for profit colleges – Public Policy Institute of California

Lessons from the Great Recession Can Protect College Students Today

[vc_row][vc_column][vc_column_text]Budget cuts for state services are likely on the horizon due to the economic disruption of COVID-19. This means state funding for public higher education may well be reduced—leading to restrictions in access and lowered enrollments. California went through this very scenario during the Great Recession, with thousands of students turning to for-profit colleges in lieu of public colleges.

While some students at for-profit colleges earned a degree, many did not graduate and ended up with large amounts of debt. State and federal government subsequently put restrictions around for-profit colleges, but upcoming changes at the federal level could weaken the federal rules.

The recently announced federal Education Stabilization Fund will disproportionately provide emergency relief funds to private for-profit colleges. In California, only 5% of the state’s undergraduates attend for-profit colleges, but these schools will receive 10% of federal funds.

In contrast, 55% of undergraduates attend the state’s community colleges, which will receive only 34% of federal aid. (That’s because many low-income students who attend community college rely on state aid rather than federal financial aid: these students are not counted in the federal emergency funding formula.)

During the Great Recession in 2008, higher education faced deeper cuts than other state services. With escalating tuition, fewer instructional staff, and a narrow application window, students had less access to the state’s public colleges, especially community colleges.

At the same time, some for-profit colleges began to market heavily, and thousands of students enrolled in expensive programs. By several measures—graduation rates, student debt, loan default rates, and employment outcomes—private for-profit institutions often have poor outcomes. Of course, some colleges have a better track record than others.

People hurt most by the recession—and lack of access to college—were saddled with debt they couldn’t pay back. In response, California and the federal government both instituted new regulations requiring for-profit colleges to be more transparent and accountable.

California went a step further than the federal government. The state required colleges to meet minimum standards of graduation and loan default rates to be eligible for Cal Grants, the state’s financial aid program for low-income students. Enrollments in for-profit colleges in California declined, and some of the largest for-profit institutions, like Corinthian and ITT Technical Institute, declared bankruptcy as the economy improved and funding to public higher education was restored.

California policymakers should seek to avoid the mistakes of the last recession by ensuring that access to public higher education is not restricted during this recession. The key is to find ways to limit budget cuts so that public higher education remains accessible to all Californians looking to advance their knowledge and improve their economic well-being.[/vc_column_text][/vc_column][/vc_row]

Making Career Education Affordable in California

Secretary of Education Betsy DeVos recently announced plans to eliminate rules put in place during the Obama administration that require career-education colleges to show that the credentials they award lead to gainful employment. In California, these rules have helped shift enrollment from expensive for-profit institutions to public community colleges, which offer career education programs at much lower cost. Indeed, California’s community college system is one of the most affordable higher education institutions in the country.

Many are concerned that eliminating gainful employment rules will lead to a loss of accountability and even a resurgence of enrollment in for-profit colleges. Some of those colleges have engaged in predatory recruiting practices, and many have high dropout rates and exorbitant student debt. In California, there are also concerns about a reversal of recent gains in affordable access to higher education—particularly among groups that have historically been underserved.

Partly because of the information provided by the gainful employment rules, career education students in California have been increasingly seeking degrees and certificates at the state’s large public community college system rather than at for-profit colleges. Between 2012 and 2017, the number of associate degrees and certificates conferred by for-profit institutions dropped by 25%. In comparison, the state’s community colleges saw an increase of 47%; in 2017, the number of degrees and certificates they awarded was more than eight times the number awarded by for-profit colleges.

Many for-profit institutions have targeted workers looking to get into in-demand fields such as health or family and consumer sciences. These for-profits have marketed options that lead to credentials—known as short-term certificates—that can be earned in less than one year. In 2012, private for-profit colleges awarded almost 21,000 short-term certificates compared to 38,000 awarded at the community colleges. But by 2017 the number of short-term certificates awarded had declined to fewer than 7,000 at for-profit colleges and risen to more than 55,000 at the community colleges. Many of the students who have shifted to the community colleges in recent years are from historically underserved backgrounds (e.g., African American, Latino, older, and low-income students). These students now have opportunities for career education without the hefty price tag attached to programs at for-profit colleges.

The elimination of federal gainful employment rules could have a negative impact on affordable access to career education. However, efforts by California’s community colleges to attract students who might be drawn to for-profit institutions will continue. So too will state rules that make institutions with low graduation rates and high loan default rates ineligible for Cal Grants. These state-level initiatives might not be able to prevent a resurgence of exploitative for-profits, but they could make a difference for many Californians.

More Students Are Earning STEM Degrees

The number of students graduating with a bachelor’s degree in science, technology, engineering, or math (STEM) has risen dramatically in California. Both students and colleges are responding to changes in our economy, which increasingly rewards highly educated workers, especially those with STEM degrees.

Between 2010–11 and 2016–17, the number of STEM bachelor’s degrees awarded by colleges and universities in California increased 55%, more than triple the rate of growth in other degrees (17%). By 2016–17, 20% of all bachelor’s degrees awarded were in a STEM field, up from 16% in 2010–11.

These increases occurred across the board for all STEM fields and for all higher education sectors in the state. Increases were especially sharp in engineering, which surpassed biology as the most common STEM degree. Computer and information sciences also saw big gains, with almost three times as many bachelor’s degrees awarded in 2016–17 as in 2010–11. The increase in computer science is particularly notable, as its popularity had declined after the “dot com” bust of the early 2000s.

STEM fields are especially popular at the University of California (UC), which awards almost half of the state’s STEM degrees (compared to only 21% of other bachelor’s degrees). In contrast, California State University (CSU) awards 37% of the state’s bachelor’s degrees in STEM, compared to more than half (52%) in other majors. STEM is also less common at private colleges, especially for-profit institutions.

But there is wide variation across colleges. At UC San Diego (56%) and UC Merced (48%), about half of bachelor’s degrees awarded in 2016–17 were in a STEM field, compared to only 27% at UC Santa Barbara. In the CSU system, 37% of bachelor’s degrees at Cal Poly San Luis Obispo were in STEM, compared to only 8% at Cal State Dominguez Hills. And among the state’s larger private nonprofit colleges (those with at least 1,500 bachelor’s degrees awarded), half of Stanford University’s bachelor’s degrees were in STEM, compared to only 8% at Azusa Pacific.

The rapid growth in STEM majors is a testament to changing interests among students. Those interests are academic, but also economic. Strong labor market outcomes for STEM graduates—especially for those with degrees in engineering and computer science—almost certainly contribute to the increasing demand for those majors.

Colleges have responded, at least in part, by building more capacity for STEM majors. Moreover, public colleges have led the way, with UC and CSU experiencing the largest shifts toward STEM degrees. Between 2010–11 and 2016–17, the share of bachelor’s degrees awarded in STEM fields increased 6.8 percentage points at UC (from 30.0% to 36.8%) and 4.4 percentage points at CSU (from 10.7% to 15.1%), compared to only 2.7 percentage points at private nonprofit colleges (from 12.4% to 15.1%).

While more could be done to fully meet student demand—at many campuses, engineering and computer science majors have more applicants than can be accommodated—the evidence to date shows that California’s higher education system has been able to substantially increase capacity in STEM fields.

Five Factors for Successful Online Learning

Governor Brown’s budget proposal requested a $100 million initial investment, along with $20 million annually, to establish a new online college that would be part of the state’s community college system. This college would initially focus on short-term certificate programs for non-traditional students ages 25–34 who are already in the workforce. In the long term, this college would seek accreditation, provide pathways to transfer to a four-year college, and compete with established online course providers like Arizona State Online and the for-profit University of Phoenix.

Tens of thousands of students already take online courses offered by California’s community colleges. In fact, the share of student enrollment in these courses has increased 9 percentage points over the past decade to more than 13% in 2016–17. The new online college, if established, is likely to accelerate this trend.

Previous PPIC research has identified five key factors to help ensure student success in online programs:

Use a systems approach to course design. In this model, an instructional designer works with faculty, media developers, and programmers to develop an online course. This approach recognizes the fundamental differences between online and face-to-face instruction and allows instructors to focus on the subject matter and student engagement.
Provide professional development. Effective online instruction requires distinct strategies. For example, to guide discussion online, instructors must gauge student engagement and develop appropriate norms without the usual visual and auditory cues. Rapid changes in technology and the isolated nature of online instruction also make professional development and mentorship particularly important.
Set student expectations. There is a common misconception that online courses are easy. On the contrary, students in online courses often struggle with the autonomy, time management, and digital literacy necessary to succeed. Successful online programs use orientation courses to set expectations and clarify the differences between online and face-to-face education.
Create community. Communication is essential to foster a constructive learning environment and positive peer interactions. Online courses that encourage regular and effective communication among students and between students and their instructor develop a better sense of community and improve the likelihood of student success.
Take advantage of the online environment. Online tools offer unique insights not available in face-to-face pedagogy. Data on student engagement (e.g., did students view the syllabus or access additional course resources?) can provide clues for how to improve student outcomes. Online learning also facilitates personalization and can be adapted to different learning styles and special needs.

In 2013–14, the community college system launched the Online Education Initiative (OEI), which promotes these best practices and has established online course standards and faculty training in pedagogy and course design. As the state moves forward with its proposal to create a new online college, the OEI could play a key role. Overall, the line separating online and face-to-face learning is not as stark as many suppose. Most college courses already incorporate some online aspects, whether it’s an online course management system, chat room, or video conferencing. As the online and face-to-face worlds continue to merge, furthering our understanding of best practices for online instruction will be critical to student success in higher education as a whole.

Retraining Workers for the Future Economy

As the economy continues to shift toward computers and digital technology—and braces for a potential future with more robots—workers have been called upon to adapt and learn new skills. New industries and new kinds of jobs may lead to economic growth, but whether these gains are shared by all of California’s workers depends critically on their retraining. And that retraining, in turn, depends on the ability of educational institutions to also adapt to new labor market needs.

While workers can sometimes learn new skills on the job or on their own, other times retraining means obtaining a new credential and returning to the classroom. That’s especially true for people who work in technical industries that are being reshaped by forces like routinization, automation, and outsourcing.

California’s higher education system has an important role to play in delivering retraining options. The state’s community colleges are the primary provider, with hundreds of programs in skilled trades and applied sciences and technologies. Notably, community colleges offer retraining options at a much lower cost to students than do private for-profit two-year colleges, another major provider. In addition, many community college programs show substantial economic returns for students—especially in health professions.

Effective retraining through the state’s colleges would help ensure that all Californians are productive and self-sufficient, which would benefit not just families but also employers and the state economy. However, the current model of higher education was largely built for 18-year-old, first-time freshmen and does not necessarily work for older, returning students, who are almost certainly balancing training with career, family, and other demands.

Flexible course scheduling—for example, through online courses or “distance” education—is one way to better reach workers. California’s community colleges are the clear leader in offering online options. PPIC research has highlighted some limitations to online training and outlined ways to improve student outcomes. Online courses for technical programs may require additional innovation, especially those that require hands-on training. Governor Brown’s proposed budget for fiscal year 2018–19 includes funding for a fully online community college that has the potential to bring innovation to how retraining opportunities (and educational opportunities, broadly speaking) are offered to Californians.

For individuals or training programs not amenable to online options, expanding course offerings near job centers is key. Cal State Los Angeles’s satellite campus in downtown LA aims to do exactly this. Information about the job market is also crucial—and California’s community colleges have taken a big step in the right direction by providing easily accessible information on the labor market outcomes of different colleges and programs across the state.

Retrained workers may pursue all kinds of new skills, but career technical programs, most of which are in community colleges, are particularly important because they offer short-term credentials in industry-relevant fields. Efforts to make career technical programs more flexible—through, for example, online courses, convenient locations, and partnerships with employers—are critical to filling student, employer, and state needs in a rapidly changing workplace.

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Federal Policy Shift on Private For-Profit Schools

The US Department of Education is moving toward changing two regulations designed to protect students at private for-profit institutions. The regulations were revised or instituted by the Obama administration in response to allegations of fraud and predatory practices, as well as low graduation rates and high levels of student debt. Secretary Betsy DeVos says they are burdensome for institutions.

The regulations cover more than 250 private for-profit institutions in California; they affect about 245,000 current students and tens of thousands of former students.

DeVos is establishing rulemaking committees to review both regulations:

The Borrower Defense to Repayment (BDR) allows victims of misleading and predatory practices to apply for federal loan forgiveness. California attorney general Xavier Becerra says that about 38,000 Californians who took out loans to attend Corinthian Colleges (which shut down in 2015) are eligible to file claims. DeVos stated that approved BDR claims will be paid and pending ones will be processed while the regulation is under review. However, it’s unclear if students can still apply for loan forgiveness.
The Gainful Employment (GE) regulation is designed to help students avoid low-performing schools. It requires institutions to provide students with information on graduation rates, average earnings of graduates, and average federal student loan debt. The most important aspect of the regulation is the federal student aid qualification component, which stipulates that loan payments for graduates of postsecondary programs should not exceed 8% of annual earnings or 20% of discretionary income. Programs that do not meet these standards risk losing the ability to participate in federal student aid programs. According to Federal Student Aid data, in 2015 only 58% of programs at Californian for-profit institutions met the 8% benchmark, compared to 97% of programs at public and private not-for-profit institutions. The share of for-profits passing the discretionary income test is even lower, at 34% (public and not-for-profit schools have a passing rate of 82%). It is unclear if the GE regulations will be enforced while the committee reviews the regulation over the next two years.

While the federal government is taking steps to pull back on the regulation of for-profit institutions, California is moving in the opposite direction. In order for students at higher education institutions to qualify for Cal Grants, the institutions must meet minimum standards for graduation and loan default rates. In 2014, 137 institutions—almost all of them private for-profits—failed to meet California’s standards. In 2017, however, only 10 failed, which suggests that the policy might be working. Furthermore, California has joined 17 other states in suing DeVos over her decision.

As the Department of Education reviews these regulations, it should evaluate the effect the changes could have on student debt and loan default rates. In the meantime, keeping the current regulations in place would protect students from low-performing schools and help them avoid programs that may lead to high levels of debt and low-paying jobs.

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The Growth of Cal Grants

The Cal Grant program is the primary program for providing tuition assistance and financial aid to California’s college students. It has allowed California to maintain access to college for low-income students during a time of rapid tuition increases. The program has grown significantly since its inception in 1955 and now serves more than 300,000 students at an annual cost of around $2 billion.

State law protects Cal Grant recipients from tuition increases at UC or CSU: when tuition rises, so do these students’ Cal Grants. Consequently, as tuition has increased and enrollment of low-income students has expanded, the program has grown rapidly. Next fall, tuition is scheduled to increase by $280 per year at UC and by $270 per year at CSU. In addition, UC, which has enrolled 7,400 new undergraduates in each of the last two years, plans to enroll an additional 2,500 in the fall of 2017‒18, the largest three-year increase in seventy years. CSU has added around 50,000 additional students over the past five years. The expansion of Cal Grants has drawn the attention of the governor. He noted in his May budget revision that “rising Cal Grant costs from tuition hikes will also limit the state’s ability to increase General Fund support in the future.”

Nearly all of the Cal Grant funding increases have gone to students attending public institutions. CSU has seen a 75% increase in Cal Grant funds since 2011‒12, while the community colleges and UC have received a 61% and 27% increase respectively. Private nonprofit colleges, on the other hand, have seen their Cal Grant funding stagnate. The governor’s budget revision acknowledges this by reallocating $8 million that had been targeted to UC and CSU in his January budget proposal to non-profit private Cal Grant funding. These funds will prevent a planned cut to the maximum award for students attending a nonprofit private college.

By contrast, for-profit colleges have seen their Cal Grant funding decrease substantially over the past five years. The 2012‒13 budget introduced restrictions on access to state Cal Grants which affected many for-profit colleges. To some degree, for-profit colleges satisfy an unmet need for access to higher education for non-traditional students. But investigators have found that many of these colleges engage in predatory marketing and lending practices—targeting vulnerable students, making false statements regarding job placement, and overestimating the value of the degrees they provide. To address these issues the state established new institutional eligibility standards for Cal Grants. To be eligible, a higher education institution must now have a minimum graduation rate of 30% and a loan default rate of less than 15.5%. The 2012‒13 budget also cut the maximum award for a student attending a for-profit college from $9,708 to $4,000. These regulations have saved the state nearly $100 million since 2011‒12, reduced by more than half the number of for-profit colleges eligible for Cal Grants, and ensured that low-income and first generation students were not taken advantage of by higher education institutions that did not serve their economic interest.

Cal Grants are an essential tool for improving the economic mobility of the state’s neediest residents. They also allow the state to reduce the burden of federal loans on young Californians. Maintaining Cal Grants for high performing colleges— public and private—will improve access to college for all Californians.

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For-Profit Colleges Face an Uncertain Future

California’s private for-profit colleges are in flux now that the US Department of Education has parted ways with the Accrediting Council for Independent Colleges and Schools (ACICS)―one of the largest for-profit accreditation agencies. Former education secretary John B. King Jr. based his decision to reject ACICS’s bid to continue overseeing hundreds of colleges nationwide on findings that ACICS was allowing colleges such as ITT Tech and Corinthian Colleges (known as Everest College in California) to keep their accreditation despite very low graduation rates and allegations of fraud and predatory practices.

This decision—which is being appealed by ACICS—is important because without accreditation, colleges cannot receive federal Pell Grants and student loans. ACICS-accredited schools across the country received $4.76 billion in federal student aid in 2015. Even though these schools have 18 months to gain accreditation through other agencies, some fear they will not meet the deadline since gaining accreditation is a lengthy process. Without accreditation, colleges may be forced to shut down, which could affect up to 600,000 students nationwide.

How might this decision affect students in California? The most recent enrollment data from the Integrated Postsecondary Education Data System and the Bureau for Private Postsecondary Education indicates that campus closures would not have a major effect on overall student enrollment. (This data is from 2014, so to get closer to what for-profit enrollment looks like today, I subtracted enrollment at colleges that have closed since then: Brooks, Everest, Heald, International Academy of Design and Technology, ITT Tech, Sage, TransWestern Truck Driving School, Westwood, and Wyotech.) In California, ACICS oversaw 53 campuses, including Le Cordon Bleu College of Culinary Arts and Kaplan College (which was recently acquired by Brightwood College). In total, 26,478 students attended ACICS colleges; this number represents 11.1% of for-profit college enrollment and only 1.1% of California’s total postsecondary student population.

However, the 26,500 students who could be displaced by campus closures may face difficult decisions. These students have several options: they could transfer to another college, apply to have their loans forgiven by the federal government, or apply to the state student tuition recovery fund for reimbursement. But none of these options are perfect. Community colleges that accept for-profit students may not accept all of their credits. Enrolling in another for-profit carries the risk that it will close, too. Students who apply for federal loan relief may experience long waiting periods, and there is uncertainty about whether this relief will continue. At the state level, the student tuition fund may not refund all of a student’s debt.

It is possible that the Trump administration will loosen for-profit regulations, which may forestall additional campus closures. But given the uncertain future of this sector, along with low graduation rates and high levels of student debt at many for-profit colleges, students may want to find alternative programs in the public and private not-for-profit sectors.

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The News on Student Debt Is Not All Bad

Californians are rightly concerned about the costs of attending college and the amount of money many students need to borrow in order to pay those costs. In a recent PPIC Statewide Survey, 57% of Californians identified lack of college affordability as a big problem. An even larger majority—78%—agreed with the statement that students have to borrow too much money to pay for a college education.

As college costs have risen, the share of students taking out loans has grown substantially in both California and the nation. Just ten years ago, only about one-third of freshmen at four-year colleges and universities in California took out loans compared to 44% in 2014. Equally troubling is the growing size of those loans. Even after adjusting for inflation, average loan amounts for freshmen increased 14% in California between 2004 and 2014 (from just over $6,000 to almost $6,900). Among graduating seniors at California colleges in 2015, cumulative student debt totaled just over $24,000 for those who took out loans.

But not all of the news is bad. There are some encouraging and newly emerging trends in student debt, especially in California.

Over the past few years the trend toward more loans and higher loan amounts has reversed, with declines in both the share of freshmen taking out loans and the amount borrowed. In California, the share of freshmen at four-year colleges taking out loans has declined from 48% to 44%, and average loan amounts (adjusted for inflation) have declined from over $7,700 in 2010 to under $6,900 in 2014.
Student debt remains lower in California than in the rest of the nation, with California freshmen less likely to take out a loan (44%) than their counterparts in the rest of the nation (54%). Among those who do borrow, loan amounts are lower in California ($6,851) than in the rest of the US ($7,014).
The vast majority of students in California attend public colleges, and these students are much less likely to take out loans than students at private colleges. Very few California community college students take out loans, and less than 40% of freshmen at UC and CSU take out a loan, compared to more than 50% of freshmen at private nonprofit colleges and 70% at private for-profit colleges. Among those who take out loans, the amounts borrowed are also lower at California’s public colleges. Graduating seniors in 2015 at UC and CSU who took out loans had a median cumulative debt of $16,600, compared to $23,400 at private nonprofit colleges and $30,500 at private for-profit colleges. The lower rates of student debt at California’s public colleges and universities are related to institutional and state policies that provide scholarship and grant support to many low- and middle income students.
Finally, and perhaps most importantly, strong job prospects for college graduates, especially in California, mean that the vast majority of students are able to pay back their loans. Loan default rates are very low for students graduating from the state’s public and nonprofit private universities. Students at private for-profit colleges fare much worse. They often accumulate large amounts of debt, and this—coupled with low graduation rates—often makes it a struggle to pay back their loans.

It is important to remember that loans are an important and useful source of financial aid for many students. Indeed, taking on debt can be a very smart economic choice if it allows a student to enroll in and complete college. Policymakers and educators should seek to provide more opportunities for students to strategically use loans to reach their educational goals. Student debt becomes a problem when graduates are not able to pay back their loans—especially if they received a low-quality education and/or took on an exorbitant amount of debt. These are outcomes we should work to prevent.

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Read Higher Education in California: Making College Affordable
Read the PPIC Statewide Survey: Californians and Higher Education
Visit the PPIC Higher Education Center

Race, Ethnicity, and For-Profit College Enrollment

After expanding rapidly for several years, enrollment in for-profit colleges has been declining since 2011. The decline in enrollment, which PPIC has noted, coincides with investigations of predatory for-profit marketing practices, restrictions on Cal Grant eligibility for some for-profit schools, and various closures, most recently ITT Tech.

During the period of rapid growth (between 2004 and 2011), enrollment in for-profits grew across every racial/ethnic group. While white and Latino students account for more than half of enrollment, African American enrollment saw the greatest growth―total for-profit enrollment doubled, but African American enrollment more than quadrupled.

Overall African American postsecondary enrollment increased by more than 46,000 students, and three-quarters of that growth was due to increased enrollment in for-profit schools. In 2004, the statewide share of African Americans enrolled in for-profit schools (8%) was similar to the share of African American high school graduates (7%). By 2011, African Americans made up 15% of overall for-profit enrollment, compared to about 7% of high school graduates meaning they made up disproportionately high share of for-profit enrollment relative their high school graduates numbers.

Since 2011, for-profit enrollment has steadily declined. From 2011 to 2014, for-profits saw a 20% drop across all racial/ethnic groups, while total postsecondary enrollment fell by only about 4%. In the same timeframe, total African American postsecondary enrollment fell about 13%, and much of that decline was due to falling enrollment at for-profit institutions and community colleges. Even so, one in five African American students are still enrolled in for-profit institutions, compared to fewer than one in ten white, Asian, and Latino students.

The fact that the overall African American postsecondary enrollment has dropped twice as much as this group’s high school graduation rate suggests that African American college enrollment may not be shifting from for-profits to other California institutions. If additional for-profits close, the college-going rate of African American students may continue to fall. Indeed, it may have fallen over the past year—we don’t yet have data on what has happened with enrollment since the shuttering of large for-profit institutions such as Heald, Wyotech, and ITT Tech.

What can public and nonprofit colleges do to attract students who have been or would be likely to enroll in for-profits? Some community colleges are reaching out to the ITT Tech students, and several colleges are starting to adopt some of the practices many students find enticing about for-profit institutions, including online courses and more flexible course scheduling. In addition to ensuring that more Californians, and more African Americans in particular, attend college, public and nonprofit institutions could help prevent high levels of student debt, which students in for-profit colleges are more likely to accrue and default on than students at other institutions.

Learn more

Read Higher Education in California: Making College Affordable
Visit the PPIC Higher Education Center