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For-Profit Colleges Fail Poor, Minority Students, Report Says

U.S. for-profit colleges are like subprime mortgage lenders, targeting low-income and minority students by “peddling access to the American dream but delivering little more than crippling debt,” a report said.

Low-income students make up half of the enrollment at for- profit colleges and minorities comprise 37 percent, the Washington-based Education Trust said, citing federal data. The nonprofit research and advocacy group, funded partly by the Bill & Melinda Gates Foundation and the Lumina Foundation for Education, said Apollo Group Inc. and other for-profit colleges have higher dropout rates and student-debt loads than traditional universities.

The report follows the proposal of regulations by President Barack Obama’s administration that would restrict the flow of taxpayer money to for-profit colleges, which get up to 90 percent of their revenue from federal grants and loans and received $26.5 billion last year in U.S. student aid.

“For-profit colleges provide high-cost degree programs that have little chance of leading to high-paying careers and saddle the most vulnerable students with heavy debt,” the report said. “Instead of providing a solid pathway to the middle class, they pave a path into the sub-basement of the American economy.”

Photographer: Mario Proenca/Bloomberg

U.S. President Barack Obama has proposed regulations that would restrict the flow of taxpayer money to for-profit colleges, which get up to 90 percent of their revenue from federal grants and loans and received $26.5 billion last year in U.S. student aid. Close

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Photographer: Mario Proenca/Bloomberg

U.S. President Barack Obama has proposed regulations that would restrict the flow of taxpayer money to for-profit colleges, which get up to 90 percent of their revenue from federal grants and loans and received $26.5 billion last year in U.S. student aid.

The Education Trust will distribute the position paper to members of Congress and side with proponents of increased regulation, Kati Haycock, the group’s president said in a telephone interview. The U.S. Education Department is seeking to restrict funding of for-profit schools whose graduates have poor records of repaying their student loans.

Declining Shares

“Today’s report provides many interesting data points, but fails to include the fact that proprietary institutions cost the taxpayer significantly less than traditional schools which do not receive direct state subsidies and do not benefit from tax- free status,” said Ryan Rauzon, a spokesman for Phoenix-based Apollo.

As the government proposes new regulation, an index of 13 for-profit education companies declined 33 percent this year, through yesterday. Apollo fell $1.10, or 3.1 percent, to $34.26 at 2:44 p.m. New York time in Nasdaq Stock Market trading.

For-profit colleges in the 2008-2009 academic year received $4.3 billion in federal Pell grants, which help low-income students pay for college, quadruple the amount they received 10 years earlier, the Education Trust said.

Graduation Rates

Twenty-two percent of first-time, full-time students seeking bachelors’ degrees graduate from for-profit colleges within six years, compared with a 55 percent graduation rate at public colleges and 65 percent at private nonprofit universities, Education Trust said in its report, “Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities,” citing federal data.

The comparable graduation rate at Apollo’s University of Phoenix, the largest for-profit college by enrollment, is 9 percent, the Education Trust said.

“It is unreasonable to expect non-traditional college students to complete their studies within the government’s arbitrary, predetermined timeframe, especially when we know those students take longer to finish their degrees because they have families and professional obligations,” Rauzon said in an e-mail.

The completion rate for all University of Phoenix students pursuing bachelor’s degrees is 36 percent within six years, according to a report from the company.

The median debt level for bachelor’s degree recipients at for-profit colleges is $31,190, compared with $7,960 at public institutions and $17,040 at private nonprofit colleges, the Education Trust said.

The Seattle-based Gates foundation and the Indianapolis- based Lumina fund Education Trust’s higher education work, Haycock said.

To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net;

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net.

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