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  • For-profit Education Takes a Hit, and Then Another
Sep 2010
Sep. 13, 2010 — It’s been a tough couple of months for the for-profit education industry. First, a Senate Health, Education, Labor and Pensions Committee held a hearing looking into allegations of deception and fraud. Lawmakers railed against for-profit colleges as they watched video evidence of recruiters urging applicants to lie on federal financial aid forms, denying them information about the potential costs of the education and generally abusing any trust students might show in the education system.

Chastened, two of the schools announced within weeks that they would crack down on what Westwood College CEO George Burnett described as “unauthorized actions by a few employees” — eliminating admissions-based incentives for recruiters, for example. But Westwood, it seems, can’t get a break. Days after the announcement, reports surfaced of a class-action lawsuit against it and Redstone College, arguing that they target students with the greatest financial need and deceive them as to the value of the education, all to maximize the amount of federal funding they receive. (Westwood offers a variety of optics-related degree programs, including Information Technology and Major Cisco Network Systems.)

And then, another poke in the eye: late last month the California community college system announced that it had canceled an agreement with the for-profit provider Kaplan University, through which students would have been able to earn credit for discounted online courses. The system had viewed this as a means to alleviate overcrowding in its classes but the provider also would have benefited, using the marked down courses as a loss leader to introduce students to the Kaplan brand.

The move was prompted by the community colleges’ inability to secure agreements with California State University and the University of California to accept the Kaplan classes as a matter of course. This is of course a concern for students who might enroll in the classes, and thus an entirely valid reason for the community college system to cancel the agreement with Kaplan.

Still, I’m sure many educators see a sort of victory here. While proponents of for-profit education claim that the schools operate more efficiently than nonprofit colleges and universities — translating into lower fees for students — and that the financial competition between institutions compels them to hire the best instructors, critics hold a different view. They argue that, in any for-profit endeavor, the bottom line necessarily takes precedence over the welfare of students.

Whatever the case, stock prices for the parent companies of the University of Phoenix, among other for-profit providers, have suffered amidst all the controversy. Investors fear that stricter regulations designed to protect students from the sorts of abuses described in the recent Senate committee hearing, for example, will put an end to the unfettered growth the industry has enjoyed thus far.

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