Are For-Profit Colleges Selling a ‘Bill’ of Goods?

Designed to help World War II veterans get a college diploma, the GI Bill of 1944 provided low-cost tuition loans for service members, subsidizing their education and giving them a leg up on entering the American middle class.

But an unreleased Department of Education study found that a loophole in the bill’s updated version has subsidized the for-profit college industry instead, enabling it to rake in billions of taxpayer dollars each year by preying on members of the military. The largest school in the industry, according to the study, pocketed $2.9 billion in federal student loans last year but had a graduation rate among veterans of just 15 percent.

Yet repeated attempts on Capitol Hill to close the loophole go nowhere, in part because of the industry’s financial and lobbying clout.

At issue is the so-called 90-10 rule, a federal law that prohibits for-profit schools from getting government funding if more than 90 percent of their revenue comes from federal student aid programs such as Pell Grants and Stafford Loans. But the rule doesn’t include education benefits or funds from the Post-9/11 GI Bill, and money from those programs doesn’t count against the 90 percent revenue clause.

Because of that loophole, for-profit colleges “now have no legal obligation to include Defense Department and VA money in their 90-10 calculations,” said David Halperin, a higher-education analyst for the Republic Report, a website investigating the influence of money on public policy. Yet the numbers alone, he said, “do show how heavily dependent these schools are on taxpayer dollars.”

The study, completed this summer, was published by the Center for Investigative Reporting, which obtained a leaked copy. It found that if veterans’ benefits are counted, 133 for-profit schools are receiving more than 90 percent of their revenue from government coffers, including “a combination of Pell Grants, Stafford Loans, GI Bill funds for veterans and Department of Defense tuition assistance to active duty military.”

The schools range from beauty and barber training academies to “for-profit giants” such as the University of Phoenix, Strayer University, and Ashford University. Popular with veterans because they offer flexible classes, proprietary colleges especially target veterans. They recruit near military installations with financial aid “specialists” on hand to help prospects apply for loans on the spot.

“They make recruiting veterans a high priority,” said Stephen Burd, a senior policy analyst with the New America Foundation. “It seems like at least some of the practices they’ve been using are somewhat predatory. They’ve got recruits all over veterans’ job fairs and school fairs.”

It’s paying off: A report from the office of Sen. Tom Harkin, D-Iowa, shows that eight of the top 10 recipients of Post-9/11 GI Bill benefits are for-profit schools.

The most egregious example, according to the report, is the University of Phoenix, a for-profit behemoth with slick advertising and a chain of campuses nationwide. It hauled in $3.4 billion in nonmilitary federal student assistance money but added more than $238 million in veterans’ administration and military education funds.

Earlier this year, ICR reported that the University of Phoenix took in almost $1 billion in student loans and grants for Iraq and Afghanistan war veterans between 2009 and 2012, including $95 million alone from its campus in San Diego, home to one of the nation’s largest military complexes.

Despite promises in the university’s ads and brochures, one in four vets who enrolled was likely to walk away from campus without a job or a diploma: ICR reports the school’s “overall graduation rate is under 15 percent, according to the Department of Education, and more than a quarter of students default on their loans within three years of leaving school.”

Harkin, who sits on the Senate Health, Education, Labor and Pensions Committee, and others have tried to enact reforms and close the Post-9/11 GI Bill loophole. This summer, however, a House bill to do that died in committee; the chairman, Rep. John Kline of Minnesota—who received more than $57,000 in campaign funds from the University of Phoenix’s parent company—quashed it minutes after it was introduced.

“Collectively, federal and state agencies are now doing much more today to protect service members, veterans, and other students from predatory for-profit colleges, as the evidence has mounted that these schools are systematically ripping off students and taxpayers,” Halperin said.

Burd agrees that highlighting the abuse of military veterans, many of whom take out thousands of dollars in federal loans that they’re obliged to repay, could prompt Congress to act. But he acknowledged the industry has “some very powerful protectors” on Capitol Hill.

“It’s going to be a very long fight,” he said.