Bloomberg News

For-Profit Colleges Face Curbs on U.S. Aid in New Vets Bill

January 26, 2012

(Updates with Senate forum comment in fourth paragraph.)

Jan. 23 (Bloomberg) -- For-profit colleges would be forced to rely less on federal money under a bill aimed at curbing the marketing of degrees to soldiers and veterans.

The proposed legislation, to be introduced today by Senate Democratic leaders, would require for-profit colleges to get no more than 85 percent of their revenue from federal programs, according to a summary from the office of Illinois Senator Richard Durbin, a co-sponsor. Colleges now can receive as much as 90 percent. They would lose federal funding for exceeding the cap for one year, instead of the current three.

Colleges solicit the military because their government tuition programs are excluded from the cap on federal money, said Senate education committee Chairman Tom Harkin, the other sponsor. The bill would eliminate that incentive by counting military money, according to Christina Mulka, a spokeswoman for Durbin, the majority whip, or No. 2 Senate Democrat.

“For-profit college companies have created aggressive marketing plans and a sales force specifically designed to target and enroll as many veterans, service members and family members as possible,” Durbin said at a forum today in Chicago where he announced the filing of the bill.

Eight for-profit college companies received about $626 million in veterans’ education benefits in the most recent academic year, the Senate education committee said in a November report. The eight include Apollo Group Inc., owner of the University of Phoenix, the largest chain by enrollment; and Education Management Corp., the second-biggest.

Apollo, based in Phoenix, rose 0.1 percent to $54.68 at 2:43 p.m. New York time. Pittsburgh-based Education Management climbed 0.4 percent to $25.71.

‘Skin in the Game’

Congress enacted the cap on federal aid to for-profits as an anti-fraud provision, so that students -- or employers who paid for their continuing education -- had “skin in the game,” not just the federal government, Mulka said. Before 1998, the law had an 85 percent cap, as the bill now proposes.

Congress, the Education Department, the Justice Department and state attorneys general are scrutinizing the sales practices and student-loan default rates of for-profit colleges, which received almost $32 billion in federal grants and loans in the 2009-10 school year.

One of the speakers at the Chicago forum was Chris Pantzke, an Iraq War veteran who suffered a traumatic brain injury from a car bomb and attended an online-digital photography program at the Art Institute of Pittsburgh run by Education Management.

A Veteran’s Story

Pantzke was the subject of a September 2010 Bloomberg News article that detailed his frustration with the Art Institute.

The comments at the forum are not “fully representative of the experiences of veterans and enlisted military who are earning or have earned a degree from our institutions and now enjoy a successful career,” Jacquelyn Muller, an Education Management spokeswoman, said in an e-mail.

Durbin’s legislation “will only cut off access for thousands of veterans to the skill-intensive, hands-on programming and intensive job placement support that they need,” Brian Moran, interim president of the Washington-based Association of Private Sector Colleges and Universities, which represents for-profits, said in a statement today.

The industry will lobby against the bill as it did last year when it successfully pushed to ease proposed regulations that cut off aid to for-profits whose students struggle the most to repay their loans, Mulka said. Durbin plans to seek support from Republicans, she said.

The proposed restriction on federal aid “would severely limit opportunities for countless Americans - including active and veteran members of the U.S. Armed Forces, who benefit greatly from the flexible schedules and targeted coursework offered by these institutions,” Rep. John Kline, the Minnesota Republican who chairs the House education committee, said in a statement.

--Editors: Niamh Ring, James Callan

To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net.


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