For-profit schools labeled 'abject failure'

Federal report blasts costs, tactics, graduation rates

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WASHINGTON -- A federal report on for-profit colleges singled out Pittsburgh-based Education Management Corp. as having one of the highest numbers of dropouts but credits it for spending more on instruction than similar institutions.

The report came after a two-year audit by the Senate Committee on Health, Education, Labor and Pensions. Its chairman, Sen. Tom Harkin, D-Iowa, has long been concerned that companies like EDMC put profits ahead of students.

Issued Monday, the scathing 5,000-page document blasts the for-profit education industry for recruiting too aggressively, for spending more on marketing than teaching, for producing too few graduates, for charging significantly higher tuition than comparable public schools, for tying salaries to recruitment and for giving prospective students unrealistic impressions of potential post-graduate employment and earnings.

"This is a failure, an abject failure," Mr. Harkin said in releasing the report.

The committee held six hearings and reviewed thousands of internal documents from 30 for-profits, including Education Management, or EDMC, which operates 107 campuses including The Art Institutes, Argosy University, Brown Mackie College, South University and Western State University College of Law.

About 80 percent of for-profit schools' funding comes from federal Pell grants and Stafford loans, totaling more than $32 billion a year.

Students are ill-equipped to repay the loans because most fail to complete their degree programs, while others graduate to find low-paying jobs in the fields they studied, the report found.

Default rates are 22.5 percent for students at for-profit schools, compared with 9 percent for students at other schools, and their loans are typically more because tuition is higher.

An associate's degree in web design and interactive media from the Art Institute of Pittsburgh, for example, costs $47,410, according to the report. Community College of Allegheny County offers the same degree for $6,800.

Instead of holding the line on tuition, Mr. Harkin said, for-profit colleges pay their executives high salaries, invest heavily in recruitment, and amass profits to satisfy investors. On average, they spend 17 percent of their budgets on instruction, 42 percent on marketing and profit, and 41 percent on other expenses, including executive compensation packages that run as high as $40 million a year.

EDMC is a rare exception, spending more on instruction than it banks as profit, according to the report.

It spent $3,460 per student on instruction in 2009, while its for-profit competitors spent between $892 and $3,969. Still, EDMC spent even more on marketing than teaching: $4,158.

The company is in the midst of a lawsuit over whether compensation for recruiters has been based entirely on recruitment numbers, which would be illegal.

In an e-mailed statement, spokeswoman Jacquelyn Muller said she was pleased the report recognized EDMC's investments in instruction and academics. EDMC employs far more full-time faculty than other similarly sized education companies, she said.

Her statement did not address the report's statistics on student retention.

Sixty-two percent of EDMC students drop out within the first year, leaving them saddled with debt, according to the report. Only two companies in the report -- Ashford and Rasmussen -- have higher dropout rates.

"The student has debt around his or her neck that they can't discharge in bankruptcy, they don't have a degree to show for it and they're worse off than when they started," Mr. Harkin said.

Taxpayers' investments in federal aid are being squandered, Mr. Harkin said.

"We must hold colleges accountable, and we must ensure that students and taxpayers are seeing a return," he said. Until that happens, for-profit schools are doing "real, lasting harm to the students that they enroll," he said.

For Sen. Richard Blumenthal, D-Conn., the story is about more than money.

It's about "dreams destroyed and the crippling debt on the part of students whose hopes and vision for the future has been literally decimated by the hype and pitches and promises made deceptively by many of these institutions," he said.

Laura Brozek knows all about those pitches. She made them herself for seven years at three different ITT Technical Institute campuses in Southern California. She was good at them, too, she said, earning five-figure raises she believes were tied to the number of new students she enrolled.

She described her former job to reporters at Mr. Harkin's news conference.

One technique was called "the pain funnel." Its aim was "to demoralize potential applicants by discussing their lives' shortcomings in order to have them enroll where their life would improve," she said. "Many students enrolled with the expectations that if they spend enough money, whether through savings or student loans, their problems would be solved. ... For a large percentage of students who enrolled, this was simply not the case."

She said recruiters also targeted parolees to enroll in criminal justice programs, even though they knew that ex-convicts were unemployable in that field.

"It was unconscionable," she said.

A spokesperson for ITT Tech could not be reached.

Mr. Harkins has a recipe for change. He wants Congress to require schools to provide progress reports for every student receiving federal aid, ban them from spending federal money on marketing and lobbying, and require them to offer student services including career counseling.

Rep. Elijah Cummings, D-Md., has something to add to that; he wants to limit executives' pay at for-profit schools.

According to the report, EDMC'c chief executive Todd Nelson received $1.8 million in compensation in 2009. That's more than twice as much as former Penn State president Graham Spanier was paid that year, but paltry compared to other leaders of for-profit educational companies, whose 2009 compensation averaged $7.3 million.

The report is the latest hit to for-profit colleges, which already are grappling with new federal regulations including the "gainful employment" rule. The rule cuts federal loan eligibility for programs that provide education in careers with low earning potential relative to loan debt.

EDMC schools have a combined enrollment of 158,300, including 42,300 online. That's up from 81,800 (with 7,900 online) five years ago.

education - state

Bureau Chief Tracie Mauriello: 1-703-996-9292 or


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