The U.S. Department of Education recently conducted a Notice of Proposed Rulemaking (NPRM) that suggests the Dept of Ed will severely restrict access to various federal loan and grant programs to students attending career colleges. Unlike state-owned public institutions and private, not-for-profit colleges, career colleges operate on a for-profit basis.

There are approximately 1,000 career colleges such as the University of Phoenix, Strayer University, DeVry Institute and Westwood College that offer Associate, Bachelor or Master’s degrees. About 1.2 million students were enrolled in these colleges in 2007-08, according to Dept of Ed statistics. Another 1,800 for-profit post-secondary schools offer certificate, continuing professional education or occupation-specific education such as golf academies and culinary, technical and cosmetology schools.

In contrast, there are more than 3,300 public institutions and private, not-for-profit colleges that offer Associate or higher degrees. In 2007-08, about 17 million students were enrolled in these schools.

Career colleges have grown dramatically in the past several years. They primarily market themselves as providing degree and certificate programs that meet local market employment shortfalls and cater to the hectic schedules of a student body that is already in the workforce. Career colleges also provide opportunities to students who are denied admission to public universities and private colleges.

The typical career college student is already employed, 25 years of age or older, minority, female, single and often with dependent children, has lower income, cannot rely on family resources to finance college, and comes from a family without a college degree.

Because of these demographics, career colleges tend to have a much higher percentage of students who rely on federal student financial aid that is doled out under Title IV of the Higher Education Act of 1965 (federally insured loans, Pell Grants, etc.) than do students at public universities and private colleges.

This federal funding totaled $105 billion during the 2008-09 school year. About $24 billion of that amount went to students who attended career colleges.

According to Senator Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions, which has jurisdiction, federal student aid will balloon over the next decade. The U.S. will spend as much as $350 billion just on Pell Grants over the next 10 years. In 2009, $24 billion was spent on Pell Grants; in 2011, the U.S. will hand-out $30.6 billion.

The Dept of Ed has several criticisms of career colleges. The department alleges students attending career colleges default on federally backed student loans at a significantly higher rate than do students at public universities and private colleges. Career colleges dispute this allegation and respond with two points.

First, the demographic of the typical career college student is more prone to defaulting on loans, in general, and this accounts for a slightly higher student loan default rate. This demographic claim is borne out by the high loan default rate of students attending historically black colleges and universities.

Second, career colleges accuse the Dept of Ed of using different accounting techniques when analyzing student loan repayments by career college students. Older students already in the workforce are more likely to consolidate student loans into consumer debt refinance plans. The Dept of Ed, career colleges assert, improperly identify student loans in such situations as “in default” when they are, in fact, being repaid on time or are in approved interest-only payment programs.

The Obama Administration’s first attack on higher education financing occurred when the government conducted a takeover of private student loans. Observers allege the proposed rule change underscores the anti-corporate bias of the Obama Administration.

The Dept of Ed also complains that career colleges create “labor oversupplies” by graduating too many qualified workers for a specific profession causing unemployment and depressing salaries. Of note, the Ed Dept is silent on the thousands of lawyers graduated each year by law schools.

Occupation-specific training programs, argues the Dept of Ed, “that lacked a general education component made graduates of for-profit institutions less versatile and limited their opportunities for employment outside their field.” Career colleges dispute this.

Speaking on background, one career college official stated that graduating students who cannot get employed will cause students to attend school elsewhere. “We are marketplace-driven. We have a strong incentive to ensure our graduates get jobs. And they do,” he said.

According to the NPRM, the Dept of Ed is “determining whether certain postsecondary educational programs lead to gainful employment in recognized occupations.” It further indicates an intent to cut off federal student aid to “educational programs of little or no value.”

One can easily draw the conclusion there is elitism at play. What exactly constitutes a program of “no value”?

Certificate programs leading to jobs in cosmetology, police forensics, and computer repair may not pass muster with the Education Department as having “value” unlike some of the following courses offered in the Fall 2010 at these elite colleges and universities:

• Oberlin College: “Queering the Reel” (RHET 104) – Examining sexual orientation and gender in film.

• Yale: “Gypsies, Tramps and Thieves” (PLSC 154) – Study of “groups who have shown to live outside, or on the margins of, society” including hoboes and 18th century pirates.

• Harvard: “Akkadian Language and Literature” (AKKAD 300) — Study of the extinct Akkadian language that died-out more than 2,100 years ago.

• Columbia: “Transnational Transgender Social Formation” (W3918) — Merely one course offering among the university’s vast human rights curricula.

• Occidental College: “Stupidity” (CTSJ 180) — A Critical Theory and Social Justice offering to prove “[s]tupidity is neither ignorance nor organicity [sic], but rather, a corollary of knowing and an element of normalcy, the double of intelligence rather than its opposite.” Huh?

If the Dept of Ed truly wants “to protect taxpayers against wasteful spending on educational programs of little or no value” then perhaps it ought to prohibit the recipient of any federally-backed student aid from taking classes similar to these or banning tax dollars altogether from going to any school that even offers such nonsense.

Public university officials have been especially critical of career colleges. Students enrolled in career colleges not only attend classes in typical bricks and mortar classrooms but, have also been taking classes online. Public universities have been losing financial aid dollars to students attending career college programs.

GIVEN OLD ACADEMIA’S heavy political support of Democrats, this may be the real motive behind the Obama Administration’s effort to cut-off federal aid to colleges that have profit motives. Adding insult to injury, enrollment at career colleges has steadily increased while enrollment has flat-lined at public institutions and private colleges.

Last year, California denied community college admission to about 140,000 students due to the state’s dire financial predicament. Career colleges have picked up the slack. Today, the University of Phoenix has more than 443,000 students. Only the State University of New York system has a larger enrollment (463,000).

A Government Accountability Office report released in August 2010 (GAO-10-948T) alleges deceptive marketing practices at 15 career colleges and accuses 4 of those schools of conducting fraudulent practices. 

The Association of Private Sector Colleges and Universities (APSCU), the industry trade association, has condemned deceptive marketing practices and offers training seminars for financial aid administrators.

There are unconfirmed reports that more than 200 schools were surveyed for the report but, that the GAO cherry-picked only the 15 schools accused of deceptive or fraudulent marketing practices. They are also unconfirmed reports that the Dept of Ed was specifically targeting the University of Phoenix in response to complaints made by public universities. Both of these claims are plausible.

 At a June 2010 Congressional hearing, criticism was leveled at career colleges for using "TV advertisements, billboards, phone solicitation, [and] web marketing" to promote their institutions. According to Senator Harkin, "[advertising] spending by a for-profit school system radically [sets it] apart from other [not-for-profit] colleges." 

Career colleges counter that they do not have the monopoly inherent in being a state university nor do they enjoy the free marketing available from the promotion of big-time athletic programs such as football and basketball that are resident in public universities and private colleges.

The NPRM focused on a two-part test to ascertain an institution’s future eligibility for federal student aid. These are student debt-to-income ratios and loan repayment rates. Schools not meeting the minimum thresholds of the two tests would be deemed as not having adequately prepared students for “gainful employment” and would be cut-off from receiving federal student aid dollars.

This proposed rule to determine federal aid eligibility would apply only to career colleges. Career colleges utilizing federal student aid “benefit from billions of dollars in subsidies from taxpayers,” argues Education Secretary Arne Duncan and therefore ought to meet additional burdens not borne by public universities and private colleges.

The APSCU observes that if the same rule were applied to public universities and private colleges then it would severely restrict aid to medical school students. Students attending dental and law schools and other schools with high enrollment costs would also be affected.

According to the APSCU, 9% of nurses and 54% of allied health workers who graduated in 2009 attended career colleges. The trade association argues that drastically cutting back federal aid opportunities to these schools could exacerbate acute health care worker shortages.

There is a related matter that dramatically differentiates for-profit and not-for-profit colleges. Each state pours hundreds of millions of dollars into its public institutions. Additionally, public institutions and private, not-for-profit schools operate on a tax-exempt basis. In contrast, career colleges do not receive direct government subsidies and instead, pay millions of dollars of taxes into federal, state and local governments.

An analysis prepared by Professor Bradford Cornell of the California Institute of Technology on behalf of an advocacy group representing career colleges compared the costs borne by taxpayers by students attending for-profit and not-for-profit colleges.

According to Cornell’s report, “where only direct costs to taxpayers are considered, for-profit 2-year institutions produce graduates at a cost to taxpayers that is $25,546 lower on a per student basis than the public 2-year institutions [emphasis added].” The difference is more dramatic when one factors in tax revenues paid by for-profit schools and the absence of tax revenue from not-for-profit schools.

This assault on career colleges has pit influential groups and 80 members of Congress of both political parties against the Obama Administration. They note that career college students are heavily female and minority and changes to financial aid rules would disproportionately disadvantage them.

According to the Imagine America Foundation, 43% of students at career colleges are minority and 65% are female. Also, thirty-nine percent of degrees awarded at career colleges went to minorities, which is twice the rate at public institutions (20%) and more than double the rate at private colleges (17%).

Reducing access to federal student aid to those who enroll in career colleges would harm an important political Democrat constituency. In a letter addressed to Harkin, one liberal group of politicians urged the Iowa Senator to abandon his “imbalanced” approach to restricting federal aid to career colleges.

The Department of Education is expected to issue new federal student aid rules on November 1 that would take effect next year.

EDITOR’S NOTE: An earlier version of this article inadvertently identified Kaplan University as one of the institutions cited in GAO Report (GAO-10-948T). The institution was actually Kaplan College. We regret the error.