‘Disaster’ if for-profit colleges go under?

Cutting federal loans to for-profit college students will create a “disaster” for lower-income, higher-risk students who need the flexibility the for-profit sector provides. So argues Donald E Graham, chairman of the Washington Post Co., which owns Kaplan University.

Most growth in student capacity over the past decade has come from for-profit, private institutions like Kaplan and the University of Phoenix, Graham writes. The Education Department’s proposed “gainful employment” regulations “would link programs’ access to federal student aid to the loan-repayment rates of graduates and their debt-to-income ratio,” rather than looking at the quality of education.

For-profit colleges cost the taxpayers less than public universities, which are subsidized heavily with public funds, and pay taxes on their profits, Graham points out.

In response to charges of aggressive recruiting, Kaplan now lets new students  “take four to five weeks of for-credit courses and walk away with no tuition due and no debt incurred if they don’t like any aspect of the program.”

It’s true that poor students need to borrow more and are more likely to default on their loans. That is true whether they attend traditional or for-profit colleges. If the proposed regulations were to apply to traditional colleges, many that serve predominantly poor students would have to shut.

. . . Private-sector schools educate 12% of all higher-education students, but 25% of African-American students, 24% of Hispanic students and 28% of students whose parents did not complete high school. These students tend to be older, poorer and more likely to have kids and jobs.

At Kaplan, “higher-risk students graduate at almost twice the rate — 32% versus 17% — at which demographically comparable students graduate from all U.S. four-year institutions of higher education,” Graham writes.

For-profit schools have an incentive to innovate, writes Michael Platt, chairman of Ad Venture Interactive, on Career College Central.

If universities were profit-driven, maybe they would stop misleading students with noted professors who then rarely step into a classroom. . . . Maybe they wouldn’t have one placement advisor for every 2,000 – 5,000 students. Maybe they would warn students who pay $80,000 for their education that their starting salary is likely to be well below DOE-proposed GE metrics.

. . . If community colleges were profit-driven, maybe they would grow in capacity instead of settling for 1-2 year waiting lists. Maybe they would attempt to address their barely double-digit graduation rates. Maybe they offer REAL placement assistance for their students. Maybe they would have enough student services staff to serve students.

The threat of regulation has depressed enrollment and stock values in the for-profit sector. Strayer Education’s enrollment fell by 20 percent in a year, sending its stock tumbling.

Apollo Group, which owns the University of Phoenix, sparked a for-profit college rally when it reported quarterly results that were higher than analysts estimated. An index of 13 for- profit colleges gained 5.7 percent.

However, the company also announced a whopping 42 percent decline in new enrollments from the same quarter last year. University of Phoenix now requires new students to take a free three-week orientation course before enrolling.

The for-profit sector could rebound in 2011, some analysts predict. Republican control of Congress may block or soften proposed “gainful employment” regulations.

The Village Voice has retracted a story critical of for-profit colleges, saying the reporter made up sources and quotes.