For-profit education

For-profit schools are educational institutions that are run by private, profit-seeking companies or organizations.

There are two major types of for-profit schools. One type is known as an educational management organization, or EMO, and these are primary and secondary educational institutions. EMOs work with school districts or charter schools, using public funds to finance operations. The majority of for-profit schools in the K-12 sector in America function as EMOs, and have grown in number in recent years. The other category of for-profit schools are post-secondary institutions which operate as businesses, receiving fees from each student they enroll.

EMOs function differently from charter schools created in order to carry out a particular teaching pedagogy; most charter schools are mission-oriented, while EMOs and other for-profit institutions are market-oriented. While supporters argue that the profit motive encourages efficiency it has also drawn controversy and criticism.

In the 1990s, the for-profit college and university sector boomed, particularly in the United States.

Growth of for-profit primary and secondary education

Although for-profit schools still make up only a small percentage of America's educational institutions, in just a few years their numbers have grown dramatically. In February, 2000, there were hundreds of thousands of students being taught at 200 for-profit postsecondary facilities, with approximately six percent of students nationally enrolled at a for-profit institution Eduventures, a higher education research and consulting firm, states that nine percent of all U.S. college and graduate students attend for-profit institutions.

Between 1998 and 2000 a Boston-based company named Advantage Schools (since taken over by Mosaica Education saw its revenue increase from $4 million to approximately $60 million. Between 1995 and 2000 the Edison Schools' yearly revenues grew from $12 million to $217 million. In 2000 Edison Schools projected that by 2006 it would manage about 423 schools with 260,000 students, giving it revenue of $1.8 billion.

Potential benefits of for-profit primary and secondary schools

Supporters claim that for-profit school operate more efficiently, and that these increases in efficiency can lead to lower fees. Moreover, they argue that financial competition encourages the schools to seek out better qualified teachers.

Supporters argue that for-profit schools rely on attracting students rather than compelling attendance and therefore tend to be more responsive to parents' wishes, and are especially flexible and responsive to the needs of adult learners, and that they also encourage policies that address bottom-line academic performance allowing them to focus on what consumers (students) want—if parents or students do not like the service being offered, they are able to take their business elsewhere. Supporters also argue that the schools' drive to attract new customers pushes them to innovate and improve at a faster rate than traditional public schools.

Proponents of for-profit schools claim that market operations governing the school promote effective decision- and policy-making. By their example, for-profit schools have the potential to encourage reform in public institutions. Thus, for-profit schools theoretically benefit children, parents, investors, and those who rely on public education.

Potential drawbacks of for-profit primary and secondary schools

One problem with for-profit schools is that, being quite new, there have been few systematic examinations of them. The few existing reports show mixed results.

Opponents say that the fundamental purpose of an educational institution should be to educate, not to turn a profit. In 2000, Bob Chase, president of the National Education Association, stated: "Educating children is very different from producing a product."

Others claim that because for-profit schools have never been a mainstream idea, no complete blueprint for running a for-profit institution really exists, which could lead school administration to make costly errors. For example, in order to maximize profit, valuable services and activities are often eliminated. Extracurricular activities such as sports teams or volunteer clubs are left with little or no budgeting in order to keep costs low. This loss of non-academic activities might hurt a child's ability to enroll in some colleges or universities later on. The two largest EMOs in operation today, Edison and Advantage, claimed to have high school juniors completing college-level coursework, but recent studies have shown that many of these students are performing at or below the 11th-grade level.

According to James G. Andrews in the AAUP article ["How We Can Resist Corporatization,"][1] corporate models of education harm the mission of education.

Transfer-of-credit issues affecting for-profit higher education institutions

Many for-profit institutions of higher education have national accreditation rather than regional accreditation. Regionally accredited schools are predominantly academically oriented, non-profit institutions. Nationally accredited schools are predominantly for-profit and offer vocational, career, or technical programs. Many regionally accredited schools will not accept transfer credits earned at a nationally accredited school.

In the 2005 Congressional discussions concerning reauthorization of the Higher Education Act and in the Secretary of Education's Commission on the Future of Higher Education, there have been proposals to mandate that regional accrediting agencies bar the schools they accredit from basing decisions on whether or not to accept credits for transfer solely on the accreditation of the "sending" school. They could still reject the credits, but they would have to have additional reasons.

The American Commission Career Schools and Colleges (ACCSC) wholly supports the proposed rule. In fact, it and other nationally accrediting institutions and have been lobbying for it for some time. The ACCSC claims regionally accredited schools will not accept nationally accredited schools credits for purely arbitrary, prejudicial and/or anti-competitive reasons. It further states that, since the Department of Education recognizes both national and regional accreditation, there is no reason for regionals to differentiate between the two and to do so amounts to an unwarranted denial of access.

The American Association of Collegiate Registrars & Admissions Officials (AACRAO), which sides with the regional accreditors, claims that national accrediting standards are not as rigorous and, though they might be well-suited for vocational and career education, they are ill-suited for academic institutions. AACRAO alleges that this proposed rule is unnecessary and unjustified, could threaten the autonomy and potentially lower the standards of regionally accredited schools, and drive up their costs. Furthermore, it states the proposed rule is an attempt by the for-profits' "well-funded lobbyists" to obscure the difference between for-profits' "lax academic criteria for accreditation" and non-profits' higher standards. AACRAO claims only six percent of American students attend for-profits and only four percent attempt to transfer to non-profits. Eduventures, Inc, a Boston research firm, states that nine percent of all U.S. college and graduate students attend for-profit institutions.

Admission representatives at Crown College (Tacoma) and Florida Metropolitan University allegedly made various misrepresentations concerning the transferability of their credits to entice students to enroll in those schools.

Several of the larger for-profit schools have sought and received regional accreditation, including the following:

• American InterContinental University
• Art Institute of Atlanta
• Art Institute of Pittsburgh
• Capella University
• DeVry University
• Kaplan University
• Miami International University of Art & Design
• Strayer University
• University of Phoenix
• Walden University
• Pittsburgh Technical Institute

Business practices

For-profit higher education in the U.S. has been the focus of concern regarding business practices. In August 2010, the Government Accountability Office reported on an investigation of the student-recruiting practices of several for-profit institutions. Investigators who posed as prospective students documented deceptive recruiting practices, including misleading information about costs and potential future earnings. They also reported that some recruiters had urged them to provide false information on applications for financial aid.

There have been some spectacular failures of for-profit schools, including Business Computer Technology Institute (BCTI) and Court Reporting Institute (CRI). These two schools allegedly violated numerous federal statutes, were funded mainly from federal and state loans and grants given to attending students, and then closed, abandoning many of their students.

Pell Grant For-Profit fraud controversy

For-Profit institutions were randomly sampled by the GAO in mid 2010; Out of the 15 sampled, all of the institutions were found to have been engaging in deceptive practices promising unrealistically high pay for graduating students and 4 were engaging in outright fraud, as per a GAO report released on the August 4, 2010 Health, Education, Labor and Pensions Committee hearing. Examples of misconduct include: Offering commissions to sales officers, employing deceptive marketing tactics refusing to disclose total tuition cost to prospective students before signing a binding agreement, lying about accreditation, encouraging outright fraud by enticing students to take out student loans even when the applicant had $250,000 in savings, promising extravagant, unlikely high pay to students, failing to disclose graduation rate, and offering tuition cost equivalent to 9 months of credit hours per year, when total program length was 12 months.

It was found that 14 out of 15 times, the tuition at a For-Profit sample was more expensive than its Public counterpart, and 11 out of 15 times, it was more expensive than the Private institution. Examples of the disparity in full tuition per program include: $14,000 for a certificate at the For-Profit, when the same diploma cost $500 at the Public college; $38,000 for an Associate's at the For-Profit, when the comparable program at the Public college cost $5,000; $61,000 for a Bachelor's at the For-Profit, compared to $36,000 for the same degree at the Public college. The institutions identified in the Committee hearing in respect to the GAO report numeration were:

Tuition cost comparison between For-Profit, Public and Private colleges for equivalent programs.

1.)University of Phoenix - Arizona

2.)Everest Institute - Arizona

3.)Westech College - California

4.)Kaplan - California

5.)Potomac College - Washington D.C.

6.)Bennett College - Washington D.C.

7.)Medvance Institute - Florida

8.)Kaplan - Florida

9.)College of Office Technology - Illinois

10.)Argosy University - Illinois

11.)University of Phoenix - Pennsylvania

12.)Anthem Institute - Pennsylvania

13.)Westwood College - Texas

14.)Everest Institute - Texas

15.)ATI Technical Institute - Texas

Students at For-Profit institutions represent only 9% of all college students, but receive roughly 25% of all Federal Pell Grants and loans, and are responsible for 44% of all student loan defaults. University of Phoenix tops this list with Pell Grant revenue of $656.9 million with second and third place held by Everest Colleges at $256.6 million and Kaplan College at $202.1 million for the 2008-2009 fiscal year, respectively. In 2003, a Government Accountability Office report estimated that overpayments of Pell Grants were running at about 3% annually, amounting to around $300 million per year. Some of the universities that are top recipients of Pell Grants have low completion rates, leaving students with no degree, leading some former students to accuse recruiters of being "duplicitous", and bringing into serious question the effectiveness of awarding Pell Grants and other Title IV funds to For-Profit colleges. Strayer University, which reports its loan repayment rate to be 55.4%, only has a repayment rate of roughly 25%, according to data released by the Department of Education on August 13, 2010. The high default rate makes Strayer ineligible for receiving further Title IV funds in accordance with new regulations brought forth by the Department of Education, which are to take effect on July 2011. If passed, the minimum loan repayment requirement for any institution receiving Title IV funds, subject to suspension and expulsion if not compliant, will be 45%.

For-Profits top the Department of Education's list for the 2005-2007 cohort default rates, with campuses at ATI and Kaplan reporting default rates far above 20%: Most of the For-Profits' expansion has been in the states of California, Arizona, Texas and Florida, the metro areas of Los Angeles, Phoenix, Austin and Miami-West Palm Beach being epicenters of their growth : For comparison, in Miami, FL, Everest Institute reports a default rate for two of its campuses to be 18.1% and 20%; Miami Dade College, the district's community college, which serves as a primary channel for local beginning students, reports a default rate of roughly 10%; Florida International University, a public university serving the Miami metropolitan area, reports approximately 5%.

File:CSPAN 3 8.4.2010 UoP internal chart.png

Internal executive University of Phoenix chart, encouraging deception, manipulation and predatory tactics: "Creating Urgency: Getting Them To Apply NOW
Remember, ...
Students don't buy benefits
They buy to ease or avoid pain
Finding and Burrowing into that pain moves the sale to a CLOSE
Also, the close of the sale is really just a beginning"

In an August 4, 2010 Health, Education, Labor and Pensions Committee hearing, Gregory Kutz of the GAO stated that the fraudulent practices may be widespread in the For-Profit industry, noting a University of Phoenix executive chart that encouraged deceptive practices.

File:Senate Committee on Health, Education, Labor and Pensions Pruyn attachment 8.4.2010.png

Internal Westwood College E-mail, dated March 24, 2008, employing commissions and rewards system for applications and enrollments to admissions officers.

Joshua Pruyn, a former admissions representative, disclosed to the committee hearing several internal E-mails distributed among admissions officers that encouraged applications and enrollments, through the use of a commissions reward system, during March 2008. Chairman of the committee Senator Thomas Harkin noted the conflict of interest due to the ACCSC, a national accrediting agency that accredits many For-Profit colleges nationwide, receiving compensation directly from the institutions which it awards accreditation. The Inspector General issued an assessment in late 2009 recommending the limiting and possible suspension or expulsion of the Higher Learning Commission of the North Central Association of Colleges and Schools due to conflicts in the manner in which the accrediting agency reviews credit hours and program length for online-colleges, specifically American InterContinental University, a For-Profit college. The NCA HLC accredits the University of Phoenix and Everest in Phoenix, Arizona. The Department of Education Inspector General is currently reviewing the GAO's documents and report on For-Profit Colleges dated August 4, 2010.

See also

• List of for-profit colleges and universities
• Proprietary colleges
• Charter school

Bibliography

• Brown, H.; Henig, J.; Holyoke, T.; Lacireno-Paquet, N. (2004). "Scale of Operations and Locus of Control in Market- Versus Mission-Oriented Charter Schools" Social Science Quarterly; 85 (5) Special Issue Dec, 2004. pp. 1035-1077
• Levin, H. (2001). "Thoughts on For-Profit Schools" [2]
• Symonds, W. (2000). "For Profit Schools" BusinessWeek. February 7, 2000.

Further reading

• "New Default Rate Data for Federal Student Loans: 44% of Defaulters Attended For-Profit Institutions", The Pew Charitable Trusts, Project on Student Debt,

Berkeley, California, December 15, 2009

• "It is set up like a call center": former employee of Ashford University describes unethical telemarketing techniques employed to increase enrollment.
• [3]:Op-Ed articles on for-profit colleges and universities.

External links

Documentaries

• "College, Inc.", PBS FRONTLINE documentary, May 4, 2010, describing controversies and failures of post secondary for-profit institutions.

Opinions of for-profit schools

• Commonweal Institute [4] -- Notable For-Profit Education Opponent
• Education Next [5] -- Detailed Forum on For-Profit Education

• "Surging Enrollment At Career Colleges Draws Federal Scrutiny", NPR Here and Now radio broadcast, August 2, 2010, describing controversies and current events related to post secondary for-profit institutions.