Racing to the Bottom With For-Profit Colleges

Just when a college degree is becoming the basic credential for entry into the middle class, billions of taxpayer dollars are being diverted to a questionable new player: for-profit, investor-owned colleges.
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Much attention has been paid to "Race to the Top," the Obama Administration's multibillion dollar grant competition that promises states desperately needed funds if they implement systemic reform in their K-12 schools. The funding is robust, the goals are admirable and the challenge has engaged lawmakers and school districts to embrace critically essential changes in the way they educate youth.

Unfortunately, we are headed in the wrong direction - a "Race to the Bottom" so to speak - when it comes to funding our nation's public colleges and universities. Government support for public higher education has been decreasing every year over the last 15 years, but is shrinking even more rapidly during the Great Recession. As a result, tuition keeps rising. Faculty are being furloughed, and course offerings are being cut, making it hard for students to stay on track towards graduation. Most importantly, community colleges across the nation, including mine, are being forced for the first time to close admissions. And having to shut our doors is especially damaging to our nation's future because community colleges educate almost half of all undergraduates, and are responsible for the start of 20% of all American born doctoral degrees.

Exacerbating matters is that just when a college degree is becoming the basic credential for entry into the middle class, billions of taxpayer dollars are being diverted to a questionable and expensive new player on the higher education scene: for-profit, investor-owned colleges. These institutions, with heavy investments in marketing, have enjoyed explosive growth. They also made enormous profits for their shareholders, with stock prices outperforming the S&P by about 400 percentage points for the last two years.

Of course, as we've learned from the banking industry, what's good for investors may not be good for the average American. That is certainly the case with the for-profits. Their startling growth has come at great cost to their students, taxpayers and public colleges.

Students who attend for-profits pay about seven times more than students attending a publicly-run community college. For-profits are masters at tapping government programs, such as Pell Grants and subsidized student loans, to help students pay their bills. While they educate about 9% of Americans, they receive 21% of Pell money and federally subsidized student loans.

For students, the bottom line is much worse. They leave for-profits heavy in debt and at great risk of defaulting on their loans. Almost one out of four bachelor's degree recipients from a for-profit graduates with more than $40,000 in debt, compared to 6% of public students. With such heavy debt load, the default rate for for-profit students is simply extraordinary. Nearly one-quarter of students default after four years, compared to less than 10% of borrowers from public colleges.

When students default, the for-profits come out unscathed. Taxpayers guarantee the loans, protecting lenders and the colleges. But students in default have their wages garnished, are ineligible for future student aid, and stand virtually no chance of ever securing a mortgage.

More than leaving students crushed under punishing debt, for-profits also don't make heavy investments in actually educating their students. Less than one-third of every dollar they spend goes into instruction, while the bulk is allocated for marketing, executive compensation, and shareholder profits.

DeVry University, not even the biggest of these for-profits, had income of $1.4 billion, spent over $250 million on advertising, and made a tidy profit of $165 million in 2009. Yet almost 90% of its operating money came from public tax dollars.

Moreover, without full-time faculty, for-profits are able to cut corners, while students lose out on having the opportunities to engage with professors over the course of their academic career. Serious questions have also been raised about the value of the credits earned and degrees conferred at the for-profits. Students seeking to transfer too often are told their credits won't count and news reports have drawn attention to the worthless degrees granted by some of the shadiest players in this market.

Our nation's public colleges and universities also end up being harmed by the rapacious growth of the for-profits. The explosion in their enrollment wasn't by government design. Because we do not have a clear vision of what higher education in America should look like, the for-profit colleges rushed into an unregulated marketplace, garnered the interest of investors, spent heavily on advertising and grew by drawing on publicly-funded grants and loans. These national giants are sapping the public dollars that should be invested in our nation's community colleges to build labs, hire faculty, and purchase computers.

Perhaps some balance among investments and results will come from the just announced hearings being convened by Senator Tom Harkin to examine federal education spending at the for-profits, and the request for investigation into these institutions made this week by Democratic lawmakers to the Government Accountability Office. But these moves represent just a first step. If our nation is once again going to lead the world in the highest proportion of colleges graduates - America now ranks tenth and we are falling fast - and if we are once again going to be the engine that powers the global economy, we need a national commitment to what we know works.

Indeed, America's startling growth in the 20th century was the result of government's investment in public higher education. The G.I. Bills, Pell grants, funding for scientific research, the extraordinary creation and growth of community colleges all propelled our nation to lead the world economically, socially, politically, and culturally.

Today, we need a similar investment. The question is where's the funding going to come from in this time of record high deficits? I would argue that maybe it isn't a matter of new spending, but spending those dollars more wisely. The public dollars that go to the for-profit colleges would be far better spent by increasing the capacity of our public colleges, especially her community colleges, to better serve more students. The over $1.3 billion that the top five for-profits get in Pell grants alone - not to mention the overall $26.5 billion the for-profits took in federal money last year - would be a good place to start.


Dr. Gail O. Mellow is President of LaGuardia Community College (of the City University of New York) and co-author of Minding the Dream: The Process and Practice of the American Community College.

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