Officials at for-profit colleges and universities are facing a chorus of public criticism after accusations of shady student recruiter practices and a U.S. Department of Education (ED) report that showed twice as many students at for-profit schools have defaulted on their college loans compared to students attending nonprofit and public colleges.
The growing criticism comes as new research suggests for-profit colleges are gaining market share among online learners as the recession drives more people back to school.
Students who took out loans to pay for education at commercial institutions such as the University of Phoenix and DeVry University had a 21-percent default rate within three years, according to the Dec. 14 ED report, which used data from students who began loan repayment in fiscal year 2007. For-profit schools’ default rate in fiscal 2006 was 18 percent.
Overall, American college students defaulted at a 12-percent rate, up from 9 percent the year before.
A day after ED released its report, Apollo Group Inc.—the University of Phoenix’s parent company—agreed to a $78.5 million settlement after a six-year court battle that started when former university employees filed a lawsuit claiming recruiters were paid based on the number of students they enrolled, a practice that violates federal law.
Apollo Group denied the former plaintiffs’ allegations, dismissing them as disgruntled former employees and claiming their schools’ recruiting practices were within federal guidelines. But the hefty settlement did little to quell public criticism.
Congressman Elijah E. Cummings, D-Md., urged lawmakers to launch hearings to investigate common practices in publicly-traded colleges and universities. A Congressional investigation, Cummings said, would "shine a light on the for-profit education industry and provide the American people with a clear picture of the true costs of education."