Inside Higher Ed: Results are in: Harkin releases critical report on for-profits

By Paul Fain for Inside Higher Ed

July 30, 2012

A US Senate committee released an unflattering report on the for-profit college sector on 29 July, concluding a two-year investigation led by Senator Tom Harkin, an Iowa Democrat.

While the report is ambitious in scope, as well as scathingly critical on many points, it appears unlikely to lead to a substantial legislative crackdown on the industry – at least not during this election year.

Issued by staff from the Democratic majority of the US Senate Committee on Health, Education, Labor and Pensions, the report follows six congressional hearings, three previous reports and broad document requests. The final result is voluminous, weighing in at 249 pages and accompanied by in-depth profiles of 30 for-profits. It questions whether federal investment through aid and loans is worthwhile in many of the examined colleges.

The investigation found that large numbers of students at for-profits fail to earn credentials, citing a 64 per cent dropout rate in associate degree programmes, for example. The report links those high dropout rates to the relatively small amount of money that for-profits spend on instruction.

For-profits "devote tremendous amounts of resources to non-education related spending", the report says, with the sector spending more revenue on both marketing and profit-sharing than on instruction. In 2009, the examined companies spent $4.1 billion (£2.6 billion) or 22.4 per cent of all revenue on marketing, advertising, recruiting and admissions staffing. Profit distributions accounted for $3.6 billion or 19.4 per cent of revenue. In contrast, the companies spent $3.2 billion or 17.7 per cent on instruction, according to the report.

But the industry's trade group, the Association of Private Sector Colleges and Universities, says the report "twists the facts to fit a narrative, proving that this is nothing more than continued political attacks". For example, the association says the sector's overall graduation rate at two-year colleges is a much higher 62 per cent.

Republican staff members also provided a dissenting voice, saying that while it is "indisputable that significant problems exist" at some for-profits, the investigation was not conducted in a bipartisan manner. They also raised doubts about the report's accuracy: noting, for example, that the committee relied in part on testimony from the Government Accountability Office, some of which was flawed and has been revised.

The final report includes some praise for the industry, noting that it is here to stay and will continue to play a significant role in serving growing numbers of non-traditional and disadvantaged groups of students, including mature students.

Publicly traded chains and colleges owned by private equity companies, which accounted for 76 per cent of the sector's enrolment in 2009 according to the report, are singled out for the most criticism. Investors in those colleges often seek quick returns, the report says, adding: "Congress has failed to counterbalance investor demands for increased financial returns with requirements that hold companies accountable to taxpayers for providing quality education, support and outcomes."

The companies' profits are largely due to high tuition levels, according to the report, which says that for-profits on average charge much more than community colleges and flagship public universities do for comparable programmes. Bachelor's degree programmes cost an average of 19 per cent more at for-profits than at their flagship equivalents, while associate and certificate programmes at for-profits cost four times more than similar programmes at community colleges.

"Internal company documents provide examples of tuition increases being implemented to satisfy company profit goals," the report says. "Internal discussions among for-profit executives regarding tuition often revolve around how best to justify tuition increases."

Fixing problems

Sharing the blame for the rise of poor-performing for-profits are lax accreditation, state oversight and federal laws, according to the report. It also details how some for-profits abuse the so-called "90/10 rule", which prohibits the colleges from generating more than 90 per cent of their revenue from federal sources such as aid and loans. One approach, for example, is reporting data from multiple campuses and swapping those campuses in and out of groupings to keep below the 90 per cent ceiling.

As for accreditation, the report says that national accreditors that focus specifically on for-profit institutions, as well as regional accrediting agencies, have at times been unable to keep up with the industry's growth. It singles out the Higher Learning Commission of the North Central Association of Colleges and Schools for allegedly failing to properly review Bridgepoint Education's Ashford University and American InterContinental University, which is owned by Career Education Corporation.

"Accrediting agencies have been overwhelmed by the rapid growth of non-traditional educational organizations, whose size and methods of education are unfamiliar and demand different protocols of assessment," the report says. "Accreditors are not equipped to properly oversee the modern-day for-profit education institution, especially those whose important decisions are made at corporate headquarters, not at the campus level."

The report calls for tighter rules on governing for-profits in several areas. These include more data collection on student performance by the US Department of Education; tying federal aid to minimum student outcomes; lowering the 90/10 threshold to 85 per cent; and creating an online student complaint clearing house.

In the absence of "significant reforms", the report says the "sector will continue to turn out hundreds of thousands of students with debt but no degree".

The enclosed profiles of for-profit companies detail problems the investigation uncovered in areas such as student recruiting, substandard academic offerings, high tuition and executive compensation, low student retention rates and the issuance of credentials of questionable value. The report also includes a trove of documents requested by the committee.

In its description of Bridgepoint, for example, the committee discusses the recent accreditation woes of Ashford, an institution that was the subject of a hearing during the investigation. The report praises the Western Association of Schools and Colleges (WASC) for its "thorough review" of the university, which resulted in the institution's bid for accreditation being rejected. In contrast, the report takes to task the Higher Learning Commission, Ashford's regional accreditor, for three "relatively cursory" reviews of the university, which Bridgepoint bought in 2005.

Harkin's tone during the investigation has been fiercely critical, so the inclusion of a few conciliatory notes in the report may surprise some observers. It notes that the sector will continue to play an important role in higher education, in part because non-profit colleges lack the capacity to serve growing demand.

For-profits should be well-equipped to serve non-traditional students, at least "in theory", the report says. "They offer the convenience of nearby campus and online locations, a structured approach to coursework and the flexibility to stop and start classes quickly and easily. These innovations have made attending college a viable option for many working adults, and have proven successful for hundreds of thousands of people who might not otherwise have obtained degrees."

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