their student loans, which showed that students at for-profit colleges — schools like the University of Phoenix or Strayer University — are defaulting at rates far above those at other institutions. In fact, 25 percent of students who attend for profit colleges default within three years. Here’s a chart comparing default rates at different types of schools (the green bar represents defaults at private, for-profit schools).

Here are some more key facts about for-profit colleges:

– Just 11 percent of higher education students in the country attend for-profit schools, yet they account for 26 percent of federal student loans and 44 percent of student loan defaults.

– Many of the schools make up to ninety percent of their revenue from U.S. taxpayers, through the Pell Grants, Stafford Loans, and other federal assistance used by their students. 91.5 percent of Kaplan’s revenue comes from the government, along with 88 percent revenue at the University of Phoenix.

– CEO’s of for-profit colleges receive up to 26 times the amount of pay that the heads of traditional universities do.

Strayer CEO Robert Silberman was paid $41.9 million in 2009. As Bloomberg News noted, “Silberman’s annual compensation would have ranked him eighth on Equilar’s list of the highest-paid executives at the largest 1,000 companies.”

The schools also engage in aggressive recruiting and marketing tactics, promising students quick degrees and good jobs, when the result is more often a rip-off, resulting in “crushing debt and bleak job prospects.” A new report from the National Consumer Law Center said that the for-profits’ in-house loan programs are, for all intents and purposes, predatory.

To address these problems, the Obama administration is attempting to implement tougher regulations — dealing with what’s known as “gainful employment” — which would cause for-profit programs, as well as some programs at non-profit and state schools, to lose their access to public money if their graduates fail to meet a certain debt-to-income ratio or have high rates of student loan default. The regulatory drive has caused the for-profits to buy up a slew of lobbyists and make millions in donations to congressional campaigns and political action committees.

Currently, for-profit schools are only allowed to make 90 percent of their revenue from the federal government. But the schools evidently feel this is not enough, as they’re pushing the government (aided by House Republicans) to eliminate a rule capping how much of their revenue can come from federal largesse, providing them with what is essentially a bailout, as they’re likely to violate the rule this year unless an exemption is made.

For more information, read today’s Progress Report, “For-Profits, Not Students.” Cross-posted on The Wonk Room.