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For-profit colleges need stronger oversight

Some of these schools do little more than put students in debt

Published: June 2013

The plethora of TV ads promoting for-profit colleges paint a rosy picture of how these institutions can advance a young person's education and career. The reality may be grimmer, however. Too often, students don't get the kind of quality education that leads to professional success, though they’re definitely getting saddled with sizable tuition bills.

The for-profit-college industry is dominated by huge, publicly traded companies that receive about 86 percent of their revenue from taxpayers through federal financial aid, according to a hard-hitting Senate report released last year. In 2012, taxpayers spent $32 billion on companies that operate for-profit colleges.

That same report found that most of the students they enrolled left without a degree, half of them within four months. It also condemned for-profit colleges for leaving students with lousy job credentials and enormous debt. One explanation for the debt could be that associate degree and certificate programs at for-profit colleges averaged four times the cost of degree programs at comparable community colleges.

Sending a kid to university in your future? Read our parents' guide to saving for college.

Consumers Union, the policy and advocacy arm of Consumer Reports, is calling for tougher standards to hold the companies behind for-profit colleges accountable to taxpayers for providing quality education, support, and outcomes.

Federal financial aid should only go to career-education programs that effectively train students and prepare them for gainful employment in a recognized occupation.

In 2011, the Department of Education issued a “gainful employment” rule for career-education colleges receiving federal student-loan assistance to hold them accountable for providing quality education to students that leads to viable job prospects. While the rule has been subject to legal challenges by for-profit colleges, the court has made clear that the Department of Education has the authority to define gainful employment.

Consumers Union recently testified at a field hearing on for-profit colleges held by the Department of Education. We urged the government (PDF) to continue working to improve the gainful-employment rule by setting stronger program loan-repayment thresholds. We also urged the Education Department to prevent for-profit schools from manipulating their loan default numbers and using other tactics to inflate their student's level of success.

In addition, Consumers Union-backed legislation currently in Congress would limit the activities for which for-profit colleges could use federal funds. Called the Protecting Financial Aid for Students and Taxpayers Act. it would require all colleges and universities to pay for advertising, marketing and recruiting with nontaxpayer dollars so that taxpayers are not left footing their bills to bring in more students.

Given the high demand for higher learning that traditional nonprofit and public institutions can’t meet alone, for-profit colleges certainly have a role to play in education. A growing number of students are looking for the online locations and flexibility that many of these colleges offer.

However, students and taxpayers deserve a good return on their investment in higher education. It’s become abundantly clear we need stronger oversight to ensure that students and taxpayers are not subsidizing schools that do little more than put students in debt.

This feature is part of a regular series by Consumers Union, the public-policy and advocacy division of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.


Read other installments of our Policy & Action feature.



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