Community colleges begin to experience fallout from efforts to clean up for-profit colleges’ recruiting practices

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In August, Congress’ General Accountability Office released the results of an investigation [PDF] that found a number of for-profit colleges had engaged in deceptive recruiting practices and allowed students to accumulate untenable debt loads. In the four months since then, the industry has taken a beating by Congress, the U.S. Department of Education and even Wall Street.

The concern: Some of the for-profits lured students into taking out loans to enroll in expensive training programs only to find there were few jobs in their chosen field or that the jobs out there do not pay enough for graduates to pay off their loans.

The problem wasn’t with academic tracks that culminated in a degree. Rather it was with the shorter, more targeted courses of study known as gainful employment. In these programs, students earn certificates qualifying them to perform a specific job, like barbering. Many, such as veterinary technician or restaurant cook, typically pay poorly.

On the heels of the GAO report, the Department of Education released data showing that loan repayment rates were 54 percent at public colleges and universities, 56 percent at private nonprofit schools, and 36 percent at for-profits.

Rules crafted to protect students and taxpayers
In response, the agency crafted a set of rules intended to ensure that students were not being taken advantage of, and that a disproportionate amount of taxpayer money, in the form of financial aid, was not ending up in the hands of the for-profits’ shareholders.

You wouldn’t realize it from the headlines generated by the controversy, but the fallout is likely to have an impact on the nation’s 1,173 public and nonprofit community colleges, which enroll some 12 million students. An estimated 10 percent of the programs at the two-year schools attend career-preparation programs that will soon have to comply with complicated new rules designed to tighten controls on the for-profits.

“We feel the potential impact on us has been under-reported,” said David Baime, senior vice president for government relations and research at the American Association of Community Colleges. The group has asked U.S. Secretary of Education Arne Duncan to consider exempting programs where fewer than 10 percent of participants take out student loans.

Just beginning to sort out new system
At Minnesota’s community colleges, administrators are trying to figure out how they will collect and track the detailed information they need to begin reporting to the feds next July. Much of the data is public and is already being collected for other purposes, said Jo Matson, director of planning, institutional effectiveness, and resource development at Century College in White Bear Lake. But she and her colleagues still need to learn the technical details of how information will be stored and shared under the new system.

Most administrators are in the same boat, according to Baime, because the Education Department has yet to release the fine print on reporting methods. The overall structure, however, has been finalized.

Under the new rules, all institutions of higher education, for- or nonprofit, will be required to make detailed reports to the department regarding enrollment in their so-called gainful employment programs. While these sometimes overlap with degree-granting programs, most provide training that should enable students to find jobs in industries ranging from barbering to child care to law enforcement.

When the new rules go into effect next July, gainful employment programs with outsized student debt-to-income ratios or poor loan repayment rates would be ineligible for federal student aid. A separate rule expected early next year would require the programs to track and report job placement rates.

Finally, the rules say institutions must make the data available to prospective students, so they can evaluate admissions officers’ claims about programs’ value.

Last year, students attending for-profits received more than $26.5 billion in federal aid. At some of the for-profits schools, 90 percent of revenue comes from student financial aid. When students  don’t graduate or can’t find work when they do, their loans go unpaid.

Much less borrowing at nonprofit schools
Few community college students need the rules’ protection, Baime said. Fewer than 2 percent of nonprofits’ students borrow more than $20,000 to enroll in certificate programs. Which means very, very few programs will risk losing student aid eligibility. Compliance, meanwhile, will require the collection and analysis of reams of data on individual students.

In order for a gainful employment program at any type of institution to retain a financial aid “green light,” administrators must show that the median debt burden carried by each program’s graduates is no more than 8 percent of income.

To arrive at this figure, the school must supply the department with students’ Social Security numbers and information on any private loans they’ve taken out. The department will match these with students’ incomes as reported to the Internal Revenue Service and with records of their federal loans.

Alternatively, colleges may earn a green light if 45 percent or more of students who complete a program pay down some of the principal on their federal loans in any given year. Programs where 35 percent to 45 percent make the payments will be in a “yellow zone” with limited financial-aid eligibility.

Original plan was more burdensome
If that sounds like a giant ball of red tape, it’s not nearly as burdensome as the rules the department originally proposed, said Baime.

This past summer, a draft of the rules drew 90,000 comments. By contrast, in 2007 a proposed change to controversial student-loan rules drew just 323 comments; in all of last year, the department received 358 comments — total.

Many of this year’s messages were identical, delivered from websites set up for students and faculty at some of the for-profits, whose stock prices literally rise and fall on each new rule-making wrinkle. But there was ample concern about the rules’ first draft among nonprofit administrators and business groups, too.

Regulators originally sought to have schools that wanted to start new programs submit reams of data proving that the certificates granted would lead to jobs. Because one of the goals for gainful employment programs is to respond relatively nimbly to the needs of employers, the community colleges succeeded in arguing that the elaborate approval process was counterproductive.

“In principle, it created a federal role we don’t like,” said Baime, “but our objection was also practical.”

A separate rule still under consideration would also require gainful employment programs to track student job placement and make that data available to the general public. The department postponed finalizing that rule after the flurry of objections received during the comment period.

If the second rule is ultimately put into effect, it will pose problems for all institutions, Baime said.

For-profit institutions have been lobbying
On this front, the for-profits may unwittingly do their nonprofit counterparts a favor. The industry has been lobbying Congress to stop the new regulations. In January, U.S. Rep. John Kline, R-Minn., will take the helm of the House Education and Labor Committee. Kline has been vocal in his opposition to all of the new rules.

If the new procedures stay in place, Baime said his organization is still optimistic that it may win an exemption for gainful employment programs with low borrowing rates. If that doesn’t happen, the status quo is something community colleges can live with, he said.

“Because of the way the regulation has been structured, it looks like the likely impact in terms of loss of eligibility is relatively modest,” he said.  

Even so, it still leaves Century College’s Matson and thousands more administrators scrambling to figure out who is going to collect the mountains of data required for compliance, and how they are going to report it to regulators and prospective students.

RELATED: Fast Facts 

Data are derived from the most current information available as of December 2009.

Number and Type of Colleges

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,173

Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987

Independent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

Tribal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Headcount Enrollment

Fall 2007 total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 million

Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 million*

Noncredit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 million

Enrolled full time . . . . . . . . . . . . . . . . . . . . . . . . . . . 40%

Enrolled part time . . . . . . . . . . . . . . . . . . . . . . . . . . 60%

Estimated enrollment increase fall 2007 – fall 2009: 6.8 million to 8 million (16.9%)**

Community college students constitute the following percentages of undergraduates:

All U.S. undergraduates . . . . . . . . . . . . . . . . . . . . . .43%*

First-time freshmen . . . . . . . . . . . . . . . . . . . . . . . . . 40%

Percentage of Federal Aid Received by Community Colleges

Pell Grants . . . . . . . . . . . . . . . . . . . . . . . . . . .30%

Campus-based aid . . . . . . . . . . . . . . . . . . . . . .9%

Academic competitiveness grants . . . . . . . . .14%

Average Annual Tuition and Fees

Community colleges (public) . . . . . . . . . $2,544

4-year colleges (public) . . . . . . . . . . . . . .$7,020

Degrees and Certificates Awarded

Associate degrees . . . . . . . . . . . . . . . . . 605,267

Certificates . . . . . . . . . . . . . . . . . . . . . . 325,452

Bachelor’s degrees—awarded by 31 public and 52 independent colleges

* Most current IPEDS data (fall 2007)
** Estimate based on 2009 AACC Survey