HELP Chairman’s Report Shows Need for Federal Oversight of For-Profit Colleges and Universities

WASHINGTON, D.C. – A new report raises significant concerns about the return on federal investment in financial aid at for-profit colleges and universities.  The report, titled “Emerging Risk?: An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education,”  was unveiled today by the Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, Senator Tom Harkin (D-IA).  Later today, the Committee will conduct its first oversight hearing on the matter.

“For-profit schools are an important part of the mix of postsecondary institutions.  They increase access to higher education for students managing work and family obligations,” said Harkin.   “However, the limited amount of publicly available data reviewed in this report shows an alarming trend in this industry.  

“Taxpayers are investing billions of dollars in for-profit colleges, yet student debt and default rates at these schools are disproportionally higher than at non-profit and public universities.  This data begs for oversight of this industry, which will begin with our first hearing today.”

Among the highlights of the report:

For-profits have experienced rapid growth and increasing profits:

• For-profit schools enrolled more than 1.8 million students in 2008, less than 10% of all higher education students, but receive 23 percent of all Federal student financial aid dollars, approximately $23.9 billion in the 2008-2009 school year.
• Enrollment in for-profit schools has grown 225 percent between 1998 and 2008.  The largest for-profit school reports current enrollment of 458,600, more than the undergraduate enrollment of the entire Big Ten conference.
• For Fiscal Year 2009, one school reported an operating profit of $489 million on revenues of $1.3 billion, a 37 percent margin.  By comparison, this margin was more than triple that of Raytheon, and double that of Apple.

While taxpayer dollars helped propel the industry forward:

• According to Department of Education data, $4.3 billion in Pell grants and $19.6 billion in Federal loans flowed to for-profit schools in 2008-2009.  Public and private non-profit schools saw their Pell funding decrease, while for-profit institutions saw their share increase – taking in 23.6 percent of all Pell dollars in currently allocations, as compared to 13.1 percent in 2000.  

Yet spending allocations are questionable:

• Analysis conducted by the Committee of the eight publicly traded schools that break out expense categories show that, on average, they spend 50.2 percent of costs on expenses classified as education, 31 percent on recruiting and marketing and 15.7 percent on undefined administrative costs.
• One school reduced spending on education from 48 percent of costs in 2004 to 40 percent in 2009.  A second school reduced spending on education from 37 percent of costs in 2006 to 32 percent in 2009.  At least one school spent more on marketing and recruiting than on education and another spent just one percent more on education than marketing and recruiting.

While students depart and default:

• Students who attended for-profit schools default on their student loans at a significantly higher rate than students who attended public and non-profit schools.  Twenty three percent of students defaulted within three years of leaving for-profit schools offering certificate and associate’s degree programs.  It is difficult to know if or how much default rates may increase outside this three year window.

A copy of the full report can be found here.