Cleveland.com - With Taxpayer Money, For-profit Colleges Spend Massively on Marketing; Sherrod Brown Wants to Ban the Practice

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By Stephen Koff

The practices of for-profit career colleges -- and claims that some rip off students and taxpayers -- are coming before Congress again, this time with a threat that could cost the colleges money.

U.S. Sen. Sherrod Brown wants to make it impossible for any college to use federal money for marketing, advertising or recruiting -- a restriction he says would stop profiteering and recruiting abuses. A two-year Senate education committee investigation in 2012 found that for-profit colleges spent more than 20 percent of their revenues on marketing and recruitment, which was more than many spent on instruction.

Much of that revenue came from federal student-aid programs, and some was supposed to help military veterans.

"American tax dollars spent on education are meant to support students, not support aggressive, deceptive, and misleading marketing campaigns by certain for-profit education companies," Brown, an Ohio Democrat, told the Northeast Ohio Media Group in a statement. "And we cannot allow for these same unscrupulous institutions to use these funds to target servicemembers and veterans in order to exploit loopholes in federal law. When the federal government invests in education, it should support quality education and career readiness, rather than institutions that make empty promises."

Brown's is a perennial complaint: Profit-hungry schools fast-talk students into enrolling, offering federally backed loans and grants and promises of good jobs with high salaries. But numerous investigations have found repeated instances in which schools delivered poor or inadequate educations or degrees that lacked accreditation. Student dropout rates have been high, and graduates have been underemployed. Graduates and dropouts alike face high debt burdens.

The colleges and private trade schools are profiting almost entirely off the federal government and its aid programs, Brown says. Most get at least 80 percent of their revenue from U.S. Department of Education-sponsored grants and loans.

Some schools get more than that, thanks to revenue from the departments of Defense and Veterans Affairs for training and educating veterans and active-duty servicemembers.

That does not mean they all for-profit colleges prey on prospective students. The industry and its schools, from ITT Tech and Argosy University to the better-known Kaplan University and the University of Phoenix, defend their educational and recruiting practices. They say that when problems or abuses arise, they address them quickly. They reject charges raised by state and federal regulators, or in investigations by the Center for Investigative Reporting, PBS' Frontline, the Miami Herald and other media.

But the case of Corinthian Colleges, operator of Everest Institute, WyoTech and Heald Colleges, has magnified the issue. And Brown, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, hopes the attention created by Corinthian's recent bankruptcy and closure will help him stop future abuses, his office says.

Corinthian, once a darling of the for-profit college world and a Wall Street favorite, lied to prospective students, and lied to the government about students' success in getting jobs, according to the U.S. Department of Education. It faced lawsuits, fines and continued investigation by federal and state agencies before it pulled the plug. Said one education analyst in an online New York Times column: "Corinthian Colleges is closing. It's students may be better off as a result."

The federal government has agreed to rescue duped Corinthian students from their debt. The cost to taxpayers could be as high as $3.5 billion.

Like other Democrats before him, Brown is now pushing legislation that would pinch other for-profit schools' receipt -- and use -- of federal money. He tried to do this through amendments in a defense bill this week but Senate leaders cut off the number of amendments that could be considered. So Brown plans to offer a free-standing Senate bill next week, his office says.

'Solely funded by taxpayers'

A two-year investigation by the Senate education committee, released in 2012, found that in 2009, 15 publicly traded for-profit education companies got 86 percent of their revenue, on average, from federal student-aid programs. As high as that is, 133 for-profit colleges or branches of the colleges got even more, receiving more than 90 percent of their revenue from federal sources, according to separate estimates from the Department of Education, examining the 2011-2012 school year.

No for-profit school is supposed to get more than 90 percent of its revenue from U.S. Department of Education programs. Doing so two years in a row can endanger its eligibility for government aid, based on Department of Education rules.

But money from the departments of Defense and Veterans Affairs does not count toward the cap. And for-profit colleges recruit veterans and active servicemembers heavily.

That is the primary problem, say critics.

"For-profit colleges should not be solely funded by taxpayers," said Pauline Abernathy, vice president of The Institute for College Access and Success, an advocacy and watchdog group for students.

The schools say they offer veterans and other students a chance to get career training and credentials needed for employment, meeting a well-established need.

Brown and other critics counter that the schools aggressively target veterans to profit from their generous education benefits.

For-profit colleges represent about 10 percent of all educational institutions across the country, yet collected a quarter of all G.I. Bill benefits -- $1.7 billion in 2012-2013, according to a study at the time by then-Sen. Tom Harkin, an Iowa Democrat. The Post-9/11 G.I. Bill provides up to $20,235 for tuition and fees per academic year, rising to $21,084 in the fall.

Brown and fellow Democrat Richard Durbin of Illinois hoped to use an amendment this week to close the 90 percent loophole. Ninety percent would mean just that -- 90 percent -- whether the money came from Education, Defense or VA.

Unsuccessful on that legislative route, Brown next week will introduce a free-standing bill, his office says. It would make it impossible for any college, whether public, private or for-profit, to spend even a dime of taxpayer funds on marketing, advertising or recruiting. While this bill might not explicitly clamp down on loopholes to the 90 percent rule, it could have the same effect by forcing schools to rejigger their budgets and revenue sources.

"I think that what Sherrod Brown is trying to do is try to make sure that the investment that the federal government is making is going toward education, toward academic success," said Elizabeth Baylor, associate director for post-secondary education at the Center for American Progress, a liberal think tank. Baylor previously worked as the senior investigator for the Senate Health, Education, Labor and Pensions Committee, helping uncover the abuses detailed in the 2012 report.

That report found that in 2009, the share of revenue spent on marketing and recruitment by 30 for-profit schools averaged 22.7 percent of their overall budgets. That compared with just 17.2 percent spent on instruction, defined as the combination of money spent on faculty and curriculum.

The colleges' average profit margin was 19.7 percent.

By contrast, non-profit universities spent on average 0.5 percent of their revenues on marketing, Brown's office said. That's why the bill to ban marketing with federal money would not likely affect public universities.

Allegations, 'not findings of facts'

Brown's bill faces long odds, since Republicans control both houses of Congress and have defended the for-profit college sector repeatedly. This is just the latest in a long and acrimonious tussle between Democratic lawmakers and for-profit colleges. Durbin, a ranking Democrat, and executives from ITT Educational Services have all but put on boxing gloves while sparring over the practices of ITT Tech.

In late May, Durbin wrote to ITT and mentioned investigations of the company's schools by agencies or officials including the New Mexico attorney general, attorneys general in other states and the U.S. Consumer Financial Protection Bureau. He cited accusations involving student retention rates, graduate placement rates, and licensure examination passage rates.

Kevin Modany, chief executive officer at ITT Educational Services, responded swiftly, writing that the "New Mexico attorney general, the Consumer Financial Protection Bureau (CFPB), the U.S. Securities and Exchange Commission (SEC), and the multi-state attorneys general investigations did not 'find' anything. Any claims made by these entities were, at the time, and remain today, allegations and not final dispositions by a neutral party. As you know too well, allegations (particularly those that are potentially motivated by politics and ideology) are not findings of fact."

Others in the for-profit college industry say it is unfair to paint all schools -- and penalize them equally -- with a broad brush. The Association of Private Sector Colleges and Universities, representing the industry, says that marketing and recruiting activities help inform potential students of their options and, in some cases, open their eyes to the fact that new education opportunities are even possible.

Furthermore, the association says, Brown and other critics make a false assumption when they say for-profit schools' marketing budgets are disproportionately high compared with traditional universities'. The figures overlook how traditional universities, including state colleges, spend on activities and facilities that could just as easily be called marketing but are not: pools, recreation centers, water park-like lazy rivers, stadiums and football teams. State universities use them to attract students.

"It's just a different way of how you look at advertising," said Noah Black, vice president of public affairs for the Association of Private Sector Colleges and Universities. "Their folks don't have to buy commercials because they're on TV every Saturday" with football.

Public universities also get a large share of their budgets from state governments. Private, prestigious universities have donors and endowments. For-profit colleges, however, rely almost entirely on tuition -- and students get that by tapping federal financial aid programs, whether loans, Pell grants or the G.I. Bill.

To say that the federal funding is problematic, say for-profit colleges, is to suggest that the students are a problem, because they're the ones seeking education and training.

A disingenuous argument?

Brown and other critics say the argument is disingenuous. They say they are not merely trying to tell for-profit colleges what to do but, rather, are trying to stop abusive recruiting and marketing tactics. Since those tactics are conducted while using federal dollars, Congress has the right to restrict the spending, they say.

Yet Black, of the Association of Private Sector Colleges and Universities, contends that Brown's marketing prohibition would hurt rather than help students.

It would "result in fewer students being made aware of the opportunities they have to pursue higher education and get a job," Black said. "This will mean fewer graduates and fewer job ready employees."

Critics of for-profit colleges aren't buying it. If the colleges wind up spending less on recruiting, using sometimes-deceptive means, maybe more of the government's revenue will go where it's needed, they say: actual education and student support. That should be what draws students, they say.

Groups supporting the marketing prohibition include the Iraq and Afghanistan Veterans of America, Vietnam Veterans of America, Consumers Union, the American Council on Education and the Education Trust.

Baylor, the former Senate investigator, says that for-profit schools have employed armies of recruiters, yet based on student dropout rates and other problems, the students aren't getting "the kind of education in the door that's equivalent to the price they're paying. They need more support. They need better education tools."

If Brown's bill were to pass, she said, "I think you would see them scale back the number of students that they enroll. But if they are providing a quality education, with roots in their community, with partnership with employers, word of mouth will help bring the right students to their door."

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