For-Profit Colleges Draw Most Veterans on New GI Bill

Federal spending to educate returning veterans from Iraq and Afghanistan is disproportionately helping the bottom line of for-profit colleges, according to government enrollment data.

Boosted by a GI Bill with more-generous benefits, U.S. spending on veterans’ education will more than double to $9.5 billion this year from $4.2 billion in 2009, the Department of Veterans Affairs said in response to questions. Six for-profit colleges had more students receiving VA funding in 2009 than any public or nonprofit institutions, statistics provided by the department show. Eight of the top 10 colleges with the most VA- funded students were for-profit institutions.

“The concern is that for-profit colleges in some cases, not all, are promising more than they’re actually delivering,” Eric Hilleman, legislative director of the Kansas City, Missouri- based Veterans of Foreign Wars of the U.S., said in an Aug. 6 interview. “They’re giving people expensive degrees that don’t translate into viable employment. To some extent, it’s buyer beware.”

The dominance of for-profit colleges such as Apollo Group Inc.’s University of Phoenix and American Public Education Inc.’s American Military University among veterans and active- duty military is facing congressional scrutiny. A Senate committee said last week it plans to hold hearings on the quality and funding of the schools’ military education programs by the end of the year.

Photographer: Joshua Lott/Bloomberg

The University of Phoenix, part of Apollo Group Inc., has a campus in Tucson, Arizona. Close

The University of Phoenix, part of Apollo Group Inc., has a campus in Tucson, Arizona.

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Photographer: Joshua Lott/Bloomberg

The University of Phoenix, part of Apollo Group Inc., has a campus in Tucson, Arizona.

Government Investigation

An undercover government probe released Aug. 4 found education company recruiters encouraged applicants to lie to qualify for federal student aid. That means some for-profit colleges may not deserve military-education funds, said Senator Tom Harkin, the Iowa Democrat who is chairman of the Senate Health, Education, Labor and Pensions Committee.

“We must examine how veterans, active duty military and their families are impacted by these schools,” Harkin said last week in an e-mail. “How are they being recruited? Are dollars intended for the GI bill being used effectively and are they getting the education they so rightly deserve?”

Harkin is requesting information from 30 U.S. for-profit colleges about recruiting and training practices.

Apollo’s University of Phoenix, the largest for-profit college by enrollment, had 22,881 VA-funded students in 2009, more than three times as many as the next-biggest company in the veterans’ market, American Public Education Inc. in Charles Town, West Virginia, according to the government data.

Job Placements

American Public Education fell $1.25, or 4.3 percent, to $27.71 at 4 p.m. New York time in Nasdaq Stock Market composite trading. Apollo rose 8 cents to $42.57.

The VA doesn’t have any information on graduation rates or job placements of veterans who use its benefits to pay for college, Keith Wilson, director of the department’s education service, said in an Aug. 3 interview.

The department also doesn’t know how much of its funding goes to for-profit colleges, he said. Veterans’ enrollment in all colleges rose 14 percent this year, largely as the result of a law, known as the Post-9/11 GI Bill, which increased tuition benefits, Wilson said.

The law, which took effect in August 2009, pays the equivalent of the highest public in-state undergraduate tuition. It will account for $5 billion of the increase in VA spending this year, according to the department.

Four for-profit colleges, led by the University of Phoenix, were among the top five schools with the most students funded by the new GI Bill in the spring of 2010, the government data show.

Flexible Schedules

For-profit colleges serve an important role in military education, said Manny Rivera, a spokesman for Apollo. “Active duty military and veteran students choose Apollo Group institutions because we meet their needs through quality education, flexible schedules, a combination of online and conveniently located campus courses, and education technology,” Rivera said in an e-mail.

American Public Education officials didn’t return calls for comment on Aug. 5.

For-profit colleges provide a high-quality education for soldiers and veterans, said Jeff Leshay, a spokesman for Hoffman Estates, Illinois-based Career Education Corp. That company operates two of the six colleges with the most students receiving VA benefits in 2009, American Intercontinental University and Colorado Technical University. Washington-based Washington Post Co.’s Kaplan University and San Diego-based Bridgepoint Education Inc.’s Ashford University were also in the top six.

‘Strong Standards’

“We are proud of the strong standards of conduct and compliance our company has in place and of the training we provide to ensure those standards are met for military and non- military students,” Leshay said in a telephone interview. “Should we learn of any violations of our strict compliance standards, we would address such problems swiftly and appropriately, including termination of employees.”

Recognizing the “unique nature” of the military population, Ashford University “provides specialized service to address their unique needs,” said Marianne Perez, a spokeswoman for Bridgepoint. Kaplan declined to comment.

Washington Post Co. rose $7.29, or 1.9 percent, to $384.85 in New York Stock Exchange composite trading. Bridgepoint was unchanged at $14.98. Career Education fell 7 cents to $20.48 on the Nasdaq.

Housing Allowance

Online for-profit colleges may attract more veterans if they succeed in changing a provision of the GI Bill. The law currently prohibits veterans who take only online courses from receiving a housing allowance, which ranges from less than $1,000 a month in areas with low housing costs to $2,751 in Manhattan.

For-profit colleges have been “very active” in lobbying to extend the housing allowance to online students, the VFW’s Hilleman said. The Senate Veterans Affairs Committee Aug. 5 approved a bill that would give veterans taking online programs half the housing stipend.

“We’re making a massive federal investment in our active military and veterans so they can pursue additional education and training,” Senator Richard Durbin, of Illinois, the deputy Democratic leader, said in a telephone interview. The undercover investigation’s findings “are a warning shot to Congress that we’re investing millions, if not billions, into some institutions which are of no value.”

Primary Sponsor

Durbin and Senator Jim Webb, a Virginia Democrat, Vietnam War veteran and a primary sponsor of the post-9/11 GI Bill, are asking the Departments of Defense and Veterans Affairs for information on how veterans’ and military tuition money is being spent.

Education companies also rank high in enrollment of active- duty students paid for by the Department of Defense. For-profit colleges receive about 40 percent of this tuition assistance, which increased to $517 million in fiscal 2009 from $148 million a decade earlier, and account for 29 percent of college enrollments by active-duty students, according to Defense Department and military data. About 10 percent of all U.S. college students attend for-profit institutions.

For-profit colleges “are chasing military people and veterans, no question about it,” said James Anderson, chancellor of Central Texas College in Killeen, Texas, a public two-year school with a government contract to provide technical and vocational education to active-duty service members in Iraq, Afghanistan and other locations. “They spend lots of money advertising, more than we can. If somebody says ‘Chevrolet’ to you a hundred times, you might buy one.”

Tuition Payments

While enrolling active-duty military and veterans boosts for-profit college revenue, it also helps the schools comply with a 1992 law that limits how much they can receive from federal student aid. Phoenix got 86 percent of its $3.77 billion in fiscal 2009 revenue from student aid, up from 48 percent in 2001 and just below the limit of 90 percent set by the law, according to company filings. Tuition payments to for-profit schools by the military and the VA count toward the 10 percent non-government revenue, rather than the 90 percent student-aid ceiling.

When the law was enacted as part of a reauthorization of higher education funding, for-profits hadn’t yet moved into the military market, so the legislation’s sponsors weren’t focused on Defense Department tuition assistance, said Sarah Flanagan, who helped draft the law as the Senate’s specialist in federal student aid.

Undercutting the Law

VA funding wasn’t included because the Senate education committee was worried that the veterans’ affairs committee would take jurisdiction over the reauthorization, Flanagan said in an interview.

The exclusion of Defense Department and veterans’ benefits undercuts the intent of the law, she said. The 90 percent cap was meant to ensure that for-profit colleges offered an education good enough that some students were willing to pay for it out of their own pockets, said Flanagan, now vice president of the National Association of Independent Colleges & Universities, in Washington.

For-profit colleges specialize in offering online programs that attract military students who have many demands on their time and are often transferred from one location to another. Many for-profit colleges discount tuition for current and former members of the armed forces, and assign recruiters specifically to military students. Kaplan University lowers undergraduate tuition by 55 percent for active-duty military, and 38 percent for veterans, according to its website. The University of Phoenix, Career Education, Kaplan and Bridgepoint have units dedicated to military personnel.

To contact the reporters on this story: Daniel Golden in Boston at dlgolden@bloomberg.net; John Lauerman in Boston at jlauerman@bloomberg.net.

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