A senator's examination of for-profit colleges paints them as dropout factories, where billions of dollars are squandered on financial aid and the schools' emphasis is more on attracting students than educating them.
The result, according to the report: Too many students are left with bad debt and no degree.
Sen. Tom Harkin, D-Iowa, chairman of the Health, Education, Labor and Pensions Committee, released his report this week after two years probing the education industry, its profits and sometimes aggressive recruiting techniques.
"In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and profit, and regulatory evasion and manipulation," Harkin said. "These practices are not the exception. They are the norm. They are systemic throughout the industry with very few individual exceptions."
Taxpayers financed $32 billion in student aid in the 2009-10 year at for-profit colleges, the report said. Yet more than half of the students dropped out in that year.
In response, industry officials called the report politically motivated and said it did a poor job representing how the colleges operate.
"The report twists the facts to fit a narrative, proving that this is nothing more than continued political attacks on private-sector colleges and universities," the Association of Private Sector Colleges and Universities said.
Republicans on the Senate committee also criticized the report. They acknowledged "significant problems exist at some for-profit institutions of higher education" but called the findings biased and likely inaccurate.
Democrats "did not seek bipartisan input or support in this investigation," they wrote.
Profit over education?
The report says that for-profit colleges spend a disproportionate amount of money on recruiting students compared with what they spend on education and on services to help people stay in school. As a result, about half of their students drop out.
Because most students at for-profit colleges use federal grants or loans, those dropouts leave with debt that, without a degree, they often find difficult to repay.
The report found that in 2009, for-profit colleges that offered public stock in their companies had an average profit margin of 19.7 percent, and spent 22.7 percent of their revenue on marketing and recruiting.
For Apollo Group Inc., parent company of the University of Phoenix, more than 50 percent of revenue was taken as profit or used in marketing, leaving the rest for education, according to the report.
The majority of the company's 346,000 students nationwide, the country's largest private university, study online.
The report noted that Apollo is taking steps to improve but said its withdrawal rate is higher than the industry average, as is the percentage of revenue spent on marketing and taken as profits. Students' default rate on federal loans is high and rising, the report said.
Apollo Group officials said the company has spent millions of dollars to provide better learning opportunities for University of Phoenix students.
Harkin held out Apollo Group as a positive example of change in the industry.
"There are also for-profit colleges that have had very serious shortcomings in the past but are beginning to make very serious changes," he said before mentioning Apollo by name.
In 2010, the University of Phoenix began requiring new students to take a three-week orientation course, allowing those who withdraw to not incur debt to the school.
"Over the last four or five years, Apollo has really thought through the student-learning life cycle," said Mark Brenner, senior vice president of external affairs for the company.
He said that in addition to acclimating students to the curriculum, the colleges have worked to reduce student debt.
"We help students before they enroll to fully understand the obligations through their course of study, and keep loans as low as possible for them," he said.
The report criticized Grand Canyon Education Inc., which operates Grand Canyon University in Phoenix and online, for not offering adequate career-planning assistance, but noted that a smaller proportion of its students default on their debt than the average at for-profit colleges.
Grand Canyon also spent a higher-than-average percentage of its revenue on marketing in 2009, 32.6 percent.
CEO Brian Mueller said Monday that the amount spent on marketing reflects the company's transition from a nearly bankrupt private Christian university in the early 2000s to the for-profit school it is today with a growing contingent of online students. Switching to for-profit status helped the school pay off the $20 million or so it had in debt and continue to operate.
The school has about 7,000 students on the ground today and about 40,000 online.
He acknowledged that most students get federal financial aid but disputed the report's assertion that for-profit colleges are a burden to taxpayers. He said because they build their own campuses without help from the state, unlike traditional universities, for-profit colleges help taxpayers who would otherwise have to support more students at state schools.
One student's perspective
Many students at for-profit colleges are older and have job and family obligations, which make the flexibility of an online education appealing.
Amie Ebert, 25, of Phoenix said she has taken accounting classes for two years and is a few classes short of her degree at Grand Canyon University. But she said she liked Rio Salado Community College better.
"The experience overall was significantly better at Rio Salado, and I was paying $70 per credit hour vs. $500 per credit hour," she said.
Online degrees "appeal to people with a certain lifestyle," she said, which is why she has stuck it out. Taking online classes is the only way for her to care for her 5-year-old son and hold down a job.
"I've had six or seven academic advisers in a year," she said. "It's been a nightmare from Day 1."