Knowledge comes at a price

Do US for-profit colleges widen access to universal education or are they just a way to make money? US for-profit colleges, such as the 373,000-strong University of Phoenix, account for about 12 per cent of students in US higher education, including a quarter of management students.

In recent years, growth at these institutions has far outstripped the rest of the sector. Enrolment grew 236 per cent between 1998-99 and 2008-09, compared with just 20 per cent at non-profit and public colleges.

But while some view this as a story of widening access and opportunity, others are not so sanguine. Critics point to complaints on internet sites, the testimony of ex-students at various Senate hearings, or evidence gathered by state attorneys. To the industry’s detractors, such material reveals a pattern of excruciating student debt, aggressive recruiting and marketing and less-than-stellar academic standards. They note that for-profit colleges account for 47 per cent of student loan defaults, implying an imbalance between tuition cost and subsequent earning power.

“Over the decades, the sector has taken a fairly clear mandate to prepare people for gainful employment, and twisted it by offering completely worthless programmes,” says Barmak Nassirian, associate executive director at the American Association of Collegiate Registrars and Admissions Officers.

“Millions of students have stepped forward to better themselves and ended up with crushing debt and no enhanced wage-making capability.” He says a flood of “counterfeit degrees” is devaluing “legitimate credentials”, including business degrees offered by traditional universities.

But for-profits strongly dispute the charges, arguing they are at the cutting-edge of educational delivery, offering greater flexibility and service than conventional colleges and catering to underserved parts of the market.

Brian Moran, interim president of the Association of Private Sector Colleges (APSCU), says “non-traditional” students are inevitably less able to repay loans. “They are often the first in their family to go to college. They don’t have the wealth that other students enjoy. They are older and …not living with their parents. They bring less to the table. Of course, they’ll take out more loans and have more defaults.”

The debate is not just of US relevance. David Willetts, the UK universities minister, has made for-profit provision a key part of his higher education overhaul and several US companies are eyeing the British market.

The Obama administration however has been sufficiently alarmed about the US market that it has tried to regulate it more strictly.

Last summer it finalised new rules requiring colleges to prove they were preparing students for “gainful employment”. Colleges must now show that at least 35 per cent of former students are repaying loans, that the annual loan payment does not exceed 30 per cent of a graduate’s discretionary income and that the annual loan payment does not exceed 12 per cent of a typical graduate’s total earnings.

Courses that repeatedly fail these metrics can become ineligible for federal loans, which would in effect cause many to close. Some for-profit colleges receive up to 90 per cent of revenue from the US Treasury. The Department of Education says 5 per cent of 13,155 for-profit courses could close. But Mr Moran believes the effect may be wider. “We think this is going to have enormous impact on our students and our programmes, far greater than the department anticipates.”

The rules were originally meant to be much tougher, but were pared back after a lobbying campaign by the industry. The APSCU has also taken its case to the courts, arguing the Department of Education does not have authority to regulate so widely.

David Halperin, at the Center for American Progress think-tank, forecasts that the regulations, combined with negative publicity and campaigning, will prove salutary in the long term. “They [colleges] do have to worry they are going to be in that bottom 5 per cent. They can’t offer absolutely minimal educational value and expect to survive.”

Amid falling student enrolment recently, several companies have introduced changes aimed at renewing confidence. Kaplan and the University of Phoenix now have no-fee enrolment trials so students can get a feel for courses before signing up. California-based Corinthian has strengthened its career services and introduced checks to ensure graduates are placed in jobs.

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Mark Brenner, senior vice-president of external affairs at Apollo, owner of the University of Phoenix, says the company is “concerned about the level of debt our students are taking on”, but does not expect any of Apollo’s courses to be affected by the gainful employment rules.

The largest for-profit player, the University of Phoenix, has been offering an online MBA since 1989 and its MBA programme is the largest discipline. Phoenix now buys more case studies from Harvard Business School than any other institution.

Student advocates insist for-profit colleges are needed and it is a question of what safeguards are in place.

“If public and private incentives are aligned correctly, there is no reason not to proceed,” says Pauline Abernathy, vice-president of the Institute for College Access & Success. “Our experience here shows the need for strong policies and oversight.”