Federal regulators and lawmakers are cracking down on for-profit colleges for what they say are misleading and aggressive recruitment practices. Investigations are mounting, and efforts are under way to cut off access to federal dollars for advertising, a move that could deal a blow to an industry already in turmoil.
On Thursday, Sen. Sherrod Brown (D-Ohio) introduced legislation to ban colleges from using federal student grants and loans for advertising, marketing or recruitment. While the bill covers all colleges and universities, Brown said it is largely aimed at preventing for-profit schools from using taxpayer money to benefit shareholders.
“Federal student aid and taxpayer dollars should be used to educate students, not fund corporate marketing campaigns,” Brown said. “Because of deceptive marketing practices, students looking for a quality college education can find themselves at for-profit institutions that are more concerned with profit margins than career readiness.”
A 2012 Senate investigation found that 15 of the largest for-profit colleges received 86 percent of their revenue from federal student aid programs, and spent 23 percent of their budgets, $3.7 billion dollars, on some form of recruitment. By comparison, nonprofit colleges spent less than a percent of their revenue on marketing, according to the investigation.
Industry groups argue that for-profit colleges rely heavily on TV, radio and online advertising because that's the best way to reach students who are older, work full time or have children -- their core population. Public and nonprofit schools spend a lot of money on athletics and use those programs to reach prospective students, said Noah Black of the Association of Private Sector Colleges and Universities, which represents for-profit schools.
"Compared to the ratio of athletic spending to academic spending at division 1 colleges, [for-profit] institutions spend very little on marketing," he said. "For every dollar spent on academics [for-profits] spend about 50 cents on marketing, while other institutions spend far more. The median football bowl subdivision school spends $6.70 on athletics for every dollar spent on academics."
Brown's staff called the comparison misleading because athletic programs are generally not funded with student financial aid dollars but receipts from ticket sales and media rights. What's more, few schools generate the kind of media exposure through their sports program to match the marketing campaigns devised by for-profit colleges.
The Ohio lawmaker's bill would require any college receiving more than 65 percent of its revenue from federal educational funds to report its marketing spending to the Education Department. Those schools would also have to certify that no federal education dollars were spent on marketing. The bill also bars schools from using the educational benefits members of the military receive from the Department of Defense and Department of Veterans Affairs for marketing.
Government agencies have grown wary of for-profit colleges' pursuit of veterans and their families. Military service members receive federal education funding that has become a stable source of revenue for many of the schools. And that money is exempt from a key federal rule that governs the way for-profit colleges are funded. As a result, lawmakers and consumer advocates say for-profit colleges aggressively recruit members of the military.
On Wednesday, the Apollo Education Group revealed that its subsidiary the University of Phoenix is being investigated by the Federal Trade Commission for deceptive advertising and marketing. The school is the largest recipient of federal student aid for veterans, taking in nearly $1.2 billion in GI Bill benefits since 2009. Apollo said in a public filing that regulators are asking for information about the school's military recruitment, enrollment and student retention, among other things.
The company declined further comment on the investigation. Calls to the FTC for comment were not immediately returned.
"I wish I could say I am surprised that the FTC is investigating the University of Phoenix for unfair and deceptive practices," said Sen. Dick Durbin (D-Ill.). "But these allegations are all too familiar when it comes to the for-profit college industry."
Durbin, along with Sens. Tom Carper (D-Del.) and Richard Blumenthal (D-Conn.), introduced legislation last month to close a loophole in the so-called 90/10 rule, which prohibits for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid funding. Money from the G.I. Bill does not count toward that threshold despite being federal aid.
About 40 percent of G.I. Bill tuition benefits have gone to for-profit schools in the past five years. Corinthian Colleges, the for-profit giant that filed for bankruptcy in May amid allegations of predatory lending and lying to the government about its programs, received $186 million in military tuition funding.
The same 2012 Senate investigation found evidence of schools deploying teams at veterans hospitals and wounded warrior centers to enroll students. Investigators said recruiters misled or lied to service members about their military benefits covering the full cost of tuition. But the investigation failed to galvanize Congress to take action on a series of bills to close the loophole. And with no Republican support, it is unlikely that the latest legislative effort will get very far.
Still, the for-profit industry is in turmoil. A group of 37 state attorneys general are investigating the recruiting and marketing practices of several for-profit colleges, according to Kentucky State Attorney General Jack Conway.
Government lawsuits, regulatory scrutiny and depressed student enrollment have kneecapped some big names in the sector. Education Management Corp. is closing 15 Art Institute campuses, while Career Education Corp. said it would shut down all 14 of its Sanford-Brown schools. Meanwhile, ITT Education Services, its chief executive, Kevin Modany, and chief financial officer, Daniel Fitzpatrick, are all being sued by the Securities and Exchange Commission for fraud.
Learn more about for-profit colleges: