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For-profit schools lobby to avoid proposed federal aid rule

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By Nick Anderson
Washington Post Staff Writer
Friday, October 22, 2010; 12:12 AM

Companies that run colleges and trade schools for profit are mounting a full-tilt, high-dollar campaign against an Obama administration effort to tighten rules for their access to federal aid.

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The industry has staged a Capitol Hill rally, run advertisements in national newspapers, hired big-name lobbyists and coordinated thousands of comments on the proposed regulation in an effort to derail or dilute it. This month, industry executives are beginning a round of private meetings with senior Education Department officials to argue their case.

At stake is a lucrative source of funding for a sector of higher education that serves about one of every 10 postsecondary students and has more than doubled its market share in the past decade. Stocks of for-profit colleges have fallen sharply in recent months amid warnings about how the proposed rules could shake up the schools.

The proposal, to be aired in public hearings at department headquarters in early November, would be the most significant new regulation for the fast-growing industry since the early 1990s. Administration officials say it addresses their concern that students from for-profit schools often end up with unmanageable debt and weak job prospects. Industry leaders respond that their schools offer older and low-income students an opportunity to get ahead in life.

'Their livelihood'

For-profit schools receive about $1 of every $4 spent on federal Pell grants for students in financial need. That totaled more than $7 billion in the last school year - up from nearly $1 billion a decade earlier. For some for-profit schools, federal grants and loans account for most of their revenue.

"It's their livelihood," said Mark Kantrowitz, a college-finance analyst with the Web site FinAid. The Obama proposal "has the potential to severely impact the industry in terms of what programs they can offer, what their revenues are going to be, what their profits are going to be." But he said the government has "a good argument" for seeking to rein in student debt.

For-profit schools offer degrees and certificates, often through online courses, in fields including health care, the law, cosmetology and the culinary arts. The Washington Post Co. operates for-profit schools through its subsidiary Kaplan and owns more than 8 percent of stock in Corinthian Colleges, another for-profit company, based in Santa Ana, Calif.

The largest provider of for-profit higher education, Apollo Group, which is based in Phoenix and has 470,000 students, forecast last week that enrollment of new students at its University of Phoenix would decline. The company said it was taking steps that would affect enrollment at a time of "ongoing regulatory and other scrutiny" and media reports that have "portrayed the sector in an unflattering light." Industry stocks, which have sagged for much of the year, fell sharply after the statement.

Under scrutiny

Much of the decline came after the Government Accountability Office reported in August that an undercover investigation found that some recruiters of for-profit colleges encouraged fraud or engaged in deceptive marketing practices.

This week, the Florida attorney general's office disclosed that it is conducting a civil investigation of for-profit schools in connection with alleged misrepresentations about financial aid and other matters. (One of the companies under investigation is Kaplan Higher Education, and a spokeswoman said this week that the company had not been contacted by the authorities but would cooperate fully.)

The closer scrutiny follows the Education Department's push to clamp down on what it said in July is "wasteful spending on educational programs of little or no value that also lead to high indebtedness for students."

Federal data show that 11.6 percent of student borrowers from for-profit schools default on their loans within two years of beginning repayment, compared with 6 percent from public colleges and 4 percent from private, nonprofit schools. Some experts note, however, that default rates are often high at nonprofit schools with many low-income students.


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