Santa Ana-based Corinthian Colleges Inc. and other for-profit school operators boomed during the downturn as laid-off workers turned to them to train for new jobs.
Now that growth has brought government scrutiny and the threat of regulation over practices used by school operators to attract and keep students.
The federal Department of Education has taken aim at what it has labeled “predatory” practices used by some for-profit school operators to keep bringing in students, many financed by government money.
For-profit schools received at least $4 billion in U.S. grants and $20 billion in loans last year, according a report by the Government Accountability Office.
That same report said recruiters at 15 for-profit colleges encouraged investigators posing as students to commit fraud on financial aid applications or misled them about tuition and potential salaries after graduation.
The report doesn’t make clear whether deceptive recruitment practices are limited to a few employees or are more widespread at the companies in the study, said Harris Miller, chief executive of the Washington, D.C.-based Association of Private Sector Colleges and Universities, a trade group of for-profit school operators.
Casting a Pall
Either way, stories of aggressive marketing, misleading recruiters and students who aren’t repaying loans have cast a pall over the industry, according to Peter Waller, chief executive at Santa Ana-based Corinthian Colleges, one of the larger for-profit school operators.
“There are over 3 million students who are enrolled in for-profit schools currently,” he said. “Some (schools) have utilized poor practices, and we have been lumped together (with them) by our antagonists.”
University of Phoenix
Phoenix-based Apollo Group Inc., operator of the University of Phoenix, has put in place a number of practices to try and get ahead of pending regulations.
The school, which has a large Orange County operation in Costa Mesa, has revamped how enrollment recruiters are paid, added seminars to showcase the rigors of classes and implemented programs on debt.
“We said if there is anything we are doing that might be considered predatory practices, let’s get rid of it,” said Ryan Rauzon, University of Phoenix spokesman.
The company no longer pays enrollment recruiters by the number of students they bring in, according to Rauzon.
University of Phoenix also launched a free, three-week seminar for students looking to attend any of its programs. In it, the school details what students likely will endure during the length of a program.
“We’ve had several students opt out due to the seminar,” Rauzon said.
Most of the changes were implemented in September, according to Rauzon.
“We think we will be a game changer (in) the industry in regard to change,” he said.
Corinthian also has looked at how it does business, according to Waller.
“We have launched an internal investigation and are implementing new rules to prevent the possibility (of abuse),” he said. “We support the department’s efforts to enhance accountability within post-secondary higher education.”
The Education Department’s proposed rules would impact all schools but would fall hard on for-profit schools.
The rules, which would take effect next year and in 2012, potentially could cut off federally backed student loans to schools where enrollees can’t find jobs after graduating or can’t pay back loans.
Corinthian and others are pushing back against the Education Department’s proposed “gainful employment” rule for graduates. It would cut off federal loans to schools that graduate students with high levels of debt and few job prospects.
The department plans to move forward on gainful employment and other regulations with a series of public hearings and meetings, where for-profit schools would be allowed to elaborate on their concerns.
The gainful employment rule is set to be implemented around mid-2012, according to officials.
Like others, Corinthian gets the bulk of its revenue from students with federal loans.
The company runs more than 100 campuses in the U.S. and Canada that offer degrees in healthcare, criminal justice and other areas.
Corinthian’s growth has been spurred by laid-off workers seeking training for new jobs.
Still Growing
The trend continues: Corinthian saw new student starts—a measure of those who enroll and then show up for class—rise about 17% for the three months through August versus a year earlier.
Corinthian opened four schools during the recently ended quarter, including campuses in Santa Ana, Milwaukee, Modesto and the Dallas area.
“The demand for students remains very robust,” Waller said.
The company also recently opened a 500-person center in Colorado Springs, Colo., to support Corinthian’s online operations.
Corinthian launched a marketing campaign earlier last month that highlights its graduates and takes issue with the proposed federal rules.
The campaign is geared toward lawmakers who may have influence with the Education Department.
Corinthian’s “My Career Counts” campaign includes ads in newspapers including the New York Times and Los Angeles Times that are expected to run for several weeks.
The ads play up Corinthian’s role in educating poorer, minority students who may not have access to other schools.
The company has been lobbying lawmakers and seeking to influence think tanks and others, he said.
Other Efforts
The industry has pretty much aligned behind Corinthian’s efforts.
The Association of Private Sector Colleges and Universities has a number of efforts under way to sway lawmakers in the nation’s Capitol.
The association recently held a rally on Capitol Hill with more than 2,000 students from for-profit colleges and universities.
Pittsburgh-based Education Management Corp. has hired Washington, D.C.-based lobby shop DCI Group, known for its prowess in fighting proposed federal rules.
Many legislators have received campaign contributions from for-profit schools this year.
Corinthian and others are battling a perception about the industry, according to Waller.
“Quite frankly there is a group of people who ideologically believe there shouldn’t be any profit in the world of education,” he said. “Just as there were people 20 years ago who believed there shouldn’t be any hospitals that are not purely for charity.”
For-profit schools are needed as public schools wrestle with government funding cuts, Waller said.
“Schools like ours are succeeding in putting America back to work,” he said. “Many traditional colleges and schools are under-funded, over-crowded and thus not accessible to our students.” n
