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Report Finds $32 Billion In Federal Aid Goes To For-Profit Universities

Two reports out this week tell us more about students borrowing to attend for-profit universities. The Consumerist writes a two-year investigation by the Senate Committee on Health, Education, Labor, and Pensions released Monday revealed $32 billion in federal aid goes to for-profit schools each year.

The report, entitled “The Failure to Safeguard the Federal Investment and Ensure Student Success,” found that half of all students who enrolled in for-profit colleges in 2008-09 dropped out within four months.

Students who attended for-profit schools were also more likely to default on their student loans. From the report:

In theory, for-profit colleges should be well-equipped to meet the needs of non-traditional students. They offer the convenience of nearby campus and online locations, a structured approach to coursework and the flexibility to stop and start classes quickly and easily. These innovations have made attending college a viable option for many working adults, and have proven successful for hundreds of thousands of people who might not otherwise have obtained degrees.

But for-profit colleges also ask students with modest financial resources to take a big risk by enrolling in high-tuition schools. As a result of high tuition, students must take on significant student loan debt to attend school. When students withdraw, as hundreds of thousands do each year, they are left with high monthly payments but without a commensurate increase in earning power from new training and skills.

The report found that for-profit colleges spent as little as 17 percent on instruction while devoting as much as 42 percent to marketing and recruitment.

The Consumerist provides some analysis:

The HELP report found that, on average, 54% of students who began at a for-profit institution during the 2008-2009 school year withdrew by summer 2010. Nine schools in the study had withdrawal rates of at least 60%, with the highest being 84%.

Of course, when students exit without a degree, they are still walking away with debt.

And yet, while students are being aggressively recruited to pay too much for a degree from schools that don’t support them in the classroom or in the job hunt, those same colleges are making a tidy profit. In 2009, 16 of the largest for-profit schools raked in a profit of $2.7 billion.

Also out this week are the results of a survey conducted by the National Consumer Law Center on borrowers who’ve defaulted on their student loans.

“Billions of taxpayer dollars are being diverted from the main purpose of educating students.”
—Sen. Tom Harkin, D-Iowa

According to that report:

The federal student aid programs began during the 1960s as a way to improve access to education for lower-income individuals. In 1965, on signing the higher education act, President Johnson said, ‘[The Higher Education Act] means that a high school senior anywhere in this great land of ours can apply to any college or any university in any of the 50 states and not be turned away because his family is poor.’ President Nixon echoed this message in 1970, stating that, ‘No qualified student who wants to go to college should be barred by lack of money.’

Measured by these goals, student aid policy has failed. College completion rates in the United States have been flat since the 1970s among all sectors of higher education. Lack of completion is a particular problem among lower-income individuals. The shocking reality is that despite all of the government money spent on financial aid, the difference in college graduation rates between the top and bottom income groups has widened by nearly 50% over two decades.

Of the students surveyed, about half said they felt they shouldn’t have to pay the money back. About 90 percent of the students who felt that way attended for-profit colleges and cited serious concerns with the quality of the education they received.

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