For-profit Business Model Works

For-profit colleges are built on a business model that has proven one thing.

It works.

The schools don’t spend money on building big campuses or tenured faculty, costs that are choking the budgets of many public universities.

Instead, they spend as much as one-quarter of their budgets on recruiting and advertising. They also help students fill out financial aid forms, then count on those loans as their primary source of revenue.

The schools don’t apologize for the numbers. The trade group representing the Ohio career schools says they employ more than 4,000 people full time and 3,800 more part time, pay $209 million a year in salaries and pay millions of dollars in property taxes that traditional non-profit colleges don’t have to pay.

Many of the schools are private and don’t reveal financial information. But several, including the University of Phoenix, are publicly traded.

An analysis of their financial statements and studies by outside groups reveals a formula that works this way:

Get the students: Phoenix’s parent company, Apollo Group, spent $263 million during the first three months of the year on selling and promotional services. That’s more than half of what the college spent on teachers and other instructional costs.

Apollo paid a $79 million fine last year to settle a federal lawsuit after
regulators charged that the school paid recruiters based on the number of students that enrolled in classes, a violation of federal rules.

Collect loan money: Critics say the growth of career schools is fueled by taxpayer dollars.

Of the $977 million that Phoenix collected during the first quarter of 2010, 83 percent came from federal loans and grants, the company said.

According to the 2010 report from the National Consumer Law Center, Phoenix alone had more than 230,000 Pell Grant recipients enrolled in 2008-09, collecting $657 million in Pell Grants from those students.

Critics say for-profit schools get those federal funds with no accountability on whether it is used for instruction or for profits for the owners.

"What we need to do is focus on enforcement and make sure students who go there have the information they need up front," said Deanne Loonin, director of the center’s Student Loan Borrower Assistance Project. "Programs have to have accountability in delivering what they say they’ll deliver."

Locate in the suburbs: With accessible and affordable parking a big problem on many college campuses, the locations of many career colleges in suburban office parks with free parking has been a big drawing card.

Use technology: The advanced use of online classes – nearly 90 percent of Phoenix’s students are online – is another factor setting the for-profit industry apart from its traditional competitors.

"Technology is not just about going to school online," said Peter Caccavari, director of academic affairs at Phoenix’s Greater Cincinnati campus. "They want all of the services that are important to them."

Advocates say for-profit schools spend more than $1 billion on capital projects, and they aren’t building new campuses with those dollars. At Indiana Wesleyan University, the school has spent $200 million in the last decade on renovations and new technology.

Hire part-time teachers: Most of the professors at career colleges are part-timers, picked because of their expertise in a specific industry.

Ron Richards, a retired corporate salesman who teaches a salesmanship class at Beckfield College, uses current events to connect students with the latest sales methods.

In a class at Beckfield’s Florence campus, Richards asked the half-dozen students to describe newspaper articles to him.

"You have to be able to have a good conversation," he told them. "You don’t want to just be able to talk about sports scores or the weather."


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