iOS app Android app More

Mitt Romney's Rationale On For-Profit Colleges At Odds With Reality

Posted: 01/15/2012 10:38 am

Along the campaign trail during the past month, Mitt Romney has been offering up his answer to the soaring costs of higher education and student debt: competition from for-profit colleges.

Among other benefits, Romney said, "they hold down the cost of their education" by virtue of being in competition with other universities, according to a New York Times article on Sunday.

Yet Romney's free-market views on higher education collide with reality. Although tuition is rising across higher education -- particularly at public universities, which have been strangled by state budget cuts -- students are not flocking to for-profit schools such as the University of Phoenix or ITT Technical Institute because the price point is lower.

Indeed, the average tuition at for-profit colleges is nearly twice that of public four-year universities, and nearly five times as much as public community colleges, according to Department of Education data analyzed by the College Board.

But many community college systems are struggling in the face of surging enrollment combined with diminished financial support from cash-strapped states. A recent investigation by The Huffington Post found that many students who attend for-profit colleges are there only because of their frustration after being shut out of oversubscribed classes at much cheaper local community college programs. The public programs typically leave students with much smaller debt loads and a greater likelihood of being employed after college, according to a recent study by Harvard researchers.

And despite the considerable cost, federal data show that for-profit colleges on average devote less than a third of the money that public universities do toward student instruction, and less than a fifth of the money spent on students by private non-profit institutions.

Much of the money is instead going toward marketing and recruiting new students, and to executive compensation and profits. According to securities filings for some of the larger publicly traded corporations that own for-profit schools, more than 30 percent of revenues are being redirected toward marketing efforts and administrative costs.

The chief executive of Education Management Corp., Todd S. Nelson, received total compensation of more than $13 million last year, according to company filings. His company, which owns the Art Institutes chain of schools and Argosy University, is being sued by the Justice Department over allegations of fraudulent recruiting practices.

By contrast, the highest-paid Ivy League president, Richard C. Levin of Yale University, received $1.6 million in compensation, according to the school's most recent federal tax returns.

According to the Times, Romney also suggested that supporting for-profit schools could be a solution to growing student debt.

"You're going to find students saying, 'You know what? That's not a bad deal. I'm not willing to come out of college with a hundred thousand dollars in debt,'" Romney said, according to the Times.

But student debt is one of the most significant question marks facing for-profit higher education, a problem that prompted the Obama administration to pass new regulations last year meant to track whether students at such schools are able to secure jobs that will allow them to repay their loans.

Only about 12 percent of college students nationwide attend for-profit schools, but the sector is responsible for more than 45 percent of federal student loan defaults. While only about one in five students at community colleges takes out loans to finance their tuition, four of five students at for-profit two- and four-year schools sign off on loans, according to Department of Education data.

And the loans at for-profit schools are hefty. Based on an analysis of federal data by the College Board, more than half of students attending four-year for-profit colleges will emerge with debt of more than $30,000, compared to less than a quarter of students at private non-profit colleges and 12 percent of students at public universities.

FOLLOW HUFFPOST BUSINESS