Are For-Profit Colleges Targeting Low-Income Students?

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By: Kayla Webley
June 15, 2011

A new report that shows low-income students enroll in for-profit schools at four times the rate of other students once again raises questions over whether for-profit colleges target the most vulnerable students in order to line their pockets.

The June 14 brief from the Institute of Higher Education Policy titled, "Portals: Initial College Attendance of Low-Income Young Adults," found students ages 18 to 26 whose average household income is near or below poverty are overrepresented at for-profit schools and underrepresented at public and private non-profit four-year colleges and universities.

This finding is especially disturbing as for-profit students account for more than 40 percent of student loan defaults, meaning that if they indeed target low-income students, for-profits are saddling the already economically challenged with a mountain of debt they may never be able to repay.

The release follows up a series of reports, including a 2010 audit by the Government Accountability Office, that suggest that for-profit schools often engage in predatory recruitment tactics in order to gain public funds.

While supporters of the for-profit institutions contend that the schools provide educational opportunities to students who normally would be shut out of higher education, critics of the schools allege for-profits target older students, parents, career switchers, high school dropouts, veterans, the learning disabled and the homeless and overstate future earnings or job-placement rates in order to get the students to enroll.

In return, the schools get huge amounts of government money. Because they enroll an abundance of low-income students, they get a large share of financial aid from the government. Despite the fact that they enroll only 11 percent of all higher-education students, they receive nearly 25 percent of all federal financial aid. Last year, the schools received a total of $24.6 billion in loans and $7.5 billion in Pell Grants -- a fact that led to a Senate inquiry into the for-profit industry to determine whether tax-payer dollars were being funneled into private pockets at a fraudulent rate.

To this end, earlier this month, the U.S. Department of Education finalized its "gainful employment" rule, meant to crack down on for-profits who load students with more debt than they can realistically repay. Under the rule, a program will now have to meet one of three requirements: at least 35 percent of former students are repaying their loans, the estimated annual loan payment does not exceed 30 percent of his or her discretionary income or the estimated annual loan payment does not exceed 12 percent of his or her total earnings. Those colleges who fail all three metrics three times within four years will have their federal financial aid dollars cut. (Though because they are required to fail three times, no school will become ineligible for aid until 2015 at the earliest.)

For-profit supporters say the schools are being unfairly targeted. And in doing so, the government is turning a blind eye to non-profit colleges and universities who are often guilty of many of the same things -- and enroll about 90% of higher education students.

Kayla Webley (@kaylawebley) is a guest contributor to Moneyland; she writes about education for TIME.

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This page contains a single entry by CFED published on June 15, 2011 3:40 PM.

Consumer Bureau Official Seeks to Ease Bankers' Fears was the previous entry in this blog.

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