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Dropout Rate at 16 For-Profit Colleges Was 57%

January 19, 2011

Dropout Rate at 16 For-Profit Colleges Was 57% – Businessweek.

(Updates with share-price movements in last paragraph.)

Sept. 30 (Bloomberg) — About 57 percent of students at 16 for-profit colleges who started classes in the 2008-2009 academic year have dropped out, Senator Tom Harkin said.

During the three years, an estimated 1.9 million students left the institutions, most with nothing to show for their time except debt, Harkin said today at a hearing in Washington, quoting from a report by his office. The Senate Health, Education, Labor and Pensions Committee held a hearing today into whether the schools misled students on employment prospects after graduation.

“Going to college should not be like going to a casino where the house usually wins,” Harkin said at the hearing.

The report didn’t disclose comparable dropout rates for public universities or nonprofit colleges. About 38 percent of students at for-profit four-year colleges graduate within six years, compared with 53 percent at public institutions and 64 percent at nonprofits, according to an April report from the National Center for Education Statistics. The April report is based on first-time, fulltime students who enrolled in 2002.

The U.S. Education Department has proposed a regulation that would require for-profit colleges to show their students get well-paying jobs or lose access to federal funds. Education Secretary Arne Duncan on Sept. 24 delayed issuing the “gainful employment” rule until early 2011 after receiving 91,000 comments, the most ever on an education issue, according to department officials.

Federal Dollars

At 14 for-profit schools, federal dollars totaled 87 percent of revenue in 2009, according to the report.

Recruiters enticed Danielle Johnson, a mother from Iowa, to enroll in Washington Post Co.’s Kaplan education unit, saying she could train at home to be a nurse, a statement that turned out to be untrue, she said. Kaplan refused to release her transcripts, preventing her from transferring into a cheaper, community college, she said.

“What the student presented today is not substantiated by the facts,” Melissa Mack, a Kaplan spokeswoman, said in an e- mail. “We’re very proud of our practical-nursing program, in which the Cedar Rapids campus enjoys a 92 percent job placement rate.” Kaplan can’t provide specifics about individual students because of federal privacy laws, Mack said.

While working students must have access to programs that fit their schedules and training requirements, they also need protection from the predatory recruiting programs and lending fraud uncovered by a government probe of education companies, said Arnold Mitchem, president of the Council for Opportunity in Education, a nonprofit organization based in Washington, said at the hearing.

‘Access Is Critical’

“Access is critical, but access to what?” Mitchem said. “Mountains of debt?”

For-profit colleges represent about 12 percent of U.S. college students, according to the Association of Private Sector Colleges & Universities, a Washington-based industry group formerly called the Career College Association. Those students account for about a quarter of U.S. student loan dollars, said Lauren Asher, president of the Institute for College Access & Success, an advocacy group based in Oakland, California.

About 43 percent of all former students who defaulted by 2010 on loans they began paying off in 2008 were from for-profit colleges, Asher said. The consequences of those defaults are “severe and long-lasting,” she said.

‘Until You Die’

“You will likely be hounded by collectors, and your debt will increase significantly because of default and collection fees,” Asher said. “You cannot get federal grants or loans to return to school, and the debt can follow you until you die. There is no statute of limitations, and the government can garnish your wages, seize your tax refunds, and eventually take a slice of your Social Security check.”

For-profit colleges have helped improve the lives of many students who earlier failed at traditional, nonprofit universities, said Harris Miller, president and chief executive officer of the for-profit colleges’ trade group.

“We can all play the anecdote game,” Miller said in a telephone interview before the hearing began. “We have plenty of students who would be glad to tell the committee how our schools have turned their lives around.”

About 1,500 students, teachers and administrators rallied in front of the U.S. Capitol yesterday to oppose proposed industry regulations that would force for-profit colleges to show that graduates are repaying their loans and make enough to afford repayment.

‘Great Job’

“All State does a great job of preparing you to present yourself for a job,” said Sarah Martin, 22, a student at All State Career School in Baltimore, who rode to Washington on one of six buses the college sent to the rally.

“It’s up to you to take advantage of the situation,” Martin said.

D’angelo Walker, a former student at Hoffman Estates, Illinois-based Career Education Corp.’s Sanford-Brown College whose story was included in a submission to the committee, said his degree failed to help him get a job, and other colleges won’t accept the credits he earned.

“I feel like I’ve been robbed,” Walker said. “Every school is telling me that I will have to start over.”

Almost half of the students at for-profit colleges are minorities and about two-thirds of the schools’ students have incomes below the median for all undergraduates, Asher said. These students are three times as likely to borrow to pay for their education as those attending nonprofit colleges, Asher said.

“The data clearly show that across levels of income and categories of race/ethnicity, for-profit college students borrow more than those who attend elsewhere,” she said.

Shares of for-profit education companies jumped. Education Management Corp. gained 15 percent, the most in the Russell 1000 Index, to $13.59 as of 2:38 p.m. in New York, while DeVry Inc. rose 5.8 percent to $49.60 to lead advances in the Standard & Poor’s 500 Index. A gauge of 12 stocks in the industry increased 4.8 percent.

–Editors: Robin D. Schatz, Joanna Ossinger

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#<165651.6636694.># -0- Sep/30/2010 18:50 GMT

To contact the reporter on this story: John Lauerman in Boston at

To contact the editor responsible for this story: Jonathan Kaufman at

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