Online Universities: Government Cracks Down on For-Profit Schools

Learn more about the battle between regulators and for-profit institutions before you enroll online.

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Starting next year, for-profit schools, including some of the nation's biggest online colleges—like the University of Phoenix, Kaplan University, and Strayer University—will have to provide graduation rate and job placement figures to new students and applicants, the Department of Education has ordered. That's a sample of more than a dozen reforms the government will impose on for-profit schools beginning July 1, 2011. Students will now be able to make more informed decisions, the Department says. "These new rules will help ensure that students are getting from schools what they pay for: solid preparation for a good job," Secretary of Education Arne Duncan said in an Oct. 28 press release

[Online programs have respect to gain among employers.] 

The regulations were announced amid scrutiny of for-profit schools from the Senate Health, Labor and Pensions Committee, a damning report from the Government Accountability Office, and investigations into abuse of taxpayer funded loan money by state attorneys general. In October, for instance, Oregon's treasurer and attorney general sued Apollo Group, the parent company of the University of Phoenix, claiming that the school was eager to boost profits with little regard for its students. A motion filed in federal court claims that the school "concocted a scheme to fraudulently inflate revenues and boost profitability by exploiting well-intentioned and often lower-income students, including veterans of the U.S. armed forces, who were hoping to improve their qualifications and employment prospects," adding that "students often withdrew early or failed to complete degree programs." 

The firm dismisses the claims and plans to fight the suit. "Apollo Group takes its disclosure obligations very seriously and intends to defend this lawsuit vigorously," company spokesman Manny Rivera said in a written statement. "Apollo Group is a leader in enhancing the student experience, expanding student protections and working to help students succeed in completing their degree programs." 

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Last week, the office of Florida's attorney general also announced that it launched an investigation into the for-profit sector. These suits come on the heels of recent legal action against for-profit schools in Texas, Ohio, and Wisconsin. "Federal scrutiny has unearthed a whole set of questionable practices that conscientious AGs across the country start wondering 'what's happening in my state?'" says Christine Lindstrom, higher education program director at the nonprofit Public Interest Research Group. "It makes absolute sense that they're looking into these programs." 

Deanne Loonin, an attorney at the National Consumer Law Center, works regularly with students—including several that enrolled online—at for-profit schools who have amassed seemingly insurmountable debt and has heard first hand of the dubious practices alleged by federal and state regulators. While she can't mention specifics due to confidentiality agreements, she says it's common for poorer people with limited or no Internet access at home to be persuaded to sign up for an online programs, hoping to rely on libraries to complete their coursework. Once they realize they can't fulfill the time requirements because of their limited access or that the material is simply too advanced for them, they complain to the school or try to pull out altogether. She claims they're typically met with limited feedback—almost all of which is intended to keep them enrolled in online programs as they amass more loan debt. "They're told, 'don't worry about it. We'll figure things out,'" she says. "It's hard to beat all of these problems, even for people who recognize there's a problem." 

[Learn more before you enroll in an online program.] 

Though the new Department of Education regulations have been put in place to help prevent just what Loonin describes, a more significant battle looms on the horizon. Regulations, which will be based on data, will judge an institution's ability to prepare students for jobs comparable to the cost of their education, have yet to be finalized. They will target so-called "workforce programs" which include for-profit schools, community colleges, and some state universities. If schools' students are unable to meet adequate loan debt, loan repayment, and career earnings thresholds, the institutions could be denied federal funding, which supplies a vast majority of revenue at most for-profit online programs. The rules are intended to weed out schools that don't prepare students for their working lives, which, in theory, would benefit students and perhaps shut the doors of several institutions not up to par. Given the severity of the regulatory threat, the industry is expected to put up a fight, experts say.