For–Profit Colleges, Failing the Test

Although the Obama administration’s proposed regulations governing for–profit colleges are not yet in effect, it has published the results of the test it proposes to apply to their programs  —  and one company, Corinthian Colleges, has gone out of business as a result.

Not all for-profit colleges are the same. Some, such as Strayer University, which dates to the 19th century, have had no programs fall short of the proposed federal standards. Others, including the Apollo Group, parent company of the giant University of Phoenix, had a number of substandard programs. Twenty Apollo programs failed — 17 percent of the total — and another three fell in an intermediate warning “zone,” meaning they fell below the federal standards but not by enough to qualify as failed.

Corinthian, by contrast, had 162 failing programs, more than any other for-profit college. It also led all for-profits in “zone” programs, with 68. Fully 50 percent of Corinthian’s programs missed the standard.

To end up in these categories, programs must have terrible results. At Corinthian-owned Everest College’s Newport News, Va., campus, for example, more than 500 students completed the medical assistant certificate program during the 2007-08 and 2008-09 school years. After hitting the job market, they earned an average of $12,553 per year in 2011. Since 90 percent of full-time medical assistants are paid at least $21,080 per year, according to the Bureau of Labor Statistics, this suggests that many of these students couldn’t get jobs in their field at all. The 10-month program costs “about $20,000,” according to a telephone representative whom I spoke to this week only after an online representative refused to tell me the price, saying, “I don’t have access to that information.” It’s not surprising that a third of all the program’s borrowers defaulted on their loans.

The taxpayers will be on the hook for some defaulted loans. Others were backed by Corinthian itself, which has made expensive private loans to its own students despite knowing ahead of time that most of them would default. It did this because by law, no more than 90 percent of the company’s revenues may come from federal financial aid. Every dollar that Corinthian lent directly to students allowed it to receive an additional nine dollars in federal aid, making the loans profitable even with default rates of 50 percent or more. At its peak, Corinthian received more than half a billion dollars per year from the federal Pell Grant program, more than the entire University of California system.

The collapse of Corinthian suggests that increased scrutiny and regulation of the for-profit higher education sector are working as intended, even before the rules themselves are finally enacted. For-profit colleges focused on providing adult learners with valuable job skills at an affordable price remain open. Those that fail to serve students well and act as responsible stewards of taxpayer dollars are beginning to close.

Kevin Carey directs the education policy program at the New America Foundation. You can follow him on Twitter @kevincarey1.

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