For-profit colleges face mounting scrutiny

Commercial schools continue to see rising stock prices despite a rash of bad news.
Commercial schools continue to see rising stock prices despite a rash of bad news.

Officials at for-profit colleges and universities are facing a chorus of public criticism after accusations of shady student recruiter practices and a U.S. Department of Education (ED) report that showed twice as many students at for-profit schools have defaulted on their college loans as students attending nonprofit and public colleges and universities.

The mounting criticism comes as new research suggests for-profit colleges are gaining market share among online learners as the recession drives more people back to school.

Students who took out loans to pay for education at commercial institutions such as the University of Phoenix and DeVry University had a 21-percent default rate within three years, according to the Dec. 14 ED report, which used data from students who began loan repayment in fiscal year 2007.

For-profit schools’ default rate in fiscal 2006 was 18 percent.

Overall, American college students defaulted at a 12-percent rate, up from 9 percent the year before.

The rising default rates could affect commercial universities’ government funding. Starting in 2012, schools that have a 30-percent loan default rate won’t be eligible for federal student aid programs.

For-profits hovering close to or beyond that 30-percent default mark include seven Kaplan University schools and 22 Everest College campuses, according to the government analysis.

Among the nation’s largest institutions, the government data indicate a three-year default rate of 15.9 percent at University of Phoenix and 17.1 percent at DeVry University.

About 5 percent of colleges and universities evaluated in the ED report had loan default rates of 30 percent or more. Eight out of 10 of those schools were commercial colleges.

The data do not include private student loans, just government-backed loans.

Harris Miller, president and CEO of the Career College Association, an organization that represents for-profit colleges, said the jump in default rates is symptomatic of a severe economic recession.

For-profit schools, he added, often accept more low-income students than public and nonprofit universities.

“If you accept low-income students, you’re going to have high default rates,” he said in an interview with the Associated Press. “It has nothing to do with whether you’re for-profit or not.”

For-profit recruitment practices draw fire

A day after ED released its report, Apollo Group Inc.—the University of Phoenix’s parent company—agreed to a $78.5 million settlement after a six-year court battle that started when former university employees filed a lawsuit claiming recruiters were paid based on the number of students they enrolled, a practice that violates federal law.

Apollo Group denied the former plaintiffs’ allegations, dismissing them as disgruntled former employees and claiming the school’s recruiting practices were within federal guidelines.

“This agreement not only brings closure to a long-running dispute and enables the company to avoid the uncertainty and further expense associated with protracted litigation, it opens the door for a more constructive partnership with our lead regulator, the U.S. Department of Education,” Charles B. Edelstein, Apollo’s co-CEO, said in a statement.