For-profit schools are under the microscope as the Department of Education sets the definition for “gainful employment.”
“This goes directly to the heart of their business model,” said Kevin Kinser, a professor and senior researcher for the Institute for Global Education Policy Studies at SUNY-Albany.
For-profit schools — like Bryant and Stratton College in Syracuse and ITT Technical Institute in Liverpool — earn up to 90 percent of their revenue from student tuition, according to the federal Department of Education. To pay the tuition, many students borrow loans or get federal grants. And the government underwrites the loans so that the schools get paid even if the students default.
“Right now it’s a very low-risk process,” Kinser said. “They get paid whether or not the student completes, gets a job or pays back their loans.”
That’s where the idea of profit comes in. Non-profit schools, like Syracuse University or the State University of New York SUNY, have to reinvest any profit made from tuition back into educational programs. For-profit schools can use the money as they like — to pay shareholders or buy other companies, for example.
The for-profit schools are under scrutiny by federal and state agencies because of concern over their graduation rates, the debt burden on their students and their students’ potential to pay back their debt once they leave school.
The new “gainful employment” rules take effect on July 1, 2011. The rules define gainful employment as an ability to earn enough money to pay off student loan debt without falling behind. The change covers all colleges and training program. But it’s most likely to affect for-profit schools, experts say.
The new regulations require schools to track their ability to prepare students for gainful employment by measuring loan-repayment rates and the ratio of the students’ income to their debt. Schools that don’t meet the regulations will not qualify for federal aid. The rules also protects students from aggressive recruitment tactics. Schools can no longer compensate admission recruiters for enrollment rates.
Schools also must notify the Department of Education when introducing a new program. The new regulations also determine how much aid is appropriate for eligible programs and courses. They define eligible students as those who have a high-school diploma or have completed at least six college credits and who have satisfactory academic progress. Only students who meet those eligibility requirements can get federal education funds..
For-profit schools are critical of the new regulations. “It’s a proposal that threatens to put two million students out of higher education in a 10-year period,” Bob Cohen, senior vice president of the Association of Private Sector Colleges and Universities. The group is based in Washington, D.C., and represents 1,400 for-profit schools.
Cohen argues that the new regulations will eliminate the reduce student options. “People chose post-secondary education based on what’s best for them,” he said. “They can have the concentrated, focused and specific education they’d get at a career-college versus some of the challenges they might get at other colleges.”
For-profit schools are a growing industry. From 2001 to 2008, their enrollment tripled to 1.8 million, according to the Department of Education. Their students’ debt loads are also drastically rising. At for-profit schools, the department reports, the median student debt for federal loans is $14,000. That’s almost double the median federal debt for students at non-profits.
In addition, students at for-profits have more trouble paying down their debt. In 2007-08 academic year, for-profit schools saw 18 loan defaults for every 100 graduates. That compares to five defaults for every 100 graduates of public institutions in the same year.
One reason for that disparity in repayment, according to education researcher Kinser of SUNY-Albany, is for-profits tend to enroll students who are more likely to default on loans. “For-profits tend to enroll a student population that is, in general, at a lower income level, more likely to be a minority, and more likely to be a first generation college students,” he said. “Those students from a demographic perspective, no matter where they go to college, are less likely to be able to pay back loans.”
That description matches many of Bryant and Stratton’s students, said Matthew Denkenberger, is the housing director at the Syracuse branch of Bryant and Stratton on James Street. “A lot of them are first generation colleges students,” he said. The students are attracted to Bryant and Stratton because of the specific degrees, Denkenberger said. But, he said, they also benefit from personalized attention. “We’re kind of a niche market,” he said.
Department of Education statistics paint this picture of the local Bryant and Stratton College and ITT Technical Institute:
- In 2009 Bryant and Stratton enrolled 794 students — 74 percent of them were full-time. ITT Tech enrolled 355, with 86 percent full-time.
- In 2008, the graduation rate for Bryant and Stratton was 36 percent and for ITT Tech it was 39 percent.
- For the 2008-09 academic year, 89 percent of Bryant and Stratton students took out federal student loans and the school got nearly $1.2 million in federal student-loan money. ITT Tech received $638,397, with 93 percent of its students receiving federal student loans.
- At Bryant and Stratton, the median federal debt for those starting to repay their loans is $7,083 and their estimated repayment rate is 17 percent.
Despite the concerns, said education research Kinser of SUNY-Albany, for-profit schools play an important role in higher education. They accommodate students looking for specific career skills and they can create innovative academic models, he said. But he agreed that the schools need to do better for their students in repaying federal education loans while creating profits.
“We have had for-profit education for a long time so we’re not going to get rid of it,” Kinser said. “I don’t think that there’s any fundamental reason why profit and education cannot coexist amicably.”
(Ana Yanni is a graduate student in magazine, newspaper and online journalism.)
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