New restrictions on for-profit colleges don’t seem strict enough

It’s not surprising that enrollment at for-profit colleges nearly tripled from 2000 to 2008, and is believed to have grown substantially since then. As U.S. companies have cut their payrolls and a degree or certificate has become a prerequisite for more kinds of work, people looked to these schools as an avenue to careers as truckers, dental hygienists and other jobs that can’t be outsourced to China or India. They also flocked to for-profit colleges because of the less rigorous admissions standards and flexible schedules that allow a working person to study for a bachelor’s degree.

This would all be to the good if it weren’t for the repeated complaints from students who say they were misled by college recruiters about how much time and money their courses would entail, and from graduates who found that contrary to promises, their training wasn’t accepted by prospective employers or that there weren’t as many jobs in the field as they had been led to believe. Many students at for-profit schools receive federal aid; about 90% of revenue at the schools comes from federal grants and loans. The programs can be expensive, running from $12,000 to $25,000 or more, and when students can’t find jobs or those jobs don’t pay well enough, they often stop repaying their loans. Default rates are about three times higher than at private, nonprofit schools. A nation that wants to help more people get a post-high-school education cannot afford such high default rates.

Although the booming for-profit college industry blames the misleading recruitment pitches on a few rogue operators, a Government Accountability Office report released last week presented a different scenario. Using undercover investigators who pretended to be prospective applicants at 15 for-profit schools, the GAO found that every one of the schools engaged in at least some deceptive practices, including encouraging applicants to take out loans they didn’t need, inflating graduation rates, exaggerating the salaries for certain jobs or giving the price for only nine months of training when the program actually took 12 months. In a few cases, they urged the disguised investigators to lie on their loan applications. Though the report doesn’t name schools, a congressional hearing revealed that the inquiry included such for-profit giants as University of Phoenix, Kaplan College and a division of Corinthian Colleges.

The U.S. Department of Education, which loaned $20 billion to students at for-profit schools in 2009, has now stepped in with new rules intended to reduce the number of defaults. Using data on loan repayment rates and on debt-to-income ratios among students after they leave, the agency will refuse to lend money to students in the programs with the worst numbers, and will impose new requirements on schools with dubious numbers.

It remains to be seen whether the rules are stringent enough. Only 5% of programs are currently expected to be disqualified from participating in the federal loan fund, and 7% would face restrictions. That doesn’t encompass entire schools but the programs within them; for example, a school’s medical-assistant program might get the green light while massage therapy classes don’t. Because few students can afford such expensive schooling without financial aid, the rules might at least encourage some schools to clean up their acts.

The goal is to use federal dollars more efficiently rather than to regulate the colleges’ practices, which is the job of the states. Unfortunately, Californians, more than half a million of whom attend for-profit colleges, cannot count on state government to protect them. In fact, state oversight of these schools has grown progressively weaker.

Two years ago, an agreement governing California’s for-profit schools, under which a bureau had been set up to oversee their practices, lapsed. That same year, legislation that at least would have set some minimum requirements on disclosure and consumer protection was vetoed by Gov. Arnold Schwarzenegger.

Subsequent legislation reestablished the state Bureau for Private Postsecondary Education, though it is just beginning to get under way with a skeleton staff. But the new law is vaguer and more lenient than the old rules. Many schools are exempt from almost all of its regulations. Earlier rules that required schools to meet certain criteria in order to operate — such as minimum numbers of students who graduate and find jobs in the fields for which they trained — are gone.

California is widely seen as having among the weakest consumer protections in this area, and ultimately, that’s bad for schools as well as students. The well-run, responsible schools should be mightily concerned about the black eye their industry is receiving from diploma mills. It’s in everyone’s interest to have for-profit schools that help create a more educated society.