‘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.

Kaplan faces scrutiny

Kaplan’s for-profit higher education division “faces growing scrutiny,” reports the New York Times, which emphasizes that its rival, the Washington Post, owns Kaplan.

. . .  Kaplan’s revenue grew 9 percent during the last quarter to $743.3 million — with higher education revenues more than four times greater than those from test-prep — helping its parent company more than triple its profits.

But over the last few months, Kaplan and other for-profit education companies have come under intense scrutiny from Congress, amid growing concerns that the industry leaves too many students mired in debt, and with credentials that provide little help in finding jobs.

The Post Company spent $350,000 on lobbying in the third quarter, reports the Times. That’s more than any other higher-education company. Donald Graham, chairman of the Post Company, “has gone to Capitol Hill to argue against the regulations in private visits with lawmakers, the first time he has lobbied directly on a federal issue in a dozen years.”

The Washington Post editorialized against regulations linking student loans to graduates debts, earnings and repayment rates.

Though it disclosed its conflict of interest, the newspaper said the regulations would limit students’ choices. “The aim of the regulations was to punish bad actors, but the effect is to punish institutions that serve poor students,” Mr. Graham said in an interview.

. . .  “For students with risk factors, older working students with children, Kaplan has dramatically better graduation rates than community colleges.”

In 2009, only 28 percent of Kaplan’s students were repaying the principal on their student loans. The proposed “gainful employment” regulation requires a 45 repayment rate for full eligibility for federal aid. “By comparison, 44 percent of students at the largest for-profit, the University of Phoenix, were repaying their loans.”

Under a new program called the Kaplan Commitment, students can take classes for a four- to five-week trial period before paying tuition, making it more likely that those who take out loans understand the demands and will complete the class.  That should cut enrollment and boost graduation and loan repayment rates.

University of Phoenix rolled out a similar strategy this month: New students must complete a free three-week orientation before enrolling and borrowing. In pilot orientations, 20 percent of prospective students decided not to enroll.

For-profit colleges really do enroll many students with risk factors, as Graham says. For-profit students are more likely to be low-income, non-white, older and balancing job and family responsibilities. Success rates are higher for these students at for-profit colleges than for similar students at public universities and community colleges.

Dependent on Kaplan’s profits, the Washington Post shouldn’t editorialize on for-profit education, argues Stephen Burd of Higher Ed Watch. The Post also owns a stake in Corinthian Colleges.

Higher education’s bubble is about to burst, predicts Glenn Reynolds, a University of Tennessee law professor who blogs as Instapundit.  “If you’re going to go after schools for charging a lot and graduating students with poor job prospects, there’s no reason to focus on the for-profit sector exclusively — unless you’re just attacking the competition on behalf of the existing education establishment.

Kaplan offers money-back guarantee

Kaplan has offered to refund tuition to students who aren’t satisfied with introductory courses, reports Daniel Bennett of the Center for College Affordability and Productivity.

In a letter to Education Secretary Arne Duncan, Kaplan CEO Andrew Rosen proposed that a “risk-free” introduction to for-profit higher education would answer concerns about recruitment.

For-profit educators can’t make a profit unless they offer services that meet their customer’s needs, Bennett writes:

The track record of for-profit education is long enough at this point that if the industry were providing a product of little value, the customers would be aware of this and simply go away. They have not. Demand at for-profits is as strong as ever.

University of Phoenix is piloting a free three-week orientation to ensure students know what they’re getting into before they take out loans, reports the Arizona Daily Star.

Class components include a goals worksheet, a time-management workshop, lessons on how to work in a collaborative environment, and talks about the available university resources, said Mark Vitale, director of academic affairs (at University of Phoenix’s Southern Arizona campus).

The class also tests students’ commitment, he said. Can they come to class for a couple of hours? Can they make time for homework?

That way, students can “make sure what they’re getting is a good fit for their needs” before they pay anything, Vitale said.

In the future, the program also could include education on what it means to borrow money, a company leader has said.

Students with less than 24 transfer credits are required to go through orientation.  So far, about 80 percent enroll after orientation.

For-profits cut off low-skilled applicants

With many students defaulting on federal loans, two for-profit educators, Corinthian Colleges and Kaplan will deny enrollment to high school drop-outs who pass a basic-skills test known as an “ability to benefit” test, reports the Chronicle of Higher Education.

Kaplan discontinued the tests last year at some institutions citing poor student performance. Corinthian announced it will drop the tests because “ability to benefit” students default on their loans at twice the rate of other students.

Starting in 2014, “the Education Department will hold colleges accountable for defaults of student cohorts for three years after the students graduate or leave college, a year longer than under current law,” reports the Chronicle of Higher Education.

About 15 percent of Corinthian’s students in the last academic year used the ability-to-benefit test. The company, which operates more than 100 campuses across North America, estimates it will lose 16,000 potential students and about $120-million in the next fiscal year as a result of this decision, but it will also lose the risk of higher default rates those students would bring. The 15-percent enrollment of ability-to-benefit students was a decrease from 24 percent the previous year, credited to a greater focus on default management at Corinthian, as well as the growth of its online division, which does not enroll such students.

If colleges can’t help ability-to-benefit students succeed, it’s not far to load them up with debt, said Deborah Cochrane, program director at the Institute for College Access and Success.

Last year, a GAO report found “testing officials at a for-profit college helped students cheat on an ability-to-benefit test, the Chronicle reports. The Education Department said it would strengthen monitoring.

People who’ve failed to complete high school or a GED are likely to be weak in persistence as well as reading and math skills. If they’re cut off from for-profit options, they can try adult education or community colleges: Their success rate will be low at lower cost.

California colleges end Kaplan tie

California’s community college system has canceled an agreement with Kaplan University, a for-profit educator, to recognize credits earned through Kaplan’s online programs. Because of increased demand and underfunding, many students can’t get into the classes they need at their local community college.

In an Aug. 17 letter calling off the November memorandum of understanding, Barry Russell, the vice chancellor of academic affairs, cited concerns that it could have a “negative effect” on students who transferred to a California State University or University of California campus and could not get credit for the Kaplan course.

Kaplan had agreed to give students a 42 percent discount on courses, lowering the cost to about $216 a credit.  That’s much more than the community college cost, $26 a credit. But students might have paid the Kaplan rates to avoid waiting a semester or two for space in a community college class.

Meanwhile, California community college students are in transfer limbo, reports the Los Angeles Times. The California State University system has opened applications for spring semester transfers, but isn’t promising to accept anyone. It all depends on the state budget, which is months overdue.

California colleges partner with Kaplan

Unable to provide enough courses to meet demand, California’s community colleges cut a deal with the for-profit Kaplan University, reports Inside Higher Ed. Students at certain community colleges can take Kaplan’s online courses for community college credit at a substantial discount.

A standard three-credit online course at Kaplan costs $1,113, and a discounted three-credit course there costs California students $645. By comparison, a three-credit course at a California community college costs a mere $78.

Scott Lay, president of the Community College League of California, thinks few students will pay the premium. But what if the convenience outweighs the cost? After all, time is money.

Kaplan is meeting student demand — unlike the overcrowded and underfunded community colleges — writes Sara Goldrick-Rab on Education Optimists. Faculty are complaining they weren’t consulted on transferability of credits, she writes.

Professors like to sign off on what courses can count to “replace” theirs — seemingly because they want to ensure educational quality, but let’s face it, it’s also because it helps to protect their jobs.

. . . The president of the Academic Senate of the California Community Colleges was quite straightforward about her priorities when she told a reporter, “I’m hard pressed to see where we could … make this favorable to faculty.” Huh? Since when is ensuring the continuation of a degree, and the portability of credits, meant to be about helping the faculty?

A study will analyze the success rate of students who take the Kaplan option. If they do well, that could let legislators off the hook for funding college-based classes, Goldrick-Rab writes. But if it serves students, why not?