College is generally considered to be a place of rules, regulation, and fairness, but many for-profit schools have come under great scrutiny for various questionable practices. Some schools have been investigated for misleading advertising, unethical recruiting practices, or unlawful use of federally held student aid dollars.
In general, for-profit schools boost their enrollment through aggressive and deceptive marketing tactics. These tactics, which make ambitious promises of high-paying or prestigious jobs to all who attend, play on students’ idealism. Many students jump into these programs with little research, which leaves them unprepared for the high price tags and poor program outcomes.
The schools with the flashiest, pushiest marketing tactics are often the least cost-effective, and many students are forced to drop out under the weight of crippling student loan debt. The students who do graduate often pay a lot of money going through an expensive degree program that often turns out to be worthless. A staggering amount of these students fail to find adequate employment, can no longer make loan payments, and wind up defaulting on their student loans.
The federal government is aware of this, which is why there have been several investigations in recent years.
Federal Report Findings
In 2010, the United States Senate initiated a full-fledged investigation. The Government Accountability Office, or GAO, looked into the ways that for-profit schools used $24 billion federal dollars. The GAO discovered that many schools (particularly the ones that operated online) relied on deceptive marketing tactics to make a profit—or, in legal terms, they committed fraud.
The majority of these schools touted their degree program as the only viable option, and they aggressively pushed students to enroll immediately, without looking into their other options. Many schools flat-out lied to prospective students, relying on incorrect estimates of their graduation rates, their graduate’s average salary/employment opportunities, and their program’s average cost/duration. Some schools even encouraged their students to lie when applying for federal student aid applications.
The real outcomes for students who attended these schools were bleak. For many students, the costs were crippling: the price of an associate’s degree at a for-profit school turned out to be four times higher than the same degree earned at a community college, and a bachelor’s degree cost about 20% more than it would at a state university. Whether they completed the program or not, 96% of the students going through for-profit schools left school with some amount of student loan debt. One out of every five of them defaulted within their first three years of student loan payments.
And for many, that “investment” yielded nothing: just over half (54%) of all students attending for-profit institutions dropped out without earning a certificate or degree.
The GAO report sparked further investigation, and soon after, the 2012 Senate HELP Report, which studied for-profit schools for two years, was released. Its findings were no less incriminating.
The top for-profit schools made a whopping 86% of their total revenue in federal student aid dollars. They spent almost a quarter (23%) of their budgets on marketing and recruiting, while only 17% of their budget funded actual instruction. To provide a basis for comparison: non-profit colleges can expect to spend less than one percentage point of their total revenue on marketing or recruiting.
The Senate HELP Report also discovered that some schools sent recruitment teams to hospitals which treated war veterans. These recruiters would often lie to veterans about the military benefits offered to their students—some even suggested that benefits could fully cover their tuition.
The Federal Government Acts
Unsurprisingly, both the GAO report and the Senate HELP reports resulted in lawsuits and legislation. The Department of Education released a new series of regulations for all colleges and universities, called the Gainful Employment Regulations, in 2014. As a result, schools are now required to follow their students’ debt and employment outcomes following graduation, thereby proving that their program is worthwhile.
How does the federal government define a worthwhile degree program? The measurement works like this: in order to meet federal guidelines, a school’s graduate must not spend more than 20% of their discretionary income (or 8% of their entire income) on student loan payments. If a school does not meet these guidelines, they are at risk of losing federal funding.
A year later, in 2015, the government introduced the Students Before Profits Act, which sought to protect students from the deceptive marketing tactics witnessed at many for-profit institutions. This act places responsibility for poor student outcomes on the institutions’ owners/executives, ensures that students will receive accurate information, increases the penalties for colleges found guilty of lying about their program, and strengthens government oversight.
This bill also holds executives and owners liable for all financial loss associated with Title IV dollars.
The Federal Government has Sanctioned For-Profit Schools
While the informed can easily spot aggressive (and potentially misleading) marketing tactics, figuring out whether or not a school has a history of being financially responsible is more difficult. For your convenience, we have included a list of the schools that were sanctioned by the federal government as part of the GAO investigation in 2010, along with some more recent information.
American InterContinental University/Colorado Technical University
Both of these schools are owned by the Career Education Corporation. In 2010, the GAO discovered that the Career Education Corporation relied heavily on misinformation, misleading recruitment techniques, and a large number of students who withdrew from classes and/or defaulted on their student loans.
Career Education Corp. settled with the New York Attorney General for $10.25 million in August of 2013. This was after the Attorney General’s investigation discovered deceptive advertising, which included inaccurate career outlook statistics. This proved to be the nail in the coffin for the Career Education Corporation, and after a couple years of dwindling profits, it announced the closure of all of its career colleges in May of 2015.
American Military University/American Public University
Both of these schools performed well under the GAO investigation. Compared to their peers, AMU and APU boasted more affordable tuition costs and better graduation rates.
After the GAO report revealed the poor employment and salary outlooks for their students (who often defaulted on loans), Anthem College closed its doors in 2014.
Argosy University is owned by the Education Management Corporation. After the GAO report revealed them to have sky-high withdrawal rates and less-than-legal federal financial aid practices, they lost a lawsuit in 2013. The EDMC then paid $3.3 million in both restitution and fines for deceptive marketing techniques, but they did not have to admit liability.
In May of 2015, the EDMC was undergoing further investigation, this time at the hands of the United States Department of Justice.
Like many others on this list, Ashford University was found guilty of questionable recruiting tactics, no job placement support, and a low percentage of their total budget spent on instruction.
In 2011, they were audited by the United States Department of Education. This audit revealed that the university had kept roughly one million federal financial aid dollars that had been given to students who subsequently withdrew.
In 2013, their advertising practices were investigated once again—many Iowa students claimed that recruiters had lied to them to convince them to enroll. One year later, Ashford paid $7.25 million in settlements. In 2015, they were still under investigation.
This university spent a disproportionate amount of its total revenue on marketing tactics. In addition, it was found to have a high withdrawal rate in students participating in their bachelor’s degree programs.
Capella’s questionable business model came into question even before the GAO report: back in 2008, the Department of Education found that the university had overcharged them by just over $500 thousand dollars. The school also failed to return money granted to students who later withdrew from their classes.
This school had expensive programs and aggressive recruiting tactics, but compared to the other schools on the GAO report, it spent more of its revenue on academic instruction and had much better student outcomes, including a below-average default rate. Chancellor University closed its doors in 2013.
Despite a high withdrawal rate and expensive tuition, DeVry had positive outcomes for students who did not withdraw. This university was found to have fairer recruiting practices, better work experience programs, and better student services than its competition.
In 2014, the Illinois and Massachusetts attorneys general investigated DeVry’s marketing and advertising techniques. A lawsuit in 2013 suggested that officials had broken federal regulations and offered students bribes. It was still under investigation in 2015.