March 10 (Bloomberg) -- Bridgepoint Education Inc., the owner of Ashford University, pulled in millions of dollars in federal funds as student dropout rates soared, U.S. Senator Tom Harkin said today at a hearing on the for-profit college.
Almost two-thirds of students who enrolled in Clinton, Iowa-based Ashford in 2008-2009 dropped out by September 2010, Harkin, a Democrat from Iowa, said. Bridgepoint took in more than $600 million in federal student aid in 2010, he said in the hearing.
“In the world of for-profit higher education, spectacular business success is possible despite an equally spectacular record of student failure,” Harkin said at the hearing today.
Bridgepoint, based in San Diego, was one of many for-profit colleges that bought small, financially troubled colleges with regional accreditation, and expanded enrollment with telephone student recruitment and online educational programs.
While enrollment at for-profit colleges tripled to 1.8 million over the past decade, accreditors were unprepared to ensure that students were being served appropriately, Jose Cruz, vice president for higher education policy and practice for the Education Trust, a research and advocacy group, said in prepared testimony.
‘Intending to Exploit’
“Who could have foreseen, 20 years ago, that a group of investors would purchase small, well-established, fully accredited, but financially troubled postsecondary institutions, intending to exploit their history and physical presence to build billion-dollar, publicly traded, for-profit college companies?” he said in testimony prepared for the hearing. “Yet that is precisely what has happened in the case of Bridgepoint.”
Bridgepoint Chief Executive Officer Andrew Clark, who was invited to appear at the hearing, declined to testify. The company fell 51 cents, or 2.8 percent, to $17.49 at 4 p.m. in New York Stock Exchange composite trading. The Bloomberg U.S. For-Profit Education Index of 13 companies dropped 1.9 percent.
After it was purchased by Bridgepoint in 2005, state regulators found that an Ashford master’s program in teaching was understaffed and poorly structured, said Arlie Willems, a former consultant to the Iowa Department of Education. Faculty members lacked credentials and qualifications and there were few opportunities to practice in classrooms, Willems said.
Teachers who took courses at Bridgepoint repeatedly complained that their classes at Ashford didn’t fulfill state requirements for licensure, according to documents Harkin released at the hearing. In most cases, Ashford officials denied the existence of a problem or defended the current practice, Willems said.
For-profit colleges present “a specific threat to the future of our teaching force because of their priorities: bottom-line profits over quality education,” Willems said in the hearing.
While about two-thirds of Ashford students withdrew before graduating, recruiters helped enrollment grow to 77,892 in 2010, from 1,083 in 2005, Harkin said in the hearing. Meanwhile, annual instruction costs fell to $700 per student in 2009, from $5,034 per student in 2004, before the Bridgepoint purchase, Harkin said. The percentage of students defaulting on government loans within three years of the beginning of required repayment rose to 22 percent in 2008 from 8.8 percent in 2005, he said.
Students’ use of federal aid soared to $613 million in 2009-2010 from less than $3 million in the 2004-2005 school year, Education Department Inspector General Kathleen Tighe said in prepared remarks. The increase in aid after Bridgepoint’s purchase of Ashford prompted an audit, and the final version was released in January.
The audit found “significant deficiencies” in Bridgepoint’s recruitment and use of student aid. While federal regulations forbid paying recruiters based on the number of students signed up, with some exceptions, Bridgepoint’s compensation for recruiters was “highly incentivized,” Tighe said.
In some cases, Bridgepoint kept more of students’ financial aid money than was needed for tuition, Tighe said. The company also failed to adequately show that students were participating in online classes, according to the audit.
Ashford officials disagreed with many of the audit’s findings, and the Education Department must determine how to address them, Tighe said.
The hearing on Bridgepoint is premature while the Education Department is still determining how to deal with the company, said Republican Senator Mike Enzi of Wyoming.
‘Rush to Judgment’
“This hearing is an agenda-driven rush to judgment,” Enzi said in the hearing. “It’s a cart before the horse, a verdict before the trial.
“The Inspector General’s findings trouble me as much as they do you,” Enzi said. “These are potentially serious violations of the law. A process is in place to review these findings without intervention from Congress.”
The Education Department has said it would have had no concerns about representatives of Bridgepoint testifying at the hearing, Harkin said.
Throughout these years of growth and disputes with regulators, Ashford has remained accredited, Cruz said.
“It must make us wonder about the quality of those reviews -- and the ability of the entity leading them to understand all of the complexities presented by a for-profit institution,” Cruz said.
The Higher Learning Commission’s North Central Association of Colleges and Schools is making “major” changes to stop companies from buying colleges solely to get accreditation and access to federal student aid, said Sylvia Manning, president of the group. The commission is now attaching conditions to the sale of colleges, requiring them to “remain essentially the same institution” to keep their accreditation, she said.
First-time applications for accreditation take a minimum of two years and have become more rigorous, Manning said. Colleges also are required to disclose more to students about program costs and quality, she said.
“We were behind the curve,” Manning said. “We had catch-up to do. We have done catch-up.”
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