Over the past two years, for-profit colleges have been aggressively recruiting returning veterans in an effort to tap into billions of dollars in federal benefits available for soldiers to pay for college.
Not only have the schools been eager to capture a new source of revenues, but former soldiers represent an added benefit for the industry: a way to secure more federal student loan and grant money.
By law, for-profit colleges must come up with at least 10 percent of their revenue from sources other than federal student aid programs in order to keep that money flowing.
The 90 percent threshold, known as the 90/10 rule, was put in place to ensure that at least 10 percent of the revenues at for-profit schools would come from the private sector, according to congressional testimony and reports from the early 1990s.
Yet many schools are complying with the requirement for private funds by dipping into a separate government revenue stream: educational benefits given to former military personnel.
The military subsidies, part of the new GI bill passed by Congress in 2008, aren't technically considered federal student aid funds, which gives corporations an incentive to actively pursue veteran enrollments.
Sen. Richard Durbin (D-Ill.) on Monday said he will propose legislation that would prevent for-profit colleges from counting the military assistance money as private funding. He, along with Sen. Tom Harkin (D-Iowa), plans to introduce the measure this week.
Durbin's legislation would, for the purpose of for-profit colleges, consider any benefits from the GI bill and the Department of Defense tuition-assistance program to be federal student aid revenues. The bill would also lower from 90 percent to 85 percent the amount of money that schools can receive from the federal government.
Lawmakers and advocacy groups say current practices have resulted in many returning veterans being steered into high-cost programs of dubious value.
Since the GI bill went into effect in 2009, it has "inadvertently created a federal bonus for the for-profit schools," Durbin told HuffPost.
"For-profit college companies have created aggressive marketing plans and a sales force specifically designed to target and enroll as many veterans, service members and family members as possible," Durbin said at a Monday forum on for-profit colleges and veteran enrollment in Chicago.
QUESTIONS ABOUT OUTCOMES
Trade groups representing for-profit colleges say that their schools are providing flexible course offerings and crucial career training for veterans returning from duty.
"Career colleges are proud to offer members of the military and veterans access to higher education and job training for in-demand careers," Penny Lee, managing director of the Coalition for Educational Success, an industry lobbying group, said in a statement.
Yet veterans advocates argue that the GI bill has created perverse incentives for the industry to prey on soldiers. Holly Petraeus, who handles military affairs issues at the Consumer Financial Protection Bureau, appeared with Durbin at Monday's forum and has raised concerns at past Senate hearings.
"Unfortunately, I think military folks at this point are seen like a dollar sign wearing a uniform for many recruiters in a for-profit model," she said at a hearing in July. "They're seen as cash that enables them to sell more of their product, and that's unfortunate," added Petraeus, who is married to CIA director and former Army General David Petraeus.
For-profit colleges are, on average, nearly twice as expensive as public four-year universities and cost nearly five times as much as public community colleges. But the expense of obtaining a college degree at a for-profit institution isn't necessarily translating into success in the workplace. A recent report by Harvard researchers found that students exiting for-profit colleges are more likely to be unemployed in the years after graduation than are those finishing traditional universities.
For-profit schools have higher graduation rates than public community colleges for short-term programs of two years and less but have significantly lower graduation rates for bachelor's degree programs.
While questions have been raised about whether these schools truly serve former military personnel, the institutions themselves have much to benefit from obtaining military subsidies.
PUBLIC FUNDS FUEL FOR-PROFIT SCHOOLS
The stakes involved are enormous for the for-profit college industry. For-profit institutions have struggled to find students willing to put up their own money for their programs but have ended up attracting mostly lower-income students who require federal aid. In order to create a private stream of revenue to comply with the 90/10 law, some schools have even gone so far as to increase tuition for some of their programs so that students must find outside private loans beyond what they receive from the government.
Complying with the law has become a central concern of higher-education companies and their shareholders. On quarterly earnings calls, executives at for-profit college companies are constantly quizzed about compliance with the law, and many have referenced the veteran-recruiting strategy in public filings with the Securities and Exchange Commission.
Internal documents from Kaplan University provided to Senator Harkin's staff showed a list of objectives related to recruiting of military, including "Grow our military enrollments to 9K per year by 2011" and "Improve 90/10 by 5 %." Among the strategies to achieve these goals were "Drive awareness via print advertising in key military publications and targeting key military installations."
As things stand today, many of the largest for-profit colleges receive more than 85 percent of their revenues from federal student aid programs, not counting military benefits. The Apollo Group, which owns the University of Phoenix, noted in a recent filing that 86 percent of its cash revenues came from federal student aid subsidies.
The Washington Post Co., which owns Kaplan University, another major industry player, said in a quarterly filing that a number of its schools could be in violation of the 90/10 rule this year, based on recent enrollment trends. Because of this, several Kaplan-run schools could be at risk of losing access to their federal funds, according to the filing.
In general, for-profit college corporations are enormous beneficiaries of government aid, relying almost entirely on the federal government for revenues and profits. In 2010, the industry took in more than $30 billion in federal student loan and Pell Grant dollars. And the eight largest for-profit college corporations received more than a half-billion dollars in veterans' assistance money from the Post-9/11 GI Bill during the 2010-11 school year.
Overall, for-profit colleges received nearly 40 percent of the $4.4 billion money given out under the GI bill program since 2009, despite educating only a quarter of the veterans using those benefits. By contrast, public colleges instructed 59 percent of the veterans and took in 40 percent of the GI bill money.
PROSPECTS FOR REFORM
Durbin will find that obtaining support for his bill will be a tough task,
as most Republicans in Congress have traditionally been strong backers of for-profit colleges. The current House speaker, John Boehner, was a strong supporter of eliminating the 90/10 rule when he chaired the House Education and Workforce Committee from 2001 to 2006.
The for-profit college industry has also hired many Democratic lobbyists in recent years, including former House Speaker Dick Gephardt, and lawmakers on the left have increasingly come to the aid of the industry. Lee, who heads the industry trade group, was a former top adviser to Senate Majority Leader Harry Reid and a senior staff member on the Democratic National Committee.
"The industry is going to fight tooth and nail," Durbin said. "There's so much money at stake here -- millions if not billions of dollars."