Office of Planning and Budgeting

Harkin Issues Damning For-Profit Higher Education Report

Senator Harkin (D-Iowa) released a much anticipated for-profit higher education report today, detailing the sector’s disproportionate use of federal funds, predatory recruitment tactics, insufficient student support programs, and dismal student outcomes. The lengthy report contains alarming evidence that the colleges included in the two-year investigation – with few exceptions – engaged in behavior to maximize profit from taxpayer investment at the expense of students’ financial security and academic success.

Here are some of the findings:

  • Disproportionate use of federal (taxpayer-supported) funds: Last year, the federal government spent over $32 billion on financial aid in the for-profit sector (25 percent of all federal student aid funds available), though fewer than half of the students in that sector graduated with a degree in 2008-09. Committee staff found that 97% of students at for-profit institutions took out loans to pay their expenses, compared to 13% of students at non-profit community colleges and 48% of students at non-profit four-year baccalaureate institutions. These students also typically borrowed more money (57% borrowed more than $30,000) and defaulted on their loans far more often than their peers in the non-profit sector.
  • Focus on marketing and recruitment at the expense of student support and instruction: Not only do students studying at for-profit institutions take out more loans at higher rates, but their institutions spend far less on instruction and student support than on marketing, recruitment, and pre-tax profit. In FY09, for-profit institutions included in Senator Harkin’s report spent 22.7% of all revenue on marketing, advertising and recruitment expenses and 19.4% on pre-tax profit, but only 17.2% on instruction. On average, these corporations paid their CEOs in excess of $7.3 million annually. While practices varied, by and large, for-profit colleges employed three times more recruiters than student support services employees. The report concludes that, “…once a student is  enrolled that same level of service is often not available. This is true even though the companies seek to enroll the students that research demonstrates are most critically in need of those services.” The investigation found that two of the largest for-profits offered no career services and several have falsified job placement data in the last five years.
  • Current Federal Regulations Insufficient: One of the most alarming findings concerned the 90/10 proportionality rule, which dictates the amount of federal money that the colleges collect. Evidence of fraud was uncovered, as for-profit institutions sought to maximize profit and avoid the federal proportionality rule.    

Despite evidence of fraud, abuse of taxpayer funds, and a low, if not absent, standard of care for students, federal interventions seem unlikely at this stage, as for-profit support remains deeply partisan.  No clear intervention efforts emerged so far.

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