May 13, 2013

For-Profit Colleges, Career Schools Hit Hard Times

After riding high for several years, for-profit colleges and career schools nationwide — mostly owned by publicly traded or private equity firms — are having a tough time. And the picture is similar in Central Massachusetts.

"(For-profits) went through this great boom and now (they're) going through something of a retreat," said Richard Garrett, vice president and principal analyst at Eduventures in Boston.

Late last year, Apollo Group, which owns the University of Phoenix, announced it would close 115 of its 227 locations across the country, including its 84-student satellite campus in Westborough. Phoenix spokesman Ryan Rauzon said the campus remains open but is not accepting new students.

He said the company decided to close the sites in its 36–state span after finding some of them underutilized.

"Most of our students, in some of those regions, were choosing to complete their coursework online," Rauzon said. "Why invest (in campuses) when student demand just isn't there?"

A Spot For Adult Learners

Garrett said for-profits have been successful over the past 20 years because they exposed a gap in non-profit education, which, for the most part, wasn't reaching out to adult learners. And, perhaps illustrated by Phoenix's decision to cut overhead costs, for-profits are typically able to adapt to market changes quicker than traditional schools.

"No question they've played a helpful role in expanding the horizons of what higher education is," Garrett said of for-profit schools. "They met a real need that wasn't being addressed."

He said that partially led to non-profit schools putting a greater focus on online courses and adult learners, and now that nonprofits have closed the gap, commercial schools have lost their niche and must determine how to better reposition themselves.

Meanwhile, some schools struggle.

In January, all eight campuses of the American Career Institute (ACI) in Maryland and Massachusetts, including one in Framingham, abruptly closed. Students reported being told classes were cancelled. Published reports said a notice was posted on the school's entrance saying lenders had declined to extend additional credit the school needed to continue operating.

In the wake of ACI's closure, Attorney General Martha Coakley's office launched an investigation into the school. Last month, her office announced an initiative to educate prospective students on deceptive marketing practices of which some for-profit schools have been accused. The deceptive practices target low-income students and veterans on the federal G.I. Bill, promise high placement rates and income, and tell students they can easily walk away from student loans.

But those in the industry say they are getting a bad reputation because of the errors of a few schools.

"That's not the norm," Garrett said. "The large, for-profit chains are very aware of what the rules are."

Higher Default Rates

For-profit schools come under particular skepticism because they're mostly federally funded, and students have a higher-than-average default rate on loans. According to a 2012 U.S. Senate report, students at for-profits represent 12 percent of those enrolled in college, but the sector receives 25 percent of the Department of Education's (DOE) student aid funds, which amounted to $32 billion in the 2009-2010 school year, the latest year in which data is available.

According to DOE data, the average student loan default rates in the U.S. in 2009 were 7.2 percent for nonprofit schools and 4.6 percent for private schools, but a much higher 15 percent at the for-profit institutions. Data for 2008 to 2011 showed that public colleges and universities in Central Massachusetts had an average default rate of 7.1 percent, while the average at for-profits was 12.5 percent.

Some, like Rauzon and Jim Bologa, president and CEO of Connecticut-based Porter and Chester Institute, say default rates only look at two or three years after loan repayment should have begun, without taking into account things like students getting better jobs a few years out of school and becoming better able to repay loans.

Bologa said he suspects default rates may be higher at for-profits because their typical students come from low-income households or inner-city schools, or they're working adults who are unable to complete their programs as "life gets in their way."

These schools' marketing practices are also scrutinized by lawmakers because of the heavy use of federal funding for recruitment rather than education. According to the Senate report, 41 percent of for-profit schools' revenue went to marketing and profit in 2009 and they spend less than a third of what nonprofits spend on education costs.

However, for-profits still can offer educations that colleges and universities do not, including shorter programs. For example, Central Massachusetts is home to vocational schools like Rob Roy Academy, which teaches cosmetology.

While some for-profits, such as the University of Phoenix, offer degrees, Porter and Chester does not. Rather, it provides students with skills and knowledge to prepare them to pass board certifications that Bologa said get students entry-level jobs after a year or 18 months of training and he thinks that will help the industry in the future.

"I think more and more families are starting to take a hard look at vocational training as a means (of education), with the traditional schools getting very expensive for folks to get educated but not necessarily have any skill or trade they can deploy," he said.

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