Cuts to public higher education funnel students into for-profit colleges, raise financial concerns

Michelle Bu/Staff

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As the state’s public institutions come under the knife, California’s for-profit colleges have thrived, enrolling more students and benefiting from lax regulation — a trend that could place more students at financial risk.

Continued cuts in state funding have forced some cash-strapped public schools to reduce class offerings and collapse programs, forcing students to turn to for-profits, a February study by the Center for Studies in Higher Education at UC Berkeley shows.

This trend may continue, as public universities would struggle to expand accessibility in the face of potential cuts of $200 million to the UC and CSU, should voters reject Gov. Jerry Brown’s November tax initiative.

The CSU announced earlier this week that it will not accept new students at most of its 23 campuses in spring 2013 and may reduce enrollment next fall if the initiative does not pass — cuts that could result in more students enrolling in for-profits.

But Rich Williams, higher education advocate for the U.S. Public Interest Research Group, said he was concerned that for-profit schools like the University of Phoenix fall short in ensuring their students graduate with marketable skills.

“The incentive structure for for-profit schools is based on profit,” he said. “Their accountability is less to the students and more to their shareholders.”

For-profit schools represented just 12 percent of all higher education students in the nation in 2011 but accounted for 46 percent of all student loan dollars in default, according to the U.S. Department of Education.

For-profits benefit tremendously from government grant programs.

A winter 2012 study by Harvard University economists found that in 2008-09, federal grants and loans received under Title IV of the Higher Education Act made up almost three-quarters of the revenues for eligible for-profit higher education institutions.

“The combination of relatively weak oversight — including virtually no oversight for a few recent years — and an unusually generous state grant program have made the state an attractive place for for-profit colleges to do business,” said Debbie Cochrane, program director of the Institute for College Access and Success, at a Feb. 14 state Assembly Higher Education Committee and Senate Committee on Business, Professions and Economic Development hearing.

Documents show that these institutions lobbied heavily last year when the state was considering budget cuts.

Bridgepoint Education, a for-profit college company, gifted Assemblymember and chair of the Assembly Higher Education Committee Marty Block $346 worth of events tickets last year — the largest gift amount he received from any single source, according to recently released Form 700 statements of economic interest from 2011.

Without much regulation, for-profit colleges have engaged in predatory recruiting practices, said Ed Emerson, chief of federal policy and programs at the California Student Aid Commission.

“You had schools recruiting students from homeless shelters, admission counselors working on commission — a practice called churning, where you have to over-enroll — a lot of fairly unscrupulous effort,” he said.

Last March, Brown signed SB 70 into law to improve regulation. The legislation ties an institution’s eligibility to receive Cal Grants to the rate at which its students default on loans.

Now, higher education institutions in the state cannot have more than 30 percent of students default within three years of beginning payment on loans in order to receive Cal Grants starting in the 2012-13 academic year.

The California Student Aid Commission has already cut off about 70 for-profit campuses from Cal Grant money as a result, Emerson said.

Kent Jenkins, spokesperson for Corinthian Colleges, which operates a number of Everest College campuses in California, said the company acknowledges high student default rates.

But, he added, the company has improved student financial literacy over the past few years by spending around $8 million to $9 million on new programs to reduce default rates.

Emerson confirmed that a number of colleges, including those run by Kaplan, have recently established pre-enrollment programs to increase students’ awareness of their financial burdens.

“We understand that the money students invest in tuition needs to pay off for them in terms of a diploma and a degree and increased job skills, and we understand that taxpayers have to feel the money from Cal Grants is well spent,” Jenkins said.

Curan Mehra covers higher education.