For-Profit Colleges Under Fire

Earlier this year, President Obama and his administration made waves when they announced new steps to address concerns about student loan debt. They announced new regulations that would require career colleges to do a better job of preparing students for gainful employment. If the schools do not meet the new regulations, they could lose access to federal student aid.

books and money

In a release about the new regulations, U.S. Education Secretary Arne Duncan said, “Higher education should open up doors of opportunity, but students in these low-performing programs often end up worse off than before they enrolled: saddled by debt and with few – if any – options for a career.”

“The proposed regulations address growing concerns about unaffordable levels of loan debt for students enrolled in these programs by targeting the lowest-performing programs, while shining a light on best practices and giving all programs an opportunity to improve.”

Though the new regulations apply to most for-profit and certificate programs at non-profit and public institutions, they will likely have the largest impact on for-profit colleges.

For-profit college students represent only 13 percent of the total number of college students, but they also take out 31 percent of student loans and are responsible for nearly 50 percent of all student loan defaults.

Since the announcement of the new regulations, three major for-profit colleges have come under fire, though not all directly due to the regulations. It seems the renewed focus on education may have inspired some to take a closer look at the for-profit college industry.

First, in May, the California Art Institute reached a $4.4 million settlement with San Francisco. The company over the Art Institute will create a $1.6 million scholarship fund for the nearly 3,000 students who withdrew from the program since 2009 if they want to complete their studies.

It will also offer $850,000 in scholarships to new students, and update information about the actual cost of programs and likelihood of employment after graduation. The Art Institute will also pay $1.95 million to the city of San Francisco for the cost of the investigation as well as possible restitution for 300 students unable to find work after graduation, despite being led to believe they would be employed in their field.

On July 2, ITT Educational Services Inc. revealed it may face financial restrictions due to a failure to file a set of documents with the U.S. Department of Education. In a statement the company said, “We have been in communication with the U.S. Department of Education prior to June 30th. We informed the Department, in advance, that the audited financial statements and compliance audit would probably be late due to our inquiry to the U.S. Securities and Exchange Commission (SEC) regarding accounting issues.”

Corinthian Colleges Inc. found itself in a similar situation, and on July 4, it was announced that Corinthian will be selling off most of its nearly 100 campuses and winding down the rest.

In an agreement reached with the U.S. Department of Education, Corinthian will receive $35 million in federal funding to continue operations for the next six months. This agreement stems from 21-day hold placed on Corinthian by the Education Department last month when it attempted several times to get information about the school’s recruitment and marketing methods.

Update 7/7/14: We were contacted by Nicole Elam, Vice President of Government Affairs at ITT Educational Services, Inc. and amended the article with a statement from ITT,¬†“We have been in communication with the U.S. Department of Education prior to June 30th. We informed the Department, in advance, that the audited financial statements and compliance audit would probably be late due to our inquiry to the U.S. Securities and Exchange Commission (SEC) regarding accounting issues.”

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