By Paul Fain
Two Senate Democrats have found a new way to try to hit for-profit colleges where it hurts, by proposing a ban on the use of revenue from federal financial aid for advertising, marketing and recruitment.
The proposed legislation is unlikely to go anywhere this year, and will draw little support from Republicans. But the approach is novel, and could be part of the longer-term debate on Capitol Hill about the regulation of for-profit institutions.
The bill is also notable because it is the first legislative salvo against for-profits from Sen. Tom Harkin, the Iowa Democrat who has led a lengthy pursuit of the industry. And the legislation applies to both nonprofits and for-profits, a development applauded by for-profits, which otherwise criticized the bill.
Sen. Kay Hagan of North Carolina joined Harkin in sponsoring the legislation, which would apply to all colleges that receive federal aid under Title IV of the Higher Education Act. However, the senators clearly took aim at for-profits, which generally spend much more on marketing to prospective students. Nonprofit colleges, particularly two-year institutions, often complain that for-profits use advertising to lure students who would otherwise attend community colleges.
"We need to make sure that federal education dollars are spent on just that: education," Harkin said.
Among a group of 15 of the largest publicly traded for-profits, the average company in 2009 spent 23 percent of its budget on advertising, marketing and recruitment, according to research from the Senate Health, Education, Labor and Pensions Committee. By comparison, nonprofit institutions on average spend less than 1 percent of their budgets on marketing, according to the committee.
Some for-profits spend big on "deceptive marketing and recruitment efforts," Hagan said, noting in a written statement that she is "especially troubled by the tactics some for-profits have employed in targeting active-duty service members and veterans."
The legislation would include in its ban on marketing expenditures the use of revenue from the Post-9/11 G.I. Bill and tuition benefits for service members. Currently, those military aid programs do not count as federal dollars under the 90/10 rule, which prohibits for-profits from drawing more than 90 percent of their revenue from federal aid such as Pell Grants and federal student loans.
Protecting veterans and members of the military from aggressive student recruiting is a popular cause that some Republican lawmakers support. But this bill did not include a Republican co-sponsor.
The legislation would not lead to changes in spending by most nonprofit institutions, observers said, because few are both heavily dependent on revenue from federal financial aid while also toting proportionally large marketing budgets.
Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, said the bill's "goals are laudable." The council fully supports efforts to crack down on "deceptive or high-pressure recruiting tactics."
Even so, putting the legislation into action would be "extraordinarily difficult," Hartle said, because there is no easy way to determine what, exactly, constitutes marketing at nonprofit colleges. And while details were vague for how colleges would comply with the rules, Hartle said that added administrative burdens could also be problematic.
"Implementation is never as easy or simple as the legislative branch would assume," he said.
Banned under the bill's language would be the use of federal aid revenue for all "advertising and promotion activities" as well as "efforts to identify and attract prospective students, either directly or through a contractor or third party."
Sen. Hagan said "there would be a certification process that would have to be signed" for colleges to continue accepting federal financial aid from their students.
Steve Gunderson, CEO of the Association of Private Sector Colleges and Universities, the primary for-profit trade group, said in a written statement that the legislation was burdensome and "another attempt by some policy makers to try and put private sector colleges and universities out of business."
The bill also "reflects a fundamental misunderstanding of the students we serve and the public service we provide," because of the large numbers of adult and nontraditional students who attend for-profits and "can't be reached through a high school guidance counselor."
A spokesman for the Apollo Group criticized "misleading rhetoric" from the two senators, who singled out Apollo for employing more than 8,000 student recruiters in 2010. But he said it was "encouraging to see that this legislation is focused on all schools."
Senator Harkin, however, focused his comments squarely on for-profits, which he said have "dismal graduation rates" and spend "staggering" amounts of money on advertising and recruiting. However, he stressed that the legislation would not prohibit college ad buys.
"There's nothing wrong with advertising and marketing," he said. "You just won't be allowed to use taxpayers' dollars to do so."