Some For-Profit Schools At Risk of Losing Federal Aid


June 27, 2012
Watch College, Inc., FRONTLINE’s investigation into how for-profit universities are transforming the way we think about college in America, and Educating Sergeant Pantzke, our follow-up film about how the schools recruit veterans.

The Obama administration warned this week that nearly 100 for-profit colleges could lose federal funds for not meeting new performance requirement standards.

The Education Department released new data Tuesday evaluating career-training programs at both for- and nonprofit schools. It found that 5 percent of these programs — all of which were at for-profit schools — failed to meet the department’s three requirements to help students find “gainful employment” and qualify for federal aid:

  • At least 35 percent of former students must be repaying their loans, reducing the loan balance by at least one dollar.
  • A typical graduate’s estimated annual loan payment cannot exceed 30 percent of their income, or
  • A typical graduate’s estimated annual loan payment cannot exceed 12 percent of their earnings.

As we reported earlier this year, the government had written tougher rules to keep loans from going to students at the most exploitative for-profit schools. But these regulations were watered down after aggressive lobbying by the for-profit industry.

Now, programs at several schools have failed to meet even this lower threshold.

The government said that 193 programs in 93 different schools failed to meet any of the three requirements. Only 35 percent met all three. You can download a spreadsheet with data on all the schools’ metrics here, or a list of the failing programs by institution here.

Several of the failing programs were offered at beauty and barber schools. The list also featured programs at Kaplan College in Columbus, Ohio; and Hammond, Ind.. The school said in a statement that “less than half of 1 percent” of its students were in programs that failed, and added that the department hadn’t provided a means for the schools to verify the accuracy of the data.

Also on the list: a psychology program at the University of Phoenix, one of the largest universities in the world. We featured the school in our film on for-profit colleges, College, Inc. On Wednesday, Richard Castellano said the university was reviewing the data. “But as reported, all but one of the University’s degree programs met the gainful employment standards,” he said in a statement.

The department won’t start enforcing the rules until the fall of this year, so there won’t immediately be any sanctions for the listed schools. The Education Department released the information to allow them time to make changes. No program will lose eligibility before 2015, and only if they fail the requirements three out of four years in a row.

The Association of Private Sector Colleges and Universities, which sued to block the regulations last year, said in a statement that the department’s gainful employment regulations are “burdensome,” and that many member schools had reported “severe concerns” about the data the department used. It said that some schools hadn’t received information for all of their programs, and that some of the student and loan data was incorrect.

“The Department of Education’s ‘gainful employment’ regulation has an unfortunate history using erroneous metrics regarding student demographics and repayment rates,” it said, and ignores the impact on minority students who tend to rely more heavily on financial aid. “It also seeks to impose a set of one-size-fits-all rules by failing to consider the realities of regional and even local economic or occupational wage differences —especially in inner city and rural areas.”

But the Education Department said that students’ race or economic status doesn’t  account for all of the variation in repayment rates, and that the quality and value of the program may be more important.

On Tuesday after the announcement, shares for some of the major companies behind for-profit colleges rose, The Wall Street Journal reported, after the department’s data was deemed better than expected.

Sarah Childress

Sarah Childress, Former Series Senior Editor, FRONTLINE

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