FOR-PROFIT COLLEGES IN : Path Forward or Dead End?

Peter Ruark, Senior Policy Analyst | November 2020 Simon Marshall-Shah, State Policy Fellow

Introduction

The past several decades have seen a proliferation of private for-profit colleges. While private nonprofit colleges and universities operate much as other nonprofit organizations—with a board of directors or trustees, a system of by-laws and a charter that are meant to ensure the institution serves a public benefit with surpluses going back into the institution’s mission—for-profit colleges operate with the primary purpose of making a profit for owners and/or shareholders. Some for-profit college campuses are locally-based independent businesses, but many others are owned by educational corporations and holding companies headquartered outside of the states where campuses are located.

While some might argue that Average Tuition and Fees at 2-Year Institutions, by Type of School profit-making in itself is not problematic for an institution of higher learning, problems quickly become apparent when taking into account that taxpayer-funded financial aid is nearly always used at such colleges, credentials are often seen as substandard in the job market, economically vulner- able populations are dispro- portionately targeted, and many for-profits have used misleading information and advertising to lure prospective students to their schools. For Profit Nonprofit Public (in state students) For-profit institutions com- Source: National Center for Education Statistics, Digest of Education Statistics, December 2019 (https://nces.ed.gov/ programs/digest/d19/tables/dt19_330.10.asp, accessed September 15, 2020) prise 47% of the institutions in the Great Lakes states that are MICHIGAN LEAGUE FOR PUBLIC POLICY | WWW.MLPP.ORG eligible for federal financial aid.1 There were approximately 77 for-profit college campuses in Michigan in 2018.2 In recent years, as the Great Recession encouraged cost-cutting, personal computers became more affordable and home wi-fi increased internet speed and capacity, there has been a shift from brick-and-mortar classroom buildings to online learning. This has enabled for-profits to deliver their services at a much cheaper cost (and likely a higher

Michigan League for Public Policy, 1223 Turner Street, Suite G1, Lansing, MI 48906-4369 Phone 517.487.5436 • Fax 517.371.4546 • www.mlpp.org • A United Way Agency profit) while providing convenience for students, but it has also made it more difficult for state governments to enforce standards and provide consumer protections.

For-profit colleges are often more expensive for students than public and nonprofit colleges offering similar programs. When comparing two-year colleges nationally, data from the National Center for Education Statistics shows that while tuition and fees at public community colleges cost an average of $3,313 per school year, for-profit two-year colleges cost an average of $15,360 per school year.3 Nonprofit two-year colleges cost a little more than for-profits in very recent years, but traditionally have been cheaper than for-profits. Some of those costs to students can be offset through institutional scholarships and public financial aid. For-profits, on the other hand, usually do not offer institutional scholarships (which are usually established by donors) and students at those schools cannot receive state financial aid in Michigan, although they can receive federal financial aid and some schools rely almost entirely on federal financial aid for their operations.

For-profit Colleges Especially Target Students from Families with Low Incomes, Black and Latinx Students, and Veterans Despite comprising a small portion of the postsecondary market (about 3% of enrollment in Michigan in 2019), for-profit institutions use targeted marketing strategies to identify potential students and encourage them to enroll. A 2012 Senate Health, Education, Labor and Pensions (HELP) Committee report on the for-profit industry outlined how these schools employ thousands of recruiters to target as many students as possible in an effort to boost tuition revenue Recruitment materials through increased enrollment.4 emphasized the need to Many for-profit institutions target those who are considered “non- target people who traditional” or independent students.5 These terms are somewhat ill- receive public benefits, defined, though independent students meet criteria such as being may lack financial older than 24 years of age, being married, having legal dependents (other than a spouse) or being a member or veteran of the Armed stability or are less Forces. In addition, an analysis of 2016 postsecondary data found that familiar with higher “non-traditional” students tended to have lower incomes and represented 70% of the lowest-income undergraduate students.6 education. Students who decide to work and save income to pay for college prior to enrollment and students whose income goes toward children and other dependents may contribute to this trend, among other factors. Companies that run for-profit colleges know this; the 2012 HELP Committee report notes that recruitment materials emphasized the need to target people who receive public benefits, may lack financial stability or are less familiar with higher education.7

The industry is successful in its strategy, as 73% of all for-profit attendees were at or below 200% of the federal poverty level (FPL), about $24,000 in 2016. The majority of undergraduate students had incomes below 200% FPL, but when broken down by race, this included 70% of Black students, 64% of Latinx students and 42% of White students.8 Based on these disparities, when for-profit schools target “non-traditional” students with lower incomes, they are targeting a larger share of Black and Latinx students compared with White students. What’s more, race-explicit targeting by for-profits has been

2 Michigan League for Public Policy | November 2020 documented, including large amounts of money spent on advertising on Black Entertainment Television (BET).9 The result is overrepresentation of Black and Latinx students in the sector: 2015 analysis of postsecondary enrollment found that these students made up 29% of all college students, but nearly half of those attending for- profit colleges.10

In addition, Black students are profoundly underrepresented at other postsecondary schools in Michigan. There are systemic inequities that contribute to this underrepresentation. In Michigan, Black children are much more likely to grow up in homes with lower incomes, and there are educational disparities resulting from the impact of economic inequality on children and their school readiness.11 In addition, school funding systems do not meet the need and added cost of supporting schools that predominantly serve students with lower incomes, which influences high school completion rates, which are 12 While some might argue that lower for Black students than White students in the state. Systemic barriers also exist at the postsecondary level, with profit-making in itself is not significant weight given to standardized testing—where we see problematic for an institution persistent differences in scores based on race as well as class13— of higher learning, problems and admissions processes that are purported to be race-blind, quickly become apparent which limit recruitment, enrollment and support of all students of when taking into account that color.14 taxpayer-funded financial aid Therefore, many students of color, and particularly Black students, is nearly always used at such face systemic barriers to continuing their education, especially at colleges, credentials are public colleges and universities in Michigan. Based on a 2019 often seen as substandard in review, out of 41 states measured, Michigan ranked third lowest in the job market, economically terms of both (1) Black representation among bachelor’s degree vulnerable populations are earners as well as (2) the share of undergraduates at public four- 15 disproportionately targeted, year institutions who are Black. At the same time, there is an and many for-profits have effort by for-profit schools to target Black students and encourage enrollment through deceptive marketing regarding cost, degree used misleading information value and the lengths of programs.16 And, for some Black students and advertising to lure with lower incomes in particular, such recruitment is tailored in a prospective students to way that may present for-profits as an attractive option. their schools. All told, Black students are overrepresented in for-profit schools when compared to the overall population of potential Black students in the state. Recent estimates put the share of Michigan residents—ages 18 to 49 with a high school diploma but no bachelor’s degree—who are Black at 17.1%.17 In 2018, on average 30.6% of the student body at a Michigan for-profit school was Black.18 This percentage of Black enrollment was at least 20 points greater than that in other types of institutions in the state: Black students comprised an average of 10.7% of students at a four-year private nonprofit institution, 8.8% of students at a two-year public institution and 7.7% of students at a four-year public institution.19 Systemic inequities in postsecondary education by race and targeted, aggressive marketing strategies likely compound, creating overrepresentation of Black students enrolled in for-profit institutions in the state. Unfortunately, many of these students will be saddled with debt and may have earned degrees that do not go as far as promised in the job market, as examined further in this report.

November 2020 | Michigan League for Public Policy 3 State Financial Aid Can Not Be Used at For-profit Colleges in Michigan Unlike many states, Michigan does not allow state financial aid to be used at for-profit colleges, but only at public and nonprofit postsecondary institutions.20 This is good public policy; Michigan taxpayers should not be expected to contribute to the profits of out of state investment companies that own many of the for-profit schools, particularly in light of the concerns outlined in this report. This policy has not been seriously challenged in recent years, and needs to be continued in order to ensure that students receiving state financial aid are using it toward a recognized and respected credential and to also ensure that there is enough financial aid to meet the needs of public and nonprofit college students.

There is a downside to this good policy, however. Without the leverage of state dollars, Michigan is less able to collect data on the demographics and success of students at for-profit colleges, and is unable to use state funding as leverage for better practices among the for-profit colleges. This is not the case with public colleges which by definition rely on state appropriations, or for nonprofit colleges that accept state financial aid, as both are required to submit annual data and adhere to certain practices as a condition for receiving public money.

For-profit Colleges Receive Substantial Federal Tuition and fees at public Financial Aid Funding community colleges cost an Although Michigan prohibits the use of state aid at for-profit average of $3,313 per school colleges, the federal government allows the use of federally- year, for-profit two-year funded financial aid at such colleges. Considering their small proportion of postsecondary enrollment, for-profit institutions in colleges cost an average of Michigan receive a substantial amount of federal funding through $15,360 per school year. Pell Grants, authorized by Title IV of the Higher Education Act. The Pell Grant program provides needs-based grants to students with lower and moderate incomes, helping to reduce the cost of attending college without taking on debt, as one would with a loan. The program is well-targeted: slightly more than half of Pell Grant recipients in 2016 had family incomes below $20,000, with 70% below $30,000.21 Students receiving Pell Grants are more likely to be older than 24 years old, be Black, Latinx or American Indian and be classified as independent.22 In 2018, despite comprising only 3.5% of Michigan’s postsecondary market, for-profit institutions received disproportionately more federal aid in the form of Pell Grants: based on the average amount of Pell Grant funding that undergraduates receive per sector, 6.2% of all Pell Grants to undergraduates in Michigan were distributed to students at for-profit institutions.23

In short, the same type of “non-traditional” students who are more likely to receive Pell Grants—those who are older, who are Black or Latinx and who have lower incomes—are being targeted for enrollment by for-profit institutions. In the 2017 school year, Pell Grant recipients were three times as likely as those who did not receive Pell Grants to be enrolled at for-profit institutions compared to public or private nonprofit ones, continuing a trend that has persisted over the last decade.24

4 Michigan League for Public Policy | November 2020 For-profits Comprised only 3.5% of Michigan’s Postsecondary Market in 2018, but Received Disproportionately more in Pell Grants

Public Private Non-profit For Profit

Enrollment 84.4% 12.0% 3.5%

Pell Grants 81.3% 12.4% 6.2%

Source: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS) 2017-18 data by sector. Michigan League for Public Policy analysis using 12-month unduplicated undergraduate enrollment, the percent of undergraduates receiving Pell Grants and the average amount of Pell Grant aid awarded to undergraduate students. Accessed September 2, 2020.

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This alignment is a driving force behind why we see for-profit institutions in Michigan enrolling a much greater percentage of undergraduate students who are receiving Pell Grants, compared with other types of institutions. When examining schools by sector, the for-profit sector overall enrolled a greater percent of undergraduate students receiving Pell Grants in 2018—at minimum 50% (across four-year for-profits) and up to 65% (across two-year for-profits) of total students enrolled in the sector. Across four- year nonprofit and public institutions, the percent of undergraduates receiving Pell Grants is typically less than 40%.25 What’s more, there are 25 individual postsecondary institutions in Michigan in which more than 65% of students are receiving Pell Grants, and of those, 23 are for-profit institutions, whose Pell Grant recipiency among enrolled students reaches up to 95%.26 This is further evidence of the aggressive marketing in low-income communities referenced earlier in this report.

In 2018, the maximum Pell Grant awarded was $5,920; the average amount in Pell Grant funding that a Michigan student received ranged from just over $3,000 for a student attending a less-than two-year public institution (such as a technical school) and up to $5,789 for one attending a two-year for-profit.27 The chart below shows the breakdown of Pell Grant funding for Michigan students compared to the maximum award per each institutional sector. The majority of students educated at for-profits in the state attend less-than two-year institutions; on average these students are awarded just over $4,000 in Pell Grant funding to put toward their educational expenses.

The amount of Title IV federal aid that for-profit colleges can receive is limited by what is called the “90-10 rule,” but a loophole in the rule has resulted in targeted enrollment of another group: members of the military and veterans. The 90-10 rule states that at least 10% of a for-profit institution’s revenues must come from non-federal sources. Based on available 2018 data from 44 for-profit colleges in Michigan, many are easily meeting the 90-10 rule; while some approach the 90% threshold for federal aid, a number have a 90- 10 percentage below 50% and the average from this sample is 65.2%.28 However, military and veterans benefits, such as GI Bill funds and Department of Defense Tuition

November 2020 | Michigan League for Public Policy 5 Average Amount of Pell Grant Awarded to Michigan Undergraduates by Sector in 2017-18

Private For-Profit, 2-Year Private Not-For-Profit, 2-Year Public, 4-Year or Above Private For-Profit, Less-Than 2-Year Private Not-For-Profit, 4-Year or Above Public, 2-Year Private for-profit, 4-Year or Above Public, Less-Than 2-Year

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000

Source: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), Student Financial Aid 2017-18 provisional data. Accessed September 2, 2020. Maximum Pell Grant: Congressional Research Service, Federal Pell Grant Program of the Higher Education Act: Primer,2018.

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Assistance, are not counted toward the 90% limit for federal aid; instead, they are considered in the private 10%.29 This means that for-profit institutions have an incentive to enroll veterans and receive federal funding without it counting toward the 90-10 rule , and they are successful in doing so. In fact, aggressive recruitment, as documented by the 2012 Senate HELP Committee report, has resulted in about one in three veterans who receive GI Bill funds attending a for-profit institution.30

Despite the wide use of Pell Grants at for-profit colleges, the net price to attend such a college in Michigan—after factoring in all grant aid and scholarships—is much greater than that of a public institution and is on par with a four-year nonprofit one (see table below). For the students with the lowest incomes ($30,000 per year or less) who are awarded financial aid, the median of the institution-wide average net price that students pay is nearly $17,500 per year at a for-profit college and $17,400 per year at a four-year nonprofit college, based on 2018 prices.31 Comparatively, students in an equivalent financial situation paid only $7,800 per Median of Average (Within-Institution) Net year to attend a four-year public college and only $4,800 per Price for Students Awarded Federal Financial year to attend a two-year public college. Aid (Income ≤ $30,000) For the lowest-income students attending public institutions in 4-year Private Non-Profit $17,400 Michigan, the average Pell Grant award helps lower the cost of 4-Year Public $7,800 attendance to well under $10,000. At some private institutions, 2-year Public $4,800 however, students can be on the hook for thousands of dollars For-Profit $17,500 even after federal grant money is applied, requiring them to take Source: Michigan League for Public Policy analysis of U.S. Department out loans to pay for school while burning through their lifetime of Education, National Center for Education Statistics, Integrated Post- secondary Education Data System (IPEDS) data, 2017-18. Michigan eligibility for Pell Grants (six years’ worth of funding) if they institutions: 31 out of 41 private non-profits, 46 out of 46 public and 58 decide in the future to pursue a different credential. out of 77 for-profits reporting. Accessed August 20, 2020. Furthermore, there is evidence that the availability of student aid MICHIGAN LEAGUE FOR PUBLIC POLICY | WWW.MLPP.ORG incentivizes for-profit colleges to raise their tuition costs. A

6 Michigan League for Public Policy | November 2020 Harvard University study showed Michigan Postsecondary Institutions in Which At Least 65% of Students that for-profits that are eligible for Receive a Pell Grant are Overwhelmingly For-Profit financial aid charged tuition that Percent Receiving was 78% higher than for-profit Institution Name Type of Institution institutions offering similar or Pell Grant identical programs that were Wright Beauty Academy 95% For-Profit ineligible for aid, and found that the Dorsey School of Business-Roseville 93% For-Profit difference was roughly equal to the Dorsey School of Business-Waterford Pontiac 92% For-Profit amount of grant aid and loan Dorsey School of Business-Woodhaven 92% For-Profit subsidy received by students in Dorsey School of Business-Saginaw 90% For-Profit eligible institutions.32 Colleges Flint Institute of Barbering, Inc. 89% For-Profit using publicly funded aid in a way Dorsey School of Business-Madison Heights 88% For-Profit that brings little economic benefit Dorsey School of Business-Dearborn 88% For-Profit Great Lakes Christian College 87% Nonprofit to students while increasing share- Lakewood School of Therapeutic Massage 87% For-Profit holder dividends should give pause Dorsey School of Business-Wayne 87% For-Profit to policymakers and regulators Princess Beauty School 85% For-Profit alike. M J Murphy Beauty College of Mount Pleasant 83% For-Profit Career Quest Learning Centers-Jackson 81% For-Profit For-profit Colleges Have Career Quest Learning Center-Mt. Pleasant 81% For-Profit Poor Outcomes Compared Cadillac Institute of Cosmetology 79% For-Profit to Other Types of Colleges Michigan College of Beauty-Troy 74% For-Profit Creative Hair School of Cosmetology 73% For-Profit A recent national study showed Detroit Business Institute-Downriver 73% For-Profit that students who sought Ross Medical Education Center-Saginaw 69% For-Profit certificate credentials at for-profit Michigan Barber School Inc 69% Nonprofit institutions were 1.5 percentage Ross Medical Education Center-Roosevelt Park 69% For-Profit points less likely to be employed Hillsdale Beauty College 69% For-Profit and have 11% lower earnings after Protege Academy 69% For-Profit attendance than students in public International Cosmetology Academy 67% For-Profit institutions.33 (The one exception to MIAT College of Technology 67% For-Profit this was cosmetology programs, in Taylortown School of Beauty Inc 66% For-Profit which students in for-profit colleges Ross Medical Education Center-Taylor 65% For-Profit had better outcomes than their Ross Medical Education Center-Flint 65% For-Profit public college counterparts.) Of the Source: U.S. Department of Education, National Center for Education Statistics, 2020 College Scorecard (https:// collegescorecard.ed.gov/data/documentation/, accessed on September 15, 2020) for-profit college students, the outcomes were worse for those in MICHIGAN LEAGUE FOR PUBLIC POLICY | WWW.MLPP.ORG online and multicampus chain institutions than for students in more traditional campus-based and independent institutions. The study also revealed no real difference in earnings between those who completed a program at a for-profit school and those who had no postsecondary education at all, although the for-profit students had slightly better unemployment outcomes.34 Given the much higher cost and lower earnings for for-profit school students compared with public college students, the study concluded that public colleges provide a stronger return on investment than for for-profit ones.

When comparing Michigan for-profit, nonprofit and public colleges, one sees that of the for-profits for which earnings data is available, the median earnings of students 10 years after initial entry into college are lower at most for-profit schools than in the other two

November 2020 | Michigan League for Public Policy 7 types of schools. Of the 44 for-profit school campuses or online programs for which the information was available, students at only five had a median salary of $30,000 per year or more ten years after their initial entry, compared to all public universities, nearly all nonprofit colleges, and half of community colleges (see Appendix A).35

Loan Debt and Default is Particularly High Among For-profit College Attenders Student loan debt for all types of colleges (public, nonprofit and for-profit) has risen at a perplexing rate. The American Association of University Women (AAUW) estimates that the overall student debt burden in the United States has more than doubled over the past decade. Americans carry $1.54 trillion in student loan debt, with nearly two-thirds (around $929 billion) carried by women.36 AAUW has found that Black women tend to borrow the most, owing $37,558 compared to $31,346 for White women, $27,029 for Latinx women and $25,252 for Asian women.37

The most recent nationally representative data for for-profit colleges is for 2016 graduates, and it shows that 83% of graduates from for-profit four-year colleges took out student loans, and they graduated with an average of $39,900 in debt– 41% higher than 2016 graduates from other types of four-year colleges.38 Among bachelor’s degree recipients, the Institute for College Attainment and Success estimates that 30% of those who 30% of those who started at started at for-profit colleges defaulted on their federal student loans within 12 years of entering college, compared to 4% of for-profit colleges defaulted those who started at public colleges and 5% of those who on their federal student loans, started at nonprofit colleges.39

compared to 4% of those who At the national level, five-year repayment rates are historically started at public colleges and the lowest for those who attended for-profit institutions, and 5% of those who started at those who completed programs in the for-profit sector had lower repayment rates than those who attended but did not nonprofit colleges. graduate from a private nonprofit four-year institution.40 The data demonstrates that despite their high cost and the debt many students take on to attend them, for-profit colleges are not providing opportunities, career prospects or degree value that align with the price. While we can assume that most postsecondary graduates want to pay off their debt, the particular inability of graduates who attended for-profits to make loan payments underscores questions as to these institutions’ ability to prepare students for jobs that provide financial security.

Data on for-profit college student loan debt and default is difficult to get on the state level, or by race or other demographic. A large part of the reason is that many states including Michigan do not provide state aid to students attending for-profits and hence are unable to require those institutions to submit data on those students. It is also likely that some for-profit college students borrow money through channels other than conventional student loan providers. However, given the high level of recruitment done by for-profits in Black and Latinx communities, we can assume that a significant share of the debt is held by students in those communities.

8 Michigan League for Public Policy | November 2020 Many For-profit Colleges Have Engaged in, and Been Prosecuted for, Consumer Fraud The 2012 HELP Committee report found that for-profit college recruiters have used misleading claims about cost, time it takes to complete a degree and job placement after obtaining a degree, in addition to other deceptive tactics that are widespread across the industry.41 Following the publishing of that report, various government entities such as the Federal Trade Commission, the Consumer Financial Protection Bureau, and various state Attorneys General—including Michigan’s Attorney General Dana Nessel—have scrutinized and ultimately prosecuted specific for-profit colleges and their parent companies for consumer protection violations and other transgressions. A number of institutions that have or once had a presence in Michigan (some now operating online, but formerly with campuses in Michigan) have been penalized in these lawsuits (see Appendix B).42

As shown in the HELP Committee report, many for-profit education companies aggressively recruit in communities with large Black and Latinx populations, so it is likely that many of the consumer fraud offenses disproportionately affected Michigan’s Black and Latinx residents. Moving forward, those working in state higher education policy must keep in mind the fact that many adults have exhausted their Pell Grant eligibility and carry student debt, yet remain without competitive skills or recognized credentials in the job market.

Federal Rules to Protect Students Were Put in Place—and Then Taken Out In 2014, the Obama administration put in place a gainful employment rule that required most for-profit college programs prepare students for "gainful employment in a recognized occupation" in order to qualify for federal student aid. A program would be considered to lead to gainful employment if the estimated annual loan payment of a typical graduate does not exceed 20% of their discretionary income or 8% of their earnings. Programs that exceed these levels would be at risk of losing their ability to offer taxpayer-funded federal student aid to their students. The rule, which strengthened an earlier 2011 rule, also required institutions to provide information on former students’ earnings, graduation success and debt accumulation.43 Unfortunately, while many expected the gainful employment rule to be weakened by the Trump administration, in 2019 the U.S. Department of Education completely eliminated it, essentially leaving the for-profit college industry with no student outcome quality assurance as a prerequisite to participating in Pell Grant and GI Bill programs.44

The Trump administration also rolled back the borrower defense rule established by the Obama administration in 2016 following the bankruptcies of Corinthian Colleges, Inc. and ITT Technological Institute, both of which had campuses in Michigan and which closed down following prosecution on the federal and state level for having defrauded students. The rule was intended to help relieve students of debt incurred at colleges that made misleading claims.45 The Trump administration significantly weakened the rule in several ways, the most significant being that students would not automatically get debt relief when a school is shown to have used deliberately fraudulent tactics, but must apply individually for relief and present proof of having been personally defrauded even after widespread and systemic fraud has been shown.46

November 2020 | Michigan League for Public Policy 9 Conclusion At first blush, the high usage of Pell Grant and GI Bill dollars might lead one to believe that for-profit colleges in Michigan are fulfilling a need by serving a substantial number of students that might otherwise be underserved—veterans, students with lower incomes and “non-traditional” (older) students. However, such federal aid is beneficial to students and society when it truly helps fill in the margin between what a student can reasonably be expected to pay and the cost of the education, and when the investment results in better employment prospects and higher wages after graduation. When instead the cost of the education is increased to maximize the availability of grant dollars for the sake of profit, and when the earned credential does not have meaningful job market value, the intended purpose of Pell Grants and GI Bill benefits has not been met and students and society are worse off for having invested time and money in the attainment of the credential.

A recent study looked at the impact of the loss of federal aid on the enrollment of Pell Grant recipients in for-profit colleges that were sanctioned and were stripped of the ability to accept financial aid. On average, sanctioned for-profit colleges experienced a 40% decrease in annual enrollment in the five years following the sanction receipt, but those enrollment losses were offset by enrollment increases within local community colleges. Moreover, such sanctions tended to decrease enrollment even in local for-profit colleges that had not been sanctioned, likely due to improved information about local higher education options or damages to the reputations of for-profit colleges in general. The study also finds that students who enroll in community colleges following a for-profit college’s sanction are less likely to default on their federal loans.47

It is time for Michigan policymakers and stakeholders to look this situation squarely in the eye. In our state’s most economically struggling communities, people who are earning low wages and often raising families are being aggressively recruited by for- profit educational companies promising a way forward to the “American dream.” Many of these workers and parents would love to make the investments and sacrifices required in order to attain marketable skills, economic security, and a career and credential that one can be proud of. Those hopes are dashed when gainful employment does not materialize, and one is instead holding a large debt burden and no longer eligible for a Pell Grant to enable a better choice of college in the future.

Are all for-profit colleges intrinsically bad? Not necessarily. But to have a beneficial rather than parasitic role in Michigan’s communities, they must offer quality education and recognized credentials at a reasonable net cost to the student without exploiting the availability of taxpayer financial aid dollars for their own profit. When schools receive public dollars to deliver educational services at a profit, there is a structural incentive to spend as little as possible on the services in order to increase the profit margin for the company and its shareholders.

On the other hand, it is instructive that for-profit students who leave due to their college no longer being able to accept public financial aid often subsequently go to a public community college. Community colleges exist, as their name suggests, to serve their communities, and they are held accountable to those communities through board elections and state oversight through the appropriations process. Michigan community colleges have the lowest tuition costs among the Upper Midwestern states, and unlike

10 Michigan League for Public Policy | November 2020 most for-profit colleges, their credits are largely transferable to other community colleges, public four-year universities and some nonprofit colleges.48

Those who work with individuals considering a for-profit college program should encourage and assist the individual to compare the costs and benefits with similar programs at a community college, a public four-year university or a local nonprofit college in order to make a fully informed choice. And state and federal policymakers need to do what they can to ensure truth in advertising, responsible use of financial aid dollars, and protection for those who have been defrauded by a for-profit college.

State Level Policy Recommendations Leverage state licensing to ensure that for-profit educational companies that operate in Michigan are transparent about finances and costs. In order to provide services in Michigan, for-profit colleges must be licensed.49 Through stringent licensing requirements around financial transparency paired with strong enforcement, states can obligate for-profit institutions to disclose all federal funding—including GI Bill funds and Department of Defense Tuition Assistance—and close the loophole that allows these benefits to be counted in the private 10% of the federal 90-10 rule (see federal recommendations below). Maryland enacted legislation to do so in the spring of 2020 and Oregon is also considering similar legislation.50 Such a policy would ensure that regulators in Michigan had a robust and accurate picture of for-profit institutions’ annual revenues.

Continue the prohibition against state financial aid being used for private for-profit colleges. With limited funds available to provide state need-based financial aid to students through Michigan’s three primary grant programs (the Michigan Competitive Scholarship, the Michigan Tuition Grant and the Tuition Incentive Program), Michigan should continue its policy of allowing these grants to be used only at public and nonprofit postsecondary institutions and apply the limitation to any new state aid programs enacted in the future.

Encourage or require high school counseling offices to provide materials and/or advising services to students on how to weigh costs and benefits when choosing a college. When provided with sufficient information and guidance, students and their families will be better able to make choices in their best interests. Many high schools establish academic partnerships with local community colleges to provide Advanced Placement classes and occupational skills training. In lower-income communities targeted by for-profit colleges for advertising and recruitment, these partnerships should be strengthened where possible to ensure students know of and can consider the community college option.

Continue to use the power of the Attorney General’s office to robustly enforce good practices and prosecute harmful practices. Michigan’s Attorney General Dana Nessel has signed Michigan on to at least three multistate lawsuits against for-profit educational companies that owned colleges in Michigan and were shown to have defrauded students (Art Institutes of Michigan, American Intercontinental University and ITT Technological Institute) and won monetary relief for those Michigan students. The office must continue to be assertive against for-profit colleges that commit consumer fraud.

November 2020 | Michigan League for Public Policy 11 Federal Level Policy Recommendations Strengthen the 90-10 rule along with reporting requirements for federal funding. Not only state but also federal policy changes could strengthen the 90-10 rule and ensure that federal funding, particularly in the form of military and veterans benefits, does not flow as easily to for-profit schools. Through Congressional action at the national level, the 90-10 rule could return to its original ratio of 85-15 (before the rule was changed in 1998), which has gained traction over the last few years. A 2019 Brookings Institution report found that this change could have a measurable difference in the number of for-profit schools who passed the test: if the 90-10 rule was strengthened to 85-15, 13% of all for-profits would have failed to meet the rule in 2015.51 Increased reporting requirements as a condition of licensure combined with federal changes to the 90-10 rule would lead to fewer taxpayer dollars supporting the for-profit industry and likely fewer veterans being targeted for enrollment.

Restore the strong gainful employment and borrower defense rules enacted by the Obama administration. These important student protections can be reinstated through departmental policy without Congressional action. If the U.S. Department of Education declines to make these important restorations, Congress can pass legislation to require it to do so and, with enough votes, can override a presidential veto.

12 Michigan League for Public Policy | November 2020 Appendix A

Median Earnings of Students 10 Years After Entry, by Type of Institution (2020)*

For-Profit Colleges Nonprofit Colleges Public Colleges University of Phoenix-Michigan $47,100 $80,500 Michigan Technological University $66,400 MIAT College of Technology $41,900 $60,400 -Ann Arbor $63,400 Northwestern Technological Institute $33,400 Lawrence Technological University $55,300 Michigan State University $53,600 South University-Novi $33,400 $53,600 University of Michigan-Dearborn $48,600 Carnegie Institute $32,100 $48,900 Western Michigan University $45,000 Specs Howard School of Media Arts $29,000 $48,700 $44,500 Irene's Myomassology Institute $25,600 $47,400 $43,100 Ross Medical Education Center-Taylor, $25,000 University of Detroit Mercy $47,100 Grand Valley State University $42,800 Madison Heights, New Baltimore Ross Medical Education Center-Ann Arbor, $24,900 $46,200 Central Michigan University $41,900 Davison, Brighton Douglas J Aveda Institute $24,200 $45,200 $40,800 Ross Medical Education Center-Kentwood, $24,100 $44,800 University of Michigan-Flint $40,600 Lansing Career Quest Learning Centers (4 campuses) $24,000 College for Creative Studies $44,100 Saginaw Valley State University $39,300 Dorsey School of Business (8 campuses) $22,700 $42,200 Eastern Michigan University $39,300 Paul Mitchell the School-Michigan $21,200 $42,000 Lake Superior State University $37,700 Ross Medical Education Center-Saginaw, Roosevelt Park, Flint, Port Huron, Battle Creek, $21,200 $41,000 Northern Michigan University $35,500 Canton Port Huron Cosmetology College $21,100 $40,900 $32,700 Detroit Business Institute-Downriver $20,300 Concordia University-Ann Arbor $39,100 $32,500 Michigan College of Beauty-Troy $19,800 $38,600 Monroe County Community College $32,100 Empire Beauty School-Michigan $16,500 $38,400 Lansing Community College $31,900 Wright Beauty Academy $16,300 Aquinas College $37,300 $31,600 Twin City Beauty College $16,200 $35,400 Kellogg Community College $31,500 David Pressley School of Cosmetology $15,300 $35,300 $31,400 Sharps Academy of Hair Styling $13,200 $32,400 Grand Rapids Community College $31,300 Bayshire Academy of Beauty Craft Inc $13,000 $30,700 Oakland Community College $30,600 Great Lakes Christian College $29,400 $30,500 $28,700 $30,300 $28,600 St Clair County Community College $30,000 Grace Christian University $28,600 Northwestern Michigan College $30,000 Kalamazoo Valley Community Baker College $27,200 $30,000 College Bay de Noc Community College $29,700 Washtenaw Community College $29,200 Glen Oaks Community College $28,500 Gogebic Community College $28,500 Muskegon Community College $28,500 West Shore Community College $28,500 Southwestern Michigan College $28,000 Montcalm Community College $27,900 Mid Michigan College $27,700 North Central Michigan College $26,400 $25,800 Kirtland Community College $25,400 Wayne County Community College $24,900 District $24,100 *Includes earnings for graduates and those who did not complete a program Source: U.S. Department of Education, National center for Education Statistics, 2020 College Scorecard (https://collegescorecard.ed.gov/data/documentation/, accessed on September 15, 2020)

MICHIGAN LEAGUE FOR PUBLIC POLICY | WWW.MLPP.ORG Appendix B

Selected For-Profit Colleges in Michigan That Have Been Penalized for Consumer Protection Violations

Institution Name Penalty Offense Investigating Agency Presence in Michigan (Parent Company) Year University Argosy Deceived students about its accreditation and (Education Management 2013 Colorado AG Defunct, formerly online internship opportunities Corp) Art Institutes of Michigan Misrepresentation of accreditation, deceptive (Dream Center Educational 2020 Multistate AGs (incl. Michigan)1 Defunct predatory tactics to borrowers. Holdings)

Made false or misleading statements to Ashford University 2014 prospective students, misrepresented courses Iowa AG (Bridgepoint Education Inc., and charged high upfront fees Online now Zovio Corp) 2016 Student loan abuses CFPB

Failed to disclose information to prospective 2019 students on costs, transferability of credits, Multistate AGs (incl. Michigan)2 American Intercontinental program offerings, job placement, etc. University (Career Education Falsely claimed affiliation with the U.S. military, Online 2019 FTC Corporation, now Perdoceo) and other unlawful tactics Significantly inflated graduates' job placement 2013 New York AG rates Advertised false job prospects and career 2015 CFPB services Misrepresented job placement rates for its Defunct (formerly campuses Everest Institute (Corinthian 2015 U.S. Department Education graduates in Grand Rapids, Detroit, Colleges, Inc.) Dearborn, Southfield) 2016 Used predatory and unlawful practices California AG Presented inaccurate salary and employment 2007 information California AG Exaggerated graduates' employment success 2017 and made inadequately substantiated salary New York AG claims. DeVry University (Cogswell Online (formerly campus in Misled with ads that touted high employment Education) 2016 FTC Southfield) success and income levels upon graduation.

Used deceptive marketing relating to 2017 Massachusetts AG placement rates.

ITT Technical Institute Steered students toward high-interest loans Defunct (formerly campuses 2020 CFPB/State AGs (incl. Michigan)3 (Educational Services, Inc.) offered by its own loan servicing company throughout Michigan )

Online as Purdue Global Kaplan University (Graham Misled students about its educational program 2015 Massachusetts AG (formerly campuses in Holding) and used harassing sales tactics. Detroit, Dearborn)

Used deceptive ads that falsely touted 2019 relationships and job opportunities with well- FTC Online (formerly campuses University of Phoenix known companies in Detroit, Southfield, Ann (Apollo Education Group) Arbor) Violated the False Claims Act in student 2009 Justice Department Civil Division recruitment.

Used misleading graduate employment Westwood College 2012 Colorado AG Defunct, formerly online statistics, failed to comply with lending laws.

AG = Attorney General CFPB = Consumer Financial Protection Bureau FTC = Federal Trade Commission Source: Good Jobs First, Violation Tracker (https://www.goodjobsfirst.org/violation-tracker, accessed September 9, 2020) 1. Michigan Attorney General Dana Nessel's statement can be found here: https://www.michigan.gov/ag/0,4534,7-359-92297_47203-537007--,00.html 2. Michigan Attorney General Dana Nessel's statement can be found here: https://www.michigan.gov/ag/0,4534,7-359-92297_47203-486483--,00.html 3. Michigan Attorney General Dana Nessel's statement can be found here: https://www.michigan.gov/ag/0,4534,7-359--500182--,00.html

MICHIGAN LEAGUE FOR PUBLIC POLICY | WWW.MLPP.ORG Endnotes:

1. Ginder, Scott A., Janice E. Kelly-Reid and Farrah B. Mann, Postsecondary Institutions and Cost of Attendance in 2015-16; Degrees and Other Awards Conferred, 2014–15; and 12-Month Enrollment, 2014–15: First Look (Preliminary Data), U.S. Department of Education, National Center for Education Statistics, 2016. 2. U.S. Department of Education, National Center for Education Statistics, 2020 College Scorecard (https://collegescorecard.ed.gov/data/documentation/, accessed on September 15, 2020). 3. U.S. Department of Education, National Center for Education Statistics, Digest of Education Statistics, December 2019 (https://nces.ed.gov/programs/digest/d19/tables/ dt19_330.10.asp, accessed September 15, 2020). 4. United States Senate Health, Education, Labor and Pensions (HELP) Committee, For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success, 2012 (https://www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf?). 5. Ibid.; Fountain, Joselynn H., The Postsecondary Undergraduate Population: Student Income and Demographics, Congressional Research Service, 2019 (https://fas.org/ sgp/crs/misc/R45686.pdf). 6. Fountain, Joselynn H., ibid. 7. United States Senate Health, Education, Labor and Pensions (HELP) Committee, ibid. 8. Fountain, Joselynn H., ibid. 2016 Federal Poverty Level amounts are as defined by the Office of the Assistant Secretary for Planning and Evaluation (ASPE). 9. Bonadies, Genevieve (Genzie) et al., For-Profit Schools’ Predatory Practices and Students of Color: A Mission to Enroll Rather than Educate, Harvard Law Review Blog , 2018 (https://blog.harvardlawreview.org/for-profit-schools-predatory-practices-and-students-of-color-a-mission-to-enroll-rather-than-educate/). 10. Huelsman, Mark, The Debt Divide: The Racial and Class Bias Behind the “New Normal” of Student Borrowing, Demos, 2015 (http://www.demos.org/sites/default/files/ publications/Mark-Debt%20divide%20Final%20(SF).pdf). 11. Sorenson, Patricia, Race, place and policy matter in education, Michigan League for Public Policy, 2018 (https://mlpp.org/race-place-and-policy-matter-in-education- 2018/). 12. Ibid.; Ruark, Peter, Expanding the dream: Helping Michigan reach racial equity in Bachelor’s degree completion, Michigan League for Public Policy, 2020 (https://mlpp.org/ expanding-the-dream-helping-michigan-reach-racial-equity-in-bachelors-degree-completion/). 13. Reeves, Richard V. and Dimitrios Halikias, Race gaps in SAT scores highlight inequality and hinder upward mobility, The Brookings Institution, 2017 (https:// www.brookings.edu/research/race-gaps-in-sat-scores-highlight-inequality-and-hinder-upward-mobility/). 14. Nichols, Andrew Howard and J. Oliver Schak, Broken Mirrors: Black Student Representation at Public and State Colleges and Universities, The Education Trust, 2019 (https://state-equity-report-card.s3.amazonaws.com/broken-mirrors-final-black.pdf). 15. Ibid. These rankings are based on the percent of Black residents ages 18-49 with a high school diploma but no bachelor’s degree, calculated using 2016 American Com- munity Survey data. 16. For more specific examples of such targeting, see Bonadies, Genevieve (Genzi) et al., ibid. 17. 2016 American Community Survey data as reported in Broken Mirrors (Ibid). 18. U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), accessed August 20, 2020. Michigan League for Public Policy analysis with 75 out of 77 institutions reporting. 19. Ibid. Michigan League for Public Policy analysis with 41 out of 41 four-year nonprofits, 24 out of 24 two-year public and 22 out of 22 four-year public institutions reporting. 20. For more information about Michigan’s state-funded financial aid programs, see https://www.michigan.gov/mistudentaid/. 21. Protopsaltis, Spiros and Sharon Parrot, Pell Grants — a Key Tool for Expanding College Access and Economic Opportunity — Need Strengthening, Not Cuts, Center on Budget and Policy Priorities, 2017 (https://www.cbpp.org/research/federal-budget/pell-grants-a-key-tool-for-expanding-college-access-and-economic-opportunity). 22. U.S. Department of Education, National Center for Education Statistics, Trends in Pell Grant Receipt and the Characteristics of Pell Grant Recipients: Selected Years, 2003 –04 to 2015–16: Table 2.1, 2019 (https://nces.ed.gov/pubs2019/2019487.pdf). 23. U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS) 2017-18 data by sector. Michigan League for Public Policy analysis using 12-month unduplicated undergraduate enrollment, the percent of undergraduates receiving Pell Grants and the average amount of Pell Grant aid awarded to undergraduate students. 24. Cahalan, Margaret W. et al. Indicators of Higher Education Equity in the United States: 2020 Historical Trend Report. The Pell Institute for the Study of Opportunity in Higher Education, Council for Opportunity in Education (COE), and Alliance for Higher Education and Democracy of the University of Pennsylvania (PennAHEAD), 2020 (http://pellinstitute.org/downloads/publications-Indicators_of_Higher_Education_Equity_in_the_US_2020_Historical_Trend_Report.pdf). 25. U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), Student Financial Aid 2017-18 provi- sional data. Accessed September 2, 2020. 26. U.S. Department of Education, National Center for Education Statistics, 2020 College Scorecard (https://collegescorecard.ed.gov/data/documentation/, accessed on September 15, 2020). 27. U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), Student Financial Aid 2017-18 provi- sional data. Accessed September 2, 2020. 28. U.S. Department of Education, Federal Student Aid, Proprietary School Revenue Percentages Report for Financial Statements with Fiscal Year Ending Dates between 07/01/17 – 06/30/18, 2019, (https://studentaid.gov/data-center/school/proprietary, accessed September 20, 2020). 29. The Institute for College Access & Success, Q&A on the For-Profit College “90-10 Rule,” 2016 (https://ticas.org/wp-content/uploads/legacy-files/pub_files/90-10_qa_0.pdf). 30. Hill, Catharine Bond et al., Enrolling More Veterans at High-Graduation-Rate Colleges and Universities, Ithaka S+R, 2019 (https://doi.org/10.18665/sr.310816). 31. U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), accessed August 20, 2020. Michigan League for Public Policy analysis with 31 out of 41 four-year nonprofits, 46 out of 46 public and 58 out of 77 for-profits reporting. 32. Cellini, Stephanie Riegg, and Claudia Goldin, Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges, American Economic Journal: Economic Policy, November 2014. 33. Cellini, Stephanie Reigg and Nicholas Turner, Gainfully Employed? Assessing the Employment and Earnings of For-Profit College Students Using Administrative Data, Na- tional Bureau of Economic Research, May 2016, Revised January 2018. 34. Ibid. 35. Michigan League for Public Policy analysis of data from U.S. Department of Education, National Center for Education Statistics, 2020 College Scorecard (https:// collegescorecard.ed.gov/data/documentation/, accessed on September 15, 2020). 36. Kevin Miller, Deeper in Debt: Women and Student Loans in the time of Covid, American Association of University Women, 2020. Estimates based on data from the National Center for Education Statistics’ Baccalaureate and Beyond Longitudinal Study, 2017. 37. Ibid. 38. The Institute for College and Success (TICAS), Student Debt and the Class of 2018, September 2019. Calculations by TICAS on data from U.S. Department of Education, National Postsecondary Student Aid Study 2015-16. 39. TICAS, ibid. 40. The College Board, Trends in Student Aid 2019, 2019 (https://research.collegeboard.org/pdf/trends-student-aid-2019-full-report.pdf). 41. United States Senate Health, Education, Labor and Pensions (HELP) Committee, ibid. 42. Good Jobs First, Violation Tracker (https://www.goodjobsfirst.org/violation-tracker, accessed September 9, 2020). 43. U.S. Department of Education Archived Information, “Obama Administration Announces Final Rules to Protect Students from Poor-Performing Career College Programs,” 44. October 30, 2014 (https://www.ed.gov/news/press-releases/obama-administration-announces-final-rules-protect-students-poor-performing-career-college-programs, accessed September 17, 2020). 44. Whitman, David and Arne Duncan, Report: Betsy DeVos and her cone of silence on for-profit colleges, Brookings Institution, October 17, 2018. 45. U.S. Department of Education Archived Information, “U.S. Department of Education Announces Final Regulations to Protect Students and Taxpayers from Predatory Institu- tions,” October 28, 2016 (https://www.ed.gov/news/press-releases/us-department-education-announces-final-regulations-protect-students-and-taxpayers-predatory- institutions, accessed September 17, 2020). 46. The Century Foundation, “10 Ways Betsy DeVos’s Borrower Defense Rule Is Worse for Borrowers,” September 23, 2019. 47. Stephanie R., Rajeev Darolia and Leslie J. Turner, Where Do Students Go When For-Profit Colleges Lose Financial Aid?, National Bureau of Economic Research, December 2016. 48. The College Board, Trends in College Pricing, 2019 (Excel Data, Table 5). (https://research.collegeboard.org/trends/college-pricing/resource-library, accessed on Septem- ber 18, 2020). 49. Michigan Licensing and Regulatory Agency school licensing website (https://www.michigan.gov/leo/0,5863,7-336-94422_2739-325599--,00.html, accessed on September 16, 2020). 50. Hall, Stephanie, Ramond Curtis and Carrie Wofford, What State Can Do to Protect Students from Predatory For-Profit Colleges: A 2020 Toolkit for State Policy Makers, The Century Foundation and Veterans Education Success, 2020 (https://tcf.org/content/report/states-can-protect-students-predatory-profit-colleges/). Information on Mary- land’s Veterans’ Education Protection Act (SB 294) can be found at http://mgaleg.maryland.gov/mgawebsite/Legislation/Details/sb0294?ys=2020RS. 51. Lee, Vivien and Adam Looney, Understanding the 90/10 Rule: How reliant are public, private, and for-profit institutions on federal aid?, The Brookings Institution, 2019 (https://www.brookings.edu/wp-content/uploads/2019/01/ES_20190116_Looney-90-10.pdf).