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For-Profit Colleges Charging More While Doing Less for Low-Income Families

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Photographer: Chris Goodney/Bloomberg

Students walk through a hallway at LaGuardia Community College in the Queens borough of New York.

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Photographer: Chris Goodney/Bloomberg

Students walk through a hallway at LaGuardia Community College in the Queens borough of New York. Close

Students walk through a hallway at LaGuardia Community College in the Queens borough of New York.

Photographer: Chris Goodney/Bloomberg

Orquidea Mejia, a student who transferred from Devry Inc. to LaGuardia Community College, stands outside LaGuardia's Joseph Shenker Hall in the Queens borough of New York. Close

Orquidea Mejia, a student who transferred from Devry Inc. to LaGuardia Community College, stands outside LaGuardia's... Read More

Photographer: Chris Goodney/Bloomberg

Orquidea Mejia, a student who transferred from Devry Inc. to LaGuardia Community College, sits in an empty classroom at LaGuardia in the Queens borough of New York. Close

Orquidea Mejia, a student who transferred from Devry Inc. to LaGuardia Community College, sits in an empty classroom... Read More

Photographer: Chris Goodney/Bloomberg

Banners for DeVry College and Devry's Keller Graduate School of Management, which are both for-profit colleges, hang in a building at LaGuardia Community College in the Queens borough of New York. Close

Banners for DeVry College and Devry's Keller Graduate School of Management, which are both for-profit colleges, hang... Read More

Kimberly Connacher, a bank teller, tried to get to Modesto Junior College early enough each evening to beat about 44 other students to a seat and avoid having to stand through her English class.

It was the long, nighttime walk through the community college’s jammed parking lots in Modesto, California, that prompted Connacher to transfer about a year ago from the campus, where she paid about $80 a class, to Apollo Group Inc.’s University of Phoenix, where the cost was more than $1,000. She took out $12,000 in loans to cover the expense.

“I didn’t want to go to school at night, but that was all that was open at Modesto,” said Connacher, now 20, who earns $11 an hour. “The classes were crowded and hard to get into, my teachers seemed overwhelmed, and that was the last straw.”

As state budget cuts lock students out of community-college classrooms or force them to stand in class, for-profit colleges are attracting hundreds of thousands of poor and minority students, charging up to 10 times as much for the same degree.

The industry, including Washington Post Co.’s Kaplan University, has tripled enrollment to 1.8 million in the past decade by pouring billions of dollars into marketing and recruiting, offering flexible online classes and outfitting more-modern campuses while states slash funding for community colleges. As much as 90 percent of revenue at each for-profit college comes from federal student aid.

Minority Students

Today, one in seven minority students attends a for-profit college, as does one in four poor students who receive federal Pell grants for low-income families, according to the U.S. Department of Education and an industry group. Students in for- profit college programs graduate or stay in school less than those at community colleges, according to a study sponsored by the U.S. Department of Education and released this month.

Students in two-year programs at for-profit colleges are also eight times likelier to be in debt than those at community colleges, according to a report last month from the Education Trust, a nonprofit advocacy organization based in Washington.

“One of the reasons the for-profits have grown so much is that the community colleges are filled to capacity and even turning people away,” said Thomas Bailey, director of the New York-based Community College Research Center. Bailey provided information on community colleges for a White House conference on Oct. 5.

Budget Cutbacks

While President Barack Obama at the conference lauded the almost 1,200 U.S. community colleges as the “unsung heroes of America’s education system, Congress last year considered a $12 billion, 10-year-plan to support community colleges -- and cut it to $2 billion.

California and Virginia were among states that reduced community college budgets during the past two years, eliminating courses, capping enrollment and in some cases turning away students. Working adults, along with low-income and minority students, seek out community colleges because, unlike traditional four-year undergraduate programs, they offer two- year degrees and job training.

Community colleges have been inundated with applicants, said Bob Templin, president of Northern Virginia Community College, based in Annandale, Virginia. U.S. community college enrollment rose 17 percent over two years to 8 million in September 2009, according to the American Association of Community Colleges in Washington.

‘More Affordable’

“It’s been a tsunami,” said Templin, whose college’s enrollment has grown 13 percent to 72,563 since the 2007-2008 school year while state funding for the institution fell 21 percent to about $62 million. “More people are looking for job training because of the recession; more students are choosing community colleges over traditional colleges because they’re more affordable; and we have more adults looking for career- changing skills.”

For-profit colleges have targeted low-income and minority students who typically attend community colleges. The University of Phoenix in 2004 opened the two-year, online Axia College, which primarily attracts lower-income students who depend on federal financial aid. Axia now has more than 200,000 students. Phoenix spent $1.1 billion on sales and promotion of its programs in the year ended Aug. 31, Apollo said in a regulatory filing.

ITT Educational Services Inc., based in Carmel, Indiana, had 80,766 students at the end of last year and employs about 1,700 recruiters, according to a February regulatory filing. About 29 percent of the company’s $1.3 billion in revenue last year paid for advertising, recruitments and other student and administrative services, according to the filing.

$500 a Month

Amy Shope, 23, was making $500 a month as a waitress and looking for a better life for her 14-month-old daughter, Kalani, when she began thinking about a degree in visual communications. She considered attending J. Sargeant Reynolds Community College in Richmond, Virginia, her hometown, where she would have paid $117.60 a credit hour.

Attracted by television advertisements, Shope bypassed the community college for ITT Educational’s Richmond campus, which charges as much as $468 a credit hour. After two semesters, she owes about $11,000 and is getting ready to transfer to Reynolds to avoid racking up more debt, she said.

“I felt like I was doing something with my life, getting a better future for my baby,” said Shope, who is the first in her family to attend college. “The recruiters talked so fast and all I saw was college. That’s all I could hear.”

Pell Awards

Lauren Littlefield, a spokeswoman for ITT Educational, declined to comment.

For-profit colleges took in $7.6 billion last year in Pell Grants -- federal higher-education money for low-income individuals -- more than triple the amount in 1998-1999, according to Education Department data. In the 2008-2009 school year, about 25 percent of the 6 million students who got Pell money attended a for-profit college, according to the department. About 13 percent of minority students attend for- profit colleges, according to the Association of Private Sector Colleges & Universities, a Washington trade group.

For-profit colleges receive a growing share of grants for poor students because their officials ensure that students apply for funds, said Harris Miller, president of the trade group. A 2009 study showed that while fewer than half of eligible students at community colleges fill out and send in forms for the grants, for-profit colleges make certain that more than 95 percent of their eligible students seek the funds, he said.

No Apology

“I don’t think we should have to apologize for that,” Miller said in an interview Dec. 17. “The community colleges should apologize for not serving the needs of their students.”

For-profit colleges are succeeding because they quickly develop programs to prepare students for expanding job opportunities, said Robert Silberman, chairman and chief executive officer of Strayer Education Inc., based in Arlington, Virginia.

The colleges also control costs and quality by using mostly part-time, nontenured faculty members whose contracts can be terminated when courses empty or teachers burn out, Silberman said in an interview at the Washington campus of for-profit Strayer University.

Muted Yellow

Strayer’s student population has grown almost sevenfold, to about 56,000, since 1996 when the company made its initial public offering of shares. Strayer is planning to expand throughout the U.S. from the east and southeast, where most of its campuses now are located, Silberman said. For-profit colleges more than tripled their U.S. enrollment to 1.8 million in September 2008, from 550,000 a decade earlier, according to the Education Department.

At Strayer’s Washington campus, Silberman points to walls painted muted yellow because studies showed the color aids student concentration. Every hallway is adorned with pictures of students in graduation caps and robes. Computer terminals are available for student use in the library and a resource room.

Rather than costlier individual offices, the campus offers one room of about 20 carrels to part-time teachers as a group. There is no cafeteria. The focus is on educating students, Silberman said.

“Traditional college presidents are always asking me, ‘How can we be more like you?’” Silberman said. “I’ve had at last three Ivy League college presidents ask me that.” Silberman declined to name the presidents from the Ivy League of eight northeastern-U.S. universities.

Recruitment Curb

The federal government is tightening regulations. The Education Department this year banned for-profit colleges from paying recruiters on the basis of how many students they enroll. The department also has proposed to cut off aid to for-profit colleges if their graduates don’t earn enough to pay off student loans.

The department has set a nationwide cap of 5 percent on the proportion of for-profit college programs that could be shut off from government loans in 2012, the first year of the rule’s implementation. For-profit colleges have said that hundreds of thousands of students might lose access to needed training programs when the rule goes into effect. The regulatory threat helped drive down an index of industry shares by 24 percent this year.

Apollo’s University of Phoenix, Washington Post’s Kaplan and other for-profit colleges are scaling back recruitment and introducing remedial and introductory programs designed to address federal concerns and improve graduation rates.

Business Incubator

LaGuardia Community College, part of the City University of New York, epitomizes challenges facing community colleges: crowding, funding shortfalls and competition from the for-profit colleges.

LaGuardia, situated in the Long Island City section of Queens, calls itself “the community college that’s 10 minutes from Times Square” by subway. Students can apply for internships at a small-business incubator that gets funding from New York-based Goldman Sachs Group Inc., and LaGuardia’s professors won a $50,000 grant in November from the National Aeronautics and Space Administration to help students research global warming.

LaGuardia has 17,028 students, 50 percent more than a decade ago. At least 73 percent are minorities, and more than half get financial aid.

The campus capped enrollment this year, turning away about 1,000 applicants, said Michael Baston, acting vice president of student affairs. Students say they frequently have to wait a semester or longer to get into math and science courses.

August Closing

“Every year we close enrollment earlier,” Baston said in an interview in his office. “Last year we closed it in mid- August, this year it was early August.”

LaGuardia owns 340,000 square feet (32,000 square meters) of unused former factory space and doesn’t have the budget for renovations needed to create classrooms, said Tom Gaimaro, interim director of the college’s facilities, design and construction department.

“I don’t have heat, I don’t have walls, I need elevators to move people up and down,” said Gaimaro, looking around the skylit empty top floor of an unfinished building.

LaGuardia spent $631,000, or less than 1 percent of its $158 million budget, on marketing and advertising this year, mostly for community outreach and for posters on buses and on the No. 7 subway line that passes in front of the college.

DeVry Inc., an Oakbrook Terrace, Illinois-based for-profit education company with a Queens campus, spent $224 million, or 12 percent of its fiscal 2010 budget, on advertising nationally, according to a regulatory filing.

Nursing Slots

Orquidea Mejia, the daughter of immigrants from the Dominican Republic living in Brooklyn, didn’t know how much cheaper her tuition at LaGuardia Community College would be than at the Queens campus of DeVry -- $3,150 compared with $14,640 -- until she transferred. She said she still owes $14,000 for loans she took out to attend DeVry.

While Mejia said she loves LaGuardia, she will have to compete to get into a registered-nurse program that has only 70 spaces each semester and takes students with the highest grades. A second program, in licensed practical nursing, also has limited space. Math and science courses that she needs to get into the nursing programs are crowded, she said.

“In my first semester, I started late and all the classes I wanted were taken,” Mejia said. “I got into biology in my second semester.”

California’s community college system, the largest in the U.S., with about 2.8 million students, turned away at least 140,000 applicants last year as the Sacramento-based system’s allocation of state funds dropped 8 percent to $6 billion, Chancellor Jack Scott said. Course offerings were cut 6.3 percent.

‘Tragedy’ for Students

“I’ve never seen us go through quite as tough a time for meeting the needs of students and flat not having the resources to do it,” Scott said in a telephone interview Nov. 22. “It’s a tragedy for the students and it’s going to be a tragedy for the economy of California because we’re going to have less of the trained personnel we need to fill jobs.”

Concerned that capacity wasn’t sufficient, Scott made a deal last year with Kaplan, allowing students who couldn’t fit into the California system to get a price break if they enrolled at Kaplan. Even with the discount, Kaplan was charging about 10 times the community college’s tuition.

Scott canceled the agreement in August when other systems in the state -- the Oakland-based University of California and the Long Beach-based California State University -- refused to recognize Kaplan’s course credits from transfer students.

Quality Question

“I think they questioned the quality of the Kaplan courses,” Scott said. “As more and more problems arose, and we began to worry about students not getting good training and having to borrow a lot of money, we began to think this wasn’t really part of our mission.”

Kaplan has regional accreditation and hundreds of its graduates have transferred to California state colleges, the company said in an e-mailed statement. Kaplan has agreements to transfer credits with 70 community colleges in California and more than 500 across the U.S., according to the statement.

“Kaplan offered a solution that could have increased access for California students and would have presented California legislators with another option for solving California’s educational challenges,” according to the statement.

Moving to Merced

For her part, Kimberly Connacher -- the bank teller who quit attending Modesto -- said she has found a spot enabling her to return to California’s community college system next year after leaving the for-profit University of Phoenix to keep debts from mounting. This time, instead of going to classes in Modesto, she’ll be attending Merced College in Merced, California, where she won’t be borrowing any money, she said.

“I’ll be able to work full time and still go to school, and I won’t have to worry about whether I’m getting into my classes,” Connacher said.

As community colleges struggle to meet the demands of an expanding student population, they might learn from techniques that have helped for-profit colleges grow, said Tom Snyder, president of Ivy Tech Community College, the Indianapolis-based statewide system for Indiana.

Snyder said he’s using more online courses to have the flexibility of colleges such as the University of Phoenix, which can instantly add students and allow them to pursue classes, whenever and wherever they like, through the Internet.

Flexibility Urged

About 75 percent of Ivy Tech’s 200,000 students are adult learners who are changing professions or trying to improve job prospects, Snyder said. Such students need flexibility to juggle job and family expectations, he said.

“It’s very similar to the population targeted by the for- profits,” Snyder said. “Many of them have the option of 24/7 scheduling, and that’s what we want to give our students.”

Community colleges need to learn to help students stay in school until they obtain degrees or professional credentials, Snyder said.

The budgets at community colleges are unlikely to resume growing until states’ finances improve, and both Democrats and Republicans in Congress are suggesting that, to meet demand for training and education, for-profit colleges will need to retain access to student-aid programs.

The Education Department is proposing to measure the quality of for-profit colleges by tracking former students’ incomes and ability to repay loans. Colleges that fail to hit benchmarks risk losing eligibility for student financial aid.

Quality Index

John Kline of Minnesota, who will become chairman of the House education committee in January, said all colleges, including for-profits, should be required to disclose accurately to students how much their programs cost, how much debt students are likely to take on, and job-placement results.

Kline favors use of the Educational Quality Index, a rating system proposed by Democratic Representative Robert Andrews of New Jersey that would compare colleges according to their job- placement success, graduation rates, and loan-repayment records. Colleges that fail to meet benchmarks would lose eligibility for financial-aid programs.

Meeting the standards would keep the money flowing, Andrews said in a telephone interview.

“If a school takes unemployed people and turns them into taxpayers who pay their loans back, I don’t care how much financial aid they use,” Andrews said.

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net.

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

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