This week the nation’s second largest for-profit college, Education Management Corporation, reached a settlement with the Department of Justice to pay roughly $90 million, resolving accusations of illegal employee incentive compensation, according to The New York Times. The case is merely one more in a long list of recent battles between the Department of Education and for-profit colleges. For-profit colleges, once a platform for older or underprivileged students to receive a college education, have become a source of deception, student debt and unemployment. Because for-profit education is already on the decline, it is time to phase these colleges out of U.S. education and focus instead on the promotion of public and community college institutions.
For-profit education has been declining at a rapid rate over the past couple years. The University of Phoenix, the largest for-profit college in the United States, has seen its student enrollment decline in the past five years from roughly 460,000 students to around 200,000, with enrollment expected to decline further. The college was suspended by the Department of Defense last month from recruiting and receiving tuition-assistance funding following a federal investigation into the college’s illegal recruiting and marketing practices. Meanwhile, one of the other major U.S. for-profit colleges, Corinthian Colleges, filed for Chapter 11 bankruptcy in May, and the Department of Education has undergone an extensive plan of loan forgiveness for former students.
Several factors are causing the decline in for-profit institutions. Aside from the illegal practices that have led to countless settlements and fines, for-profit institutions are responsible for extremely high student debt, low graduation rates and sub-par job placement. Although students at for-profit institutions represent 11 percent of the higher education population, they account for 44 percent of all federal student loan defaults. These figures are a testament to the unreasonably high costs of these colleges, inadequate job placement to afford these student loans, and misaligned incentives that encourage for-profit schools to increase student borrowing because they aren’t actually the ones lending the money.
Shutting down these for-profit colleges may take years. The opposing argument is that the shutdown process would leave hundreds of thousands of students without an education and with ridiculous amounts of student debt. A similar situation occurred last year with Corinthian Colleges, in which tens of thousands of students were left to decide whether to transfer to a new college or drop their credits and attempt to get their loans discharged. It is clear that if this occurred on a much larger scale, there would simply be too much student debt for the Department of Education to handle.
Instead, through stricter regulations to prevent further fraud and deception, such as President Obama’s new “gainful employment rule” that plans to hold for-profit colleges more accountable, for-profit education should be phased out of the United States through a more long-term plan. This rule plans to cut off federal student aid from for-profit institutions, which accounts for 90 percent of their revenue, if they cannot comply with more stringent transparency and student debt affordability laws. For instance, the gainful employment rule states that programs will only receive federal aid if the annual loan payment of a typical graduate does not exceed eight percent of her total earnings. Furthermore, these programs must now publicly provide accurate data on whether students graduate, how much they earn and how much debt they accumulate. These regulations will continue to effectively downsize the for-profit industry through declaring for-profit institutions ineligible to receive federal aid, so that over time the industry will continue to shrink as the University of Phoenix has over the past five years.
On the other hand, in order to combat the absence of opportunities for higher education created through the downsizing of the for-profit college industry, the Department of Education will need to revamp the community college and public institution landscape. Obama has attempted to do this already this year through his push to make community colleges across the nation tuition-free. Such a plan seeks to fill the opportunity void created from the decline and eventual shutdown of the for-profit college industry. Thus far, five states and communities have created new programs to provide tuition-free community college. Senators in Congress have proposed the America’s College Promise Act of 2015, and 11 states have introduced legislation to achieve these ends.
Other states have been hesitant to introduce the program, likely due to its enormous costs. For instance, the program, which is estimated to cost $60 billion over 10 years, has stalled in Congress due to its steep price. Thus, the initiative may have to spread organically, state by state, and each state would need to make the conscious decision that tuition-free community colleges are required to combat the decline in for-profit colleges.
Although the for-profit college industry is declining at a rapid rate, there is still an immense amount of debt that the Department of Education must deal with before shutting down for-profit colleges for good. Through strict regulations and through the promotion of tuition-free community colleges as well as cheaper public institutions, Obama can effectively downsize the industry and provide new opportunities to aspiring students with increased transparency, lower costs and lower student debt.
Jared Fogel is an Opinion columnist for The Cavalier Daily. He can be reached at j.fogel@cavalierdaily.com.
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