Where do for-profit colleges get the money they spend on all those highway billboards and television and radio ads?
Mostly from the government, at least indirectly. Federal money, most of it through the financial aid that students get, accounts for up to 90 percent of for-profit colleges’ revenue — even more in some cases if veterans attend the school on the GI bill.
And while figures vary, some institutions spend a quarter or more of their revenue on recruiting, far more than traditional colleges. In some cases, recruiting expenses approach what these institutions spend on instruction.
A recent Senate report on 15 large, publicly traded for-profit education companies said they got 86 percent of their revenue from taxpayers and have spent a combined $3.7 billion annually on marketing and recruiting.
Sen. Tom Harkin, D-Iowa, says the connection is clear: “Their marketing budgets are funded by taxpayers.”
On Wednesday, Harkin and Kay Hagan, D-N.C., introduced a bill to try to check the flood of advertising, which has particularly targeted Iraq and Afghanistan veterans for the benefits they receive under the new GI Bill. The measure would prohibit colleges of all kinds from using dollars from federal student assistance programs, including the GI Bill, to pay for advertising and recruiting.
The bill would extend a current rule that prohibits federal dollars from being used for lobbying — though the lobbying budgets of for-profit colleges are tiny compared to what they spend on advertising.
“Today we are sending a strong message to colleges that choose to spend federal dollars on advertising at a time that middle-class students and families are struggling to get ahead: Find the money for marketing elsewhere, not from taxpayers,” said Harkin, chairman of the Senate Committee on Health, Education, Labor and Pensions.
The bill faces daunting odds in Congress. But it represents a new tactic in recent efforts by some in Washington to curb aggressive marketing tactics by for-profit schools, particularly toward veterans. Military veterans are particularly attractive recruiting targets because they come with generous federal tuition support and also don’t count toward a limit called the “90/10″ rule, which requires colleges to get at least 10 percent of their revenue from non-federal sources.
The proposal would forbid GI Bill dollars from being used in marketing, along with funds from other forms of federal student aid such as Pell Grants.
The rule would apply to colleges of all kinds but would mostly affect for-profits. While not-for-profit colleges do more and more advertising and recruiting, Senate backers cited a study showing such expenses typically total no more than 1 percent or revenue. Those colleges also typically get much lower proportions of their revenue from federal student aid, so they wouldn’t be constrained.
However, colleges generally resist any efforts from Washington to tell them how to spend their money — so opposition from traditional universities will make the bill even more of a longshot.
While some smaller higher education groups such as the American Association of Collegiate Registrars and Admissions Officers expressed support for the bill, the American Council on Education — a main group representing all of higher education — did not. Terry W. Hartle, the senior vice president at the Council, said in a statement Wednesday that the proposal contributes to an important conversation about how to ensure students are not overwhelmed by aggressive marketing tactics but would impose a “very complex set of requirements of all institutions because of a handful of bad actors.” He said it was unlikely to be enacted this year.
The Association of Private Sector Colleges and Universities, which represents for-profits, called the bill misguided at a time when the country will depend on such schools to help get millions more workers college-level training.
“Legislative proposals like this only create more burdensome regulations affecting our ability to ensure that all Americans have access to a high-quality education,” it said.
Another concern: definitions such as “marketing” are so slippery such a law would be hard to apply fairly, said BMO Capital Markets managing director Jeff Silber. He noted, for example, that the Ohio State University football team doesn’t get counted as a marketing expense but clearly promotes the school as effectively as any advertising campaign.
Wall Street appeared to agree the bill stood little chance of passing, with stocks of leading for-profit companies such as Apollo Group (parent of the University of Phoenix), Corinthian Colleges Inc., and DeVry Inc. all lower in mid-day trading but not substantially on a day when the market overall was down.
In fact, Silber said most for-profits have been cutting back in recent years on advertising and recruiting budgets. Still, the business model relies heavily on Web and broadcast ads, billboards and well-staffed call centers to drive enrollment.
“Yes, this would be an issue for everybody (in the sector),” Silber said. “Advertising and selling is a fairly sizable component of the business model,” and if spending were limited, “it would limit their growth.”
Figures compiled by BMO show that at the largest for-profits marketing expenses average around 22 percent of revenue but range as high as 29 percent at Bridgepoint Education. Bridgepoint’s Ashford University got only about 20 percent of its revenue from non-federal sources, so conceivably could have to cut back on half its advertising and recruiting under the proposal.
Harkin emphasized the proposal would leave schools free to advertise — just from a separate pot of money that hasn’t come from taxpayers.
Even critics acknowledge that quality at for-profit colleges varies widely, and many are a good fit for students, particularly adult learners looking for flexible scheduling and specialized career training that often requires a certificate but not a degree.
But while comparing graduation rates can be misleading for those reasons, for-profit schools on average have lower success rates than traditional colleges on a variety of measures. A report from Harkin’s Senate committee found that almost 2 million students withdrew from large for-profit colleges over a three year period. Among those who enrolled at 10 large chains in 2008-2009, 54 percent had withdrawn by the summer of 2010.
Meanwhile, the latest figures from the Education Department put the default rate on federal student loans for students at for-profit colleges at 15 percent, compared to 7.2 percent at public nonprofit universities and 4.6 percent at private nonprofit colleges. The industry points out that’s partly because its schools tend to serve lower-income students. But difficulties transferring credits, and having credentials from for-profit colleges rewarded in the job market, also play a role.