For-profit colleges reap big benefit from stimulus

AJC exclusive: Grants help college companies as public schools’ tuition rises

That represents nearly a quarter of the stimulus money spent on these grants to date.

The taxpayer-funded grants are flowing to profit-making schools as the government is seeking to revise how those schools qualify for federal aid, partly because of concerns over how some saddle their students with substantial debt. The effort follows a federal report that cited abuses in the recruiting practices of some of the schools.

Georgia’s public colleges, meanwhile, are grappling with deep state budget cuts that are expected to increase tuition costs and class sizes. Some state officials would like to see more stimulus money come to those schools.

“I would be delighted to have this money going to the public sector because I know of the need and the lack of state funds that we have been able to appropriate,” said Rep. Kathy Ashe, D-Atlanta, who serves on the Georgia House’s Higher Education Committee and on the Georgia State University College of Law Board of Visitors.

Because of how the government is tracking the stimulus spending, it’s impossible to break it down precisely by state. But the records show profit-making schools that have campuses or corporate headquarters in Georgia have received more than $550 million of these stimulus funds.

Among them are University of Phoenix, American InterContinental University, Royal Beauty Careers and Atlanta School of Massage. Beauty and massage schools with ties to Georgia have received $3.3 million through the stimulus program alone.

Traditional colleges that are owned and operated by governments or nonprofits have received most of these stimulus funds to date. Unlike those colleges, for-profit schools divide income among shareholders and some are owned by huge, publicly traded corporations.

No one is saying such schools aren’t eligible for these grants, which were included in the stimulus package to help train people for careers amid the recession. They are allowed to get the money so long as they are accredited and permitted to operate in their states and comply with other requirements. Students pick the schools they want to attend and they must apply for Pell grants. They qualify for them based on their income and other factors.

Critics, however, question the quality of some for-profit schools and the wisdom of sending so much taxpayer-funded assistance to them. They point to statistics that show such schools generally have higher percentages of students defaulting on government loans compared to public and nonprofit schools.

Profit-making schools are collecting a growing share of federal aid. In fiscal year 2008, they received more than $16 billion in federal loans, grants and other aid. Their share of Pell grants increased from 16 percent in 2007 to 21 percent last fiscal year, when the stimulus money started to flow.

Proponents say some of the arguments against for-profit schools are elitist. Proprietary schools, supporter say, are meeting the top goal of the stimulus program by preparing people for work. They say they also serve as an alternative for people who can’t — or don’t want to — attend traditional community colleges or four-year schools, some of which have crowded classrooms.

“The reality is that without the high-quality education we provide and the availability of Pell grants, many of our students might not have access to the skills-based, post-secondary education so critical to our nation’s economic recovery and growth,” said Jeff Leshay, a spokesman for Illinois-based Career Education Corp., which owns several for-profit schools that are receiving stimulus funds and have campuses in Georgia and other states.

President Barack Obama campaigned on expanding Pell grants for low-income students. And in February of last year, he signed the American Recovery and Reinvestment Act. It includes $17.1 billion to boost the Pell grant program and to raise the maximum award students can get — from $4,850 to $5,350 — this fiscal year.

In August, the U.S. Government Accountability Office called for stronger oversight of such aid partly because of the high loan default rates among students at for-profit schools. In its report to Congress, the GAO said for-profits schools have a 16.7 percent default rate for the first three years students are required to make payments, compared to 7.2 percent at public universities and 4.7 percent at non-profit-run schools. Taxpayers are on the hook for such loan losses.

Starting in 2014, schools with loan default rates that top 30 percent for three years or 40 percent for one year can lose access to federal aid. The Education Department is considering other changes, including requiring these schools to limit how much they charge students based on their expected earnings after graduation.

The average debt among students who obtain bachelor’s degrees from for-profit schools is $29,900, compared to an average of $12,500 for all four-year schools, including public and nonprofit, according to the College Board, a higher education association.

Jane Glickman, an Education Department spokeswoman, said her department is strengthening federal aid rules to ensure “that all schools follow the law, and that students receive a quality education and training worthy of our federal investment.”

Some critics question the value of spending stimulus money for people to attend massage and beauty schools. Industry experts, however, point to U.S. Labor Department statistics that show jobs in these areas are expected to grow faster than the average for all professions over the next eight years. They also say these jobs can be more lucrative then some people might think. Massage therapists can make as much as $68,670 per year, while cosmetologists can earn $43,250, Labor Department estimates show.

In Georgia, the Atlanta School of Massage has received $291,734 in stimulus-funded Pell grants so far, federal records show. A school official said no one was available to comment for this article. Students who took out government loans to attend the school had a 9.9 percent default rate in the first three years they were required to make payments, which is below the 18.5 percent average for comparable schools.

The Royal Beauty Careers schools, meanwhile, have received $672,173 of these taxpayer funds. Atlanta area-based Rarefied LLC owns the schools. But the campuses are in Houston, Texas, where students learn to become cosmetologists and nail technicians.

Students who took out government loans to attend the Royal Beauty schools had a 40 percent default rate in the first three years they were required to make payments, public records show. That is more than twice the average rate. The three-year default rate for Royal Beauty has improved to about 33 percent since 2007, according to internal records the school sent the AJC.

“Most of the people we get are going to be single parents, people that have lost their jobs... and people who have come from homes that don’t have any money,” said Michelle VanLeeuwen, the schools’ financial aid director.

In its report to Congress, the GAO said it also found some abuses among for-profit schools. For example, it said one such school gave out answers to basic English and math tests some students must take to quality for federal aid. That school, which was not named, also changed the answers on some tests to ensure students passed, according to the GAO.

Several for-profit schools with campuses in Georgia have been the subject of lawsuits concerning their recruiting practices. For example, University of Phoenix paid the U.S. government $67.5 million last year to settle a whistle-blower lawsuit over allegations that it illegally accepted federal student aid while paying recruiters based on the number of people they enrolled. Phoenix, a powerhouse in the for-profit education industry with 458,600 students and locations in Georgia 38 other states, did not admit wrongdoing as part of the settlement.

So far, Phoenix, which offers degree programs in education, business, nursing and other areas online, has received the most Pell grant money from the stimulus program of all schools at $484.2 million. It has about 20,300 students and 12 locations in Georgia. Eight are in the Atlanta area.

“The flexibility offered by University of Phoenix is crucial for this economy,” said Manny Rivera, a spokesman for the Apollo Group, which owns Phoenix. “

That flexibility attracted Quin Whatley to Phoenix. She is using a Pell grant and a federal loan to get a bachelor of science degree in business at Phoenix’s DeKalb County campus. The single mother of four attends class there on Thursday evenings, when she can arrange for someone to watch her children.

Whatley said she might have at least $10,000 in loan debt after she finishes at Phoenix. But she said she is not too worried because she believes her degree will help boost the family nutrition consulting business she has started.

“I can only become greater at what I have already started,” Whatley said.

Another for-profit school with a presence in Georgia is the subject of a whistle-blower lawsuit.

A group of former employees of American InterContinental University’s Dunwoody campus is suing the school and its parent company — Illinois-based Career Education Corp. — alleging the school illegally paid its enrollment counselors based on how many students they signed up and enrolled students who could not read. A spokesman for Career Education Corp. said the case is “without merit, and we intend to vigorously defend against it.”

American InterContinental, which offers business, criminal justice, design and information technology degree programs, has received $28 million in stimulus-funded Pell grants to date.

Barmak Nassirian, of the Washington-based American Association of Collegiate Registrars and Admissions Officers said he is concerned about the amount of federal stimulus funds going to such companies. His group represents mostly officials from public and private nonprofit schools.

“It’s just another obvious warning sign that nobody is minding the store,” he said. “Executives of these companies are doing really well. So if that was the purpose of the stimulus bill, yippee. It really worked.”

Stimulus spending

The American Recovery and Reinvestment Act includes $17.1 billion in funding for Pell grants for low-income students. About $9.8 billion has been distributed so far. Here are the top five recipients of that taxpayer money.

1. University of Phoenix, $484.2 million

2. City University of New York Inc., $246.5 million

3. University of Puerto Rico, $98.3 million

4. Inter American University of Puerto Rico, $89.2 million

5. State University of New York, $88.2 million


Support real journalism. Support local journalism. Subscribe to The Atlanta Journal-Constitution today. See offers.

Your subscription to the Atlanta Journal-Constitution funds in-depth reporting and investigations that keep you informed. Thank you for supporting real journalism.