While most businesses are still trying to find their way out of the recession, for-profit higher education is doing quite fine, thanks very much. Enrollments are up 20 percent, profits are up as well. But that doesn’t mean there aren’t any problems.
The biggest for-profit schools get most of their revenue from federal student loans. The billions of dollars their customers borrow to pay tuition. The University of Phoenix is the biggest for-profit school out there, probably the best known as well.
A few years ago, it paid the government $10 million over accusations about its high-pressure recruiting tactics. Now it’s put aside another $80 million to settle a lawsuit about the same thing.
And a joint Marketplace ProPublica investigation shows some for-profit schools are still abusing the system. Sharona Coutts and Amy Scott reported our two-part series. Here’s Amy:
AMY SCOTT: You’ve seen the ads on mass transit, Facebook and TV, promising job retraining, online classes, flexible schedules.
UNIVERSITY OF PHOENIX AD: I was the first in my family to graduate from college. But I won’t be the last.
Hundreds of thousands of Americans have been drawn to for-profit colleges like the University of Phoenix.
UNIVERSITY OF PHOENIX AD: And I am a Phoenix.
Phoenix isn’t the only school that profits from the stream of federal student aid. But it’s the single biggest recipient. Last fiscal year, 86 percent of its revenue came from the federal government. That’s more than $3 billion. But who’s benefiting from all that money?
MICHELE RAMBO: My name is Michele Rambo, and I live in Grand Prairie, Texas.
Rambo signed up at the University of Phoenix in Dallas a few years ago.
RAMBO: I did tell them that I was pregnant and they were like, oh, well that just solves everything, you know, you qualify for a grant, you’re covered. And I’m like, so I don’t have to pay anything? And they told me no.
Classes went well. She got good grades. She was almost finished with her associate degree when a school counselor called about moving her on to a bachelor’s program.
RAMBO: And one of the questions that she asked me completely stopped the whole conversation. She had asked me, so what kind of loan do you have?
Rambo thought she didn’t have a loan. But when she enrolled, she signed what she thought was a form inquiring about federal aid.
Turns out it was an application for loans that’ll cost her $18,000 when she graduates.
RAMBO: It was scary. It still is scary. I’m still scared. I still don’t even know what I’m going to do yet.
So how could this happen?
It turns out the enrollment counselors at the University of Phoenix get paid in part based on how many students they recruit. The university’s negotiating the settlement of a lawsuit that claims employees were pressured to sign people up.
Bill Pepicello is president of the University of Phoenix. He says his school goes out of its way to ensure counselors don’t mislead students.
BILL PEPICELLO: We train our financial counselors very carefully to provide an array of options for students, and to try to be as specific as they can as to what the implications of each of those are.
One financial aid expert told us it’s not uncommon for students to sign a bunch of paperwork without really understanding the terms of their loans.
At a recent hearing, Congressman George Miller of California likened problems in student lending to another recent crisis.
GEORGE MILLER: I’m a little worried that we’re developing a process here that looks a lot like sort of subprime student loans. And knowing that these people don’t have the capacity to pay it back, knowing that they may not have the ability to benefit from this education, we go ahead and extend them the credit…
What he means by not benefiting, is that many students saddled with debt don’t finish their degrees. The for-profit industry says about 60 percent of its students graduate from two-year programs. The University of Phoenix says its rate is less than half that. But whether students drop out or graduate, they still leave school burdened with debt. And it’s debt they can’t escape.
BARMAK NASSIRIAN: It is very important to understand, student loans are the most collectible obligation in the United States.
Barmak Nassirian is with the American Association of Collegiate Registrars and Admissions Officers.
NASSIRIAN: Students who default on their student loans have their Social Security benefits intercepted, have their tax returns intercepted, have their wages garnished. They are ruined for life.
The Department of Education says more and more students are falling behind on their loans. For-profit schools have a higher default rate than the average.
Harris Miller represents many for-profit schools as CEO of the Career College Association, a lobby group in Washington, D.C. He says defaults are higher at his schools not because they’re for-profit, but because they sign up poor people. People who might not otherwise have a shot at college.
HARRIS MILLER: The simple fact is if your institution is willing to accept lower income students, which our institutions are, which community colleges are, which minority serving institutions are, they have higher default rates.
The taxpayer actually makes money from the interest on these loans. But critics of the system say students often lose out. Not only are they deep in debt, they don’t always have much to show for it.
I went to see Katherine Clark at her home in Seal Beach, Calif. She signed up for a business management degree at the University of Phoenix. She says the program included courses like "Skills for Lifelong Learning."
KATHERINE CLARK: Like they had worksheets where it was like if you’re deserted on an island, and you have a list of things, put them in order of how they would be important to you. And I’m just like are you kidding? What am I ever going to use this for?
Clark didn’t qualify for federal student aid. So she paid some of the bill with credit cards. The rest she owes to a private lender, Sallie Mae.
CLARK: In total, I’ve paid out of my pocket, $3521. And I still owe $600.
Scott: And what did you get in return?
Clark: Absolutely nothing.
The Apollo Group, which owns the University of Phoenix, made just shy of half-a-billion dollars in profit last year. But Barmak Nassirian says no one’s keeping a close eye on the quality of the education for-profit schools like Phoenix provide.
NASSIRIAN: In too many instances we see keyboarding skills transcribed as Computer Science 101, we have seen working with Microsoft Windows transcribed as a Theoretical Course in Operating Systems, and the like.
Clark was so disappointed she dropped out after a course and a half. University of Phoenix officials say out of more than 420,000 current students, a few anecdotes don’t tell the whole story.
But Marketplace and ProPublica have heard other troubling accounts. Tomorrow you’ll hear allegations of some abusive tactics for signing students up.
With Sharona Coutts of ProPublica, I’m Amy Scott for Marketplace.