Unemployed and struggling to care for an autistic son, the 35-year-old Pen Argyl woman said she cannot begin to pay down her $46,469 in student loan debt, mostly from two stints at the now defunct for-profit Lehigh Valley College. Back when she enrolled at LVC, recruiters promised lifetime help finding work, she said.
But ever since Career Education Corp. of Chicago closed LVC in 2008, Fritz said, she has been left to fend for herself in a brutal job market. It has been all the more difficult, she added, because some employers refuse to consider her once they find out where she went to school.
“You get frustrated. You want to melt down,” she said. “I absolutely regret going back to college.”
A two-year investigation by the U.S. Senate Health, Education, Labor and Pensions Committee found many who attend for-profit colleges find themselves in similar predicaments.
A recently released report on the investigation describes a parasitic industry with a business model designed to exploit federal student financial aid rules. The schools, many of which are owned by publicly traded companies and private equity firms, consume a disproportionate amount of grants and loans as they peg tuition to the maximum they can collect from the government, the report charges.
“In this report, you will find overwhelming documentation of overpriced tuition, predatory recruiting practices, sky-high dropout rates, billions of taxpayer dollars spent on aggressive marketing and advertising, and companies gaming regulations to maximize profits,” the committee chairman, Sen. Tom Harkin, D-Iowa, said in a July 30 press release announcing the report.
“These practices are not the exception — they are the norm. They are systemic throughout the industry, with very few exceptions.”
Released in the run-up to a presidential election, the assessment has quickly become fodder for political debate. Attitudes toward for-profit education tend to fall along party lines, with Democrats calling for greater regulation of an industry that Republicans see as an appropriate market-based alternative to traditional colleges and universities.
In a campaign stop in Columbus, Ohio, on Wednesday, President Barack Obama said, “My opponent wants to … let for-profit colleges keep preying on veterans and working families.” Meanwhile, presumptive Republican presidential nominee Mitt Romney has made at least two for-profit colleges the backdrop for his speeches, most recently the NASCAR Technical Institute in Mooresville, N.C., earlier this month.
Former Republican Congressman Steve Gunderson of Wisconsin, who heads the Association of Private Sector Colleges and Universities, described the report commissioned by the Democratic-controlled Senate as “nothing more than continued political attacks.”
“Unfortunately, Sen. Harkin’s report continues in the tradition of ideology overriding reality. The report twists the facts to fit a narrative,” he said in a press release. “Harkin is attacking schools that are currently providing instruction to 3.8 million students. Today’s students already face enough challenges accessing postsecondary education without these sorts of distractions.”
Among the report’s key findings:
• The for-profit college industry survives on the largesse of the federal government, taking in 25 percent of Education Department loans and grants, 37 percent of GI Bill benefits, and 50 percent of Defense Department tuition assistance, totaling $30 billion. Among 15 publicly traded for-profit college companies, public funds account for 86 percent of revenues.
• Much of this taxpayer money is diverted to marketing, profits and executive salaries. Among 30 for-profit college companies in 2009, an average of 22 percent of revenues went to marketing and recruiting and 19 percent to profit, with 18 percent for student instruction. The average CEO salary was $7.3 million, more than seven times the average salary of presidents at large public universities, and more than twice the average at nonprofit colleges and universities.
• Most for-profit colleges charge more than community colleges and public universities. Associate and certificate programs, for example, cost four times more than at community colleges, on average. Because of the high costs, 96 percent of for-profit students take out federal or private loans, and more than one in five will default on those loans within three years.
• Many students leave with debt, but no degree. Of students who enrolled in for-profit colleges in 2008-09, more than half had withdrawn by mid-2010.
• Recruiters are trained in tactics of “emotional exploitation” to persuade prospective students to enroll, and some mislead prospective students about cost, accreditation, completion rates and job placement rates.
The report links the rapid growth of for-profit higher education to an expanding population of “non-traditional” students, describes as “those who either delayed college, attend part time or work full time while enrolled, are independent of their parents, or have dependents other than a spouse.”
In Pennsylvania, for-profit colleges enroll more than 73,000 part-time and full-time students, providing 65 percent of the professional certificates and 34 percent of the associate degrees in the state, according to the Pennsylvania Association of Private School Administrators.
Fritz said her financial problems mounted after she graduated from Lehigh Valley College and a difficult pregnancy cost her a job. She described a rapid downward spiral:
Down to only the income her husband earned as a welder, the couple put off their mortgage payment to pay down her student loans. Before long, their bank was threatening legal action. Desperate, they put their house up for sale.
They couldn’t find a buyer who would pay as much as they owed on the mortgage and the bank wouldn’t accept anything less.
“If it weren’t for my [school] loans, we’d have been OK,” said Fritz, who completed LVC’s paralegal program in 2007 and its accounting program in the late 1990s, before the school was acquired by Career Education and its name changed from Allentown Business School.
Nevin Moyer, 28, of Tatamy also is trying to get out from under the debts he incurred as a student at LVC. He enrolled in the school’s criminal justice program when he was 19 in 2003, and he quit a year later, before graduating. He said the tutoring a recruiter had promised to help him balance full-time work and school never materialized, and he claims LVC charged him for courses he hadn’t taken.
Moyer said he tried to continue his education at Northampton Community College but couldn’t afford to pay both the tuition there and the bills on his two LVC student loans, including one co-signed by his grandmother. After he lost his job, he fell behind on the loans and filed for bankruptcy, he said.
Bankruptcy, though, did not diminish his student loan debt. In 2005, President George W. Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act, which included a provision making it nearly impossible for students to shed private student loans through bankruptcy. (This change was quietly slipped into the bill at the behest of Sallie Mae, a publicly traded company headquartered in Reston, Va., and other lenders, becoming law without being publicly debated first.)
Today, Moyer is married with a child on the way and has more than $30,000 in student loan debt. His credit rating is shot; he cannot get a loan for a house or car.
“If I didn’t have those school loans, I wouldn’t have ever filed for bankruptcy,” he said. “It all goes back to that.”
Avoiding loan defaults
Career Education spokesman Mark Spencer said he could not comment specifically on Fritz and Moyer because of privacy policies, but said his company’s more than 90 schools are upfront about their costs and do their parts to educate students about financial aid.
“The costs of attending any of our institutions are disclosed in plain language on the websites for each of our schools, available for anyone to view,” he said in an email. “We have invested a great deal of resources in providing counseling and support to students when they leave school and begin repaying their student loans, including counseling them on repayment options and making sure they understand the principle of avoiding accumulating interest.”
Career Education announced the imminent closure of nine institutions, including LVC in Center Valley, in 2008 — two-and-half years after a Morning Call investigation triggered a probe by the Pennsylvania attorney general’s office that resulted in LVC’s paying a $200,000 settlement to the state. Many of the newspaper’s findings — about expensive tuition, overwhelming debt and misleading job placement claims, among other issues — are echoed in the Harkin report.
Although three years have passed since LVC was shuttered, Career Education still offers career assistance to Fritz and other alumni, according to Spencer, who pointed to a link on the defunct school’s website where former LVC students may post their resumes. The site also allows employers to post job openings. Spencer said the site has been used by about 100 former students and dozens of Pennsylvania employers, including several from Allentown and Bethlehem.
Spencer said he does not know how many former LVC students, if any, have found work through this service.
According to the Senate report, for-profit colleges have long been part of the higher education mix in this country. Historically, most offered training lasting less than a year, in fields like air-conditioning repair, cosmetology and truck driving.
It wasn’t until the 1990s that the industry began to shift its focus to multi-year, associate- and bachelor’s-degree programs. Career Education was founded in 1994 and quickly became a leading example of the new model.
After closing nine schools including LVC in 2008, Career Education experienced a dip in enrollment from which it quickly rebounded. As of last year, Career Education had about 100,000 students around the world, bringing in revenues of $1.9 billion, according to the company’s annual report.
LVC’s demise did not spell the end of for-profit higher education in the Lehigh Valley. Other schools have expanded or entered the market to fill the void. Among the bigger ones are Lincoln Technical Institute in South Whitehall Township, the McCann School of Business and Technology in Hanover Township, Lehigh County, and Pennsylvania School of Business in downtown Allentown.
Pennsylvania School of Business was launched by EVCI Career Colleges Holding Corp. of New York in 2005, at the same time LVC, grappling with negative publicity, saw its enrollment crash. Initially, PSB was based in an old hotel, though last year it relocated into a former Wachovia Bank call center.
The school’s enrollment quadrupled from 2007 to 2009, when it had nearly 700 students, according to the most recent records on the U.S. Department of Education’s website. During the same period, its student loan default rate also surged, putting the school in danger of losing access to federal funding.
The default rate — the ratio of former students who have defaulted on their loans compared with enrollment — was 26 percent in 2009 and 30 percent in 2008, Education Department records show. Under federal aid rules, the department is supposed to cut off assistance to students at schools that have default rates of 25 percent or higher for three years in a row.
PSB President Mike O’Brien disputed the figures on the Education Department’s website. He said his school’s enrollment has never been higher than about 450 students. Furthermore, he said, the Education Department readjusted the 2008 default rate to 24.6 percent after the school filed an appeal. He provided a copy of a letter from the department confirming the change.
While the readjusted default rate means PSB is not in immediate jeopardy of losing access to federal funding, O’Brien said he believes it is still too high. He said he has implemented measures to lower it, such as counseling students at orientation and upon graduation and including the subject of loan repayment in several courses.
“We’ve put a very good plan in place going forward to address these issues,” he said. “We get how serious this is.”
Two bills proposed
The Senate report recognizes that “for-profit colleges have an important role to play,” adding that “in theory, for-profit colleges should be well equipped to meet the needs of non-traditional students.”
However, the report blames Congress for not doing more to ensure financial aid is spent wisely. The report recommends that access to grants and loans be tied more closely to student outcomes, and that constraints be placed on how taxpayer money is spent.
Harkin has introduced legislation along these lines. One bill would prohibit schools from using financial aid for advertising and recruiting. Another would reduce marketing to veterans through a change in the way the government accounts for assistance through the GI Bill.
But the real impact of the Senate report will not be apparent until next year at the earliest, when Congress is due to debate reauthorization of the Higher Education Act, according to Barmak Nassirian, an independent education policy consultant in Washington, D.C. He said Harkin’s Democratic colleagues are eager to put their stamp on the act, which provides the funding mechanism for student financial aid and requires renewal roughly every five years.
In testimony before the Senate Health, Education, Labor and Pensions Committee last year, Nassirian said lax congressional oversight of for-profit colleges had created a financial aid “feeding frenzy.” He called for greater federal and state regulation of for-profit higher education as well as higher accreditation standards to tighten the definition of what constitutes a college in the first place.
©2012 The Morning Call (Allentown, Pa.)
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