New study finds for-profit colleges a bad deal for students

Mortarboard on stack of bills

Shareholders, not students, get to sit at the front of the classroom when it comes to for-profit education.

A new report from the Senate Committee on Health, Education, Labor and Pensions should give anyone pause before they sign up with higher-education companies such as DeVry, Kaplan and the University of Phoenix.

“We uncovered two very big problems in for-profit higher education,” Sen. Tom Harkin, an Iowa Democrat and the committee’s chairman, said in a statement. “One, billions of taxpayer dollars are being squandered. And two, many for-profit schools are doing real, lasting harm to the students they enroll.”

The Education Department imposed stricter regulations on for-profit schools last year. But according to the report, some of those education companies are employing questionable tactics to meet those rules or just ignoring them.

The major concern is that for-profit schools spend far more money recruiting new students than they do teaching and retaining those who enroll.

The 30 for-profit colleges studied by the Senate committee spent 23% of their revenue on marketing and recruiting and only 17% on instruction in fiscal year 2009.

That probably shouldn't be surprising when three out of every four students enrolled in for-profit colleges are attending a school owned by a private equity firm or publicly traded company whose investors expect significant returns.

Internal company documents reviewed by the Senate committee found that those schools often raised tuition “to satisfy company profit goals,” not because of increased operating costs.

As a result, the report says the publicly traded education companies it studied enjoyed an average profit margin of 20% in 2009.

Here are some of the report’s other disturbing findings:

You can read the executive summary of the report here: http://www.help.senate.gov/imo/media/for_profit_report/ExecutiveSummary.pdf

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