Downsizing For-Profit Colleges

For-profit college giant Career Education Corporation (CEC) recently announced that it will close 23 of its 90 campuses, according to the Bay Citizen. The move comes in response to a $33 million decline in revenue and 23% drop in new student enrollment this quarter and will result in the loss of 900 jobs. Other for-profit colleges have also announced downsizing in response to declining revenues, including University of Phoenix and Corinthian.

CEC has not yet stated which of its 6 California campuses will be closed. CEC owns the California Culinary Academy in San Francisco and the Cordon Rouge culinary schools in Southern California, as well as the International Academy of Design and Technology in Sacramento.

According to Kevin Kinser, professor of higher education policy at the University at Albany, SUNY, the wave of closures and downsizing at for-profit colleges is due in part to tighter regulation of the for-profit education sector. For example the U.S. Department of Education imposed a ban on incentive pay for recruiters last year. This has undermined these colleges’ business model which is based on admitting as many students as possible, charging them exorbitant tuition and sidling them with massive student debt.

Additionally, many for-profit colleges, including CEC, have recently gotten in trouble with accreditors for inflating job placement rates for their graduates. When CEC released its new accurate rates, most of its campuses had rates below the 65% minimum required by the Accrediting Council for Independent Colleges and Schools. Once a school loses its accreditation, its diplomas become less credible and students are less likely to enroll.

Another factor is that some schools are losing access to state or federal Grants because too many of their students are defaulting on their loans. Under a new law in California, for example, a school’s loan default rate must be 15.5% or lower. As a result of the new law, the International Academy of Design & Technology in Sacramento lost eligibility for Cal Grants this fall because 20% of student borrowers were defaulting. The Academy of Arts College, in San Francisco, also lost Cal Grant eligibility this year. There were 154 institutions [PDF] (mostly for-profit) that were booted from the program this fall. This has likely contributed to the declining enrollment at these schools since few students can afford their expensive tuition without grants and loans.

None of this should be considered a sign that the for-profit college industry is going away. For-profit colleges are a $25 billion a year industry, with an average profit margin of 19.7%, according to the WSWS. Their CEOs earned an average of $7 million last year. Even with the new laws, it will continue to be a highly profitable sector. What we are actually witnessing here is their attempt to maximize profits in the face of a few unfavorable lawsuits and legislative changes.

For-Profit Colleges are Pedagogical Poverty Pimps

A new report by the Education Trust says that students at for-profit colleges are more likely to drop out and have greater debt than those at public and private non-profit schools. For-profit schools aggressively recruit students, but do little to retain them, with only 22% graduating after six years, compared with 55% at public institutions. 96% of the students who do graduate from for-profit schools are left with large debts, compared with 62% at public schools, and the default rate for these loans is double the rate at public and private non-profit schools, suggesting that the quality of education at these schools is insufficient for graduates to secure well-paying jobs.

Like subprime lenders, for-profit schools prey upon the poor and tend to look the other way and ignore obvious risk factors, accepting anyone who is willing to pay their high tuition and lousy loans. 50% of the students at for-profit schools come from low income backgrounds. Many of these students did not do very well in high school and could not get into a more reputable 4-year institution.

For-profit schools boast that they provide great opportunities for low income students to earn degrees and move into lucrative careers. However, many aspiring college students lack the skills to succeed in college, like good time management, perseverance or the ability to read and write at a college level. Saddling them with enormous debt and abandoning them to either sink or swim is not much of an opportunity. In contrast, small public community colleges are inexpensive and often provide remedial and support classes and counseling to help struggling students, without leaving them in hock up to their eyeballs. Many also articulate with local 4-year universities.