Bloomberg News

For-Profit Colleges Lose Incentive to Target Vets in Bills

February 21, 2012

(Updates to add trade group’s comment in last paragraph.)

Feb. 16 (Bloomberg) -- For-profit colleges would lose a financial incentive to enroll soldiers and veterans under U.S. Senate and House bills aimed at curbing what sponsors call aggressive marketing of subpar programs.

For-profit colleges such as Apollo Group Inc.’s University of Phoenix can get as much as 90 percent of their revenue from federal financial-aid programs. Schools solicit troops partly because their government-tuition programs are excluded from that cap. Under bills being introduced today by two Democrats, Delaware Senator Thomas Carper and California Congresswoman Jackie Speier, that money would count toward the limit.

The law should be changed to protect taxpayers and current and former military members, according to a summary of the Senate bill. For-profit colleges and John Kline, the Minnesota Republican who chairs the House education committee, have said such aid restrictions would reduce educational access for veterans who have been neglected by traditional schools.

“We have a responsibility to our taxpayers, our service members and our veterans to make sure that when our warriors start their new career as students, that they aren’t subjected to unfair or abusive practices while using the benefits they worked so hard to earn,” Carper, who chairs the Senate subcommittee on federal financial management, said in a statement.

Federal Cap

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. They include the University of Phoenix, the largest chain by enrollment, and Education Management Corp., the second- biggest.

Congress enacted the cap on federal aid to for-profit colleges as an antifraud provision, so that students -- or employers who paid for their continuing education -- were investing some of their own money in the tuition. Before 1998, the law had an 85 percent cap.

Congress, the Education Department, 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 2009-2010 school year.

Co-Sponsors

Richard Durbin of Illinois, the No. 2 Senate Democrat, and Tom Harkin, the Iowa Democrat who is chairman of the Senate education committee, sponsored a similar bill in January that would lower the total amount colleges could receive from government programs to 85 percent. Harkin is a co-sponsor of the new Senate bill. Walter B. Jones, a North Carolina Republican, is a co-sponsor of the House bill.

Apollo, based in Phoenix, fell 1.3 percent to $52.31 at 12:47 p.m. in New York. Pittsburgh-based Education Management dropped 1.1 percent to $18.65. A Bloomberg index of 13 for- profit education companies declined 1.2 percent.

Between 150,000 and 200,000 veterans are pursuing higher education at for-profit colleges, according to Steve Gunderson, president of the Washington-based Association of Private Sector Colleges and Universities, which represents the industry.

For-profit colleges, Congress, veterans groups and the Obama administration are holding “productive conversations” that could “prevent the need for additional legislation,” Gunderson said in a statement.

--Editors: Lisa Wolfson, Chris Staiti

To contact the reporters on this story: John Hechinger in Boston at jhechinger@bloomberg.net; John Lauerman in Boston at jlauerman@bloomberg.net

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


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