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After a long reign as the fastest-growing and most problematic sector in higher education, for-profit colleges are on the ropes.
This week the U.S. Department of Education announced that it will review how federal student aid is administered at one of the country's largest for-profit colleges, the University of Phoenix. Owned by the publicly traded Apollo Group, the University of Phoenix enrolls over 200,000 students, rivaling the size of the nation's largest public university system.
Between 2000 and 2010, enrollment at the nation's for-profit colleges quadrupled, peaking at 1.7 million — or about 1 in 10 college students. These colleges benefited from both the Internet boom and the relaxing of credit in the run-up to the financial crisis. They spent serious money on advertising and marketing, targeting working and low-income adults with convenient online programs and the promise of job opportunities, and sometimes lending them private student loans. But the sector has been plagued by repeated allegations of financial mismanagement, fraud and abuse. For-profit colleges have been the target of class-action lawsuits, congressional investigations, and probes by state attorneys general.
The Department of Education controls the purse strings for these institutions, because they're highly dependent on federal student aid for revenue. Last month the department halted funding to another big for-profit, Corinthian, after that college reported errors in enrollment and job placement figures and failed to comply with record requests. Unable to operate with even a temporary cash freeze, Corinthian struck a deal with the Department of Education earlier this month to sell or close all of its campuses.
The government has been accused of attacking the entire for-profit college industry. Undersecretary of Education Ted Mitchell says that isn't the case. "We will continue to work with individual colleges, like Corinthian, when the circumstances require. But I have no sense that this is the beginning of a trend."
Still, the closure of Corinthian raises an immediate dilemma: What will happen to its 72,000 students all across the country?
At Pompano Beach
Corinthian has a dozen schools in Florida. One is Everest University, in Pompano Beach, just blocks from the Atlantic Ocean. Joshua Llanos, 25, is a typical Corinthian student. He heard an ad for Everest while applying for a job at Costco, and has just signed up for a course in business administration.
"I'm looking for a career, yes. I'm looking for a career, and I'm looking for ways to experience the field so I have knowledge when I start in my own business, you know, someday."
But Llanos hadn't heard that Everest's parent company, Corinthian, is selling this Pompano Beach campus and 84 other schools across the U.S. It looks like business as usual here at the eight-story office building, where a sign in the window still reads "Everest University, Changing Students' Lives."
"To me it seems like a solid place to go to," Llanos says. "I'm trusting them in helping me out."
Kent Jenkins, spokesman for Corinthian Colleges, says both Corinthian and the U.S. Department of Education want no disruption for students during the sale. "Students are in class. Faculty and staff are at work," he says.
"We want to do everything we can to make sure all our students are able to complete their studies and to do that with a minimum of disruption."
That includes continuing to recruit new students, like Llanos. Jenkins says maintaining enrollment will help attract a buyer.
Corinthian plans to sell its campuses within six months. Jenkins says the firm may still return to education. "Will there be a company at the end of this process? I think that's, depending on the transactions and how they're structured, is certainly a possibility."
Meanwhile, Florida's attorney general is investigating claims that Corinthian misled students or sold them worthless degrees. Several other states, including Kentucky, Idaho and Massachusetts, are also investigating the company.
Corinthian has two campuses in Massachusetts. One is in Boston's Brighton neighborhood, where Corinthian runs the Everest Institute.
Jackiea Arnold, 30, is halfway through her dental assistant program. She says when she first heard the Everest Institute was for sale she was nervous.
"I'm really not a school person, so once I got adjusted to the school, I didn't want change," she says. "I heard some people were going to be transferred to the Chelsea campus, and I just wanted to stick it out with my instructor, so that was my main focus: to stay with who I've been with throughout the year."
Under the deal between Corinthian and the Department of Education, Arnold should be able to finish her nine-month program. Unlike the company's campuses in Florida, which will be sold, the schools here in Boston will close after students finish their degrees, in a process known as "teach-out."
"Once they told me that they're still going to stick it through until everybody is done with their sessions, I was happy," Arnold says.
Another student here is 20-year-old Delores Crawford. She's pregnant and working toward a medical assistant degree while working nights at Toys R Us. She says the school told her she'll have to go to a different campus for job placement help: "And that's not convenient, especially for me and other people that don't have a car, that have kids."
Crawford is paying $21,000 for her degree here, $13,000 of which is in loans. By contrast, the medical assistant certificate program at Boston's public Bunker Hill Community College costs under $5,000 for in-state students.
Gay Finley is 49 years old, unemployed and homeless, and took out $12,000 in loans to pay for her dental assistant degree. "If I had known that I would have never invested my money in it. You know, I could have gone someplace else."
Like most students here, she learned about Everest through TV ads. But Finley says she doubts whether her degree will prepare her for a job. And without a job, she's not sure how she'll pay back her federal student loans.
Editor's note on July 16: The text on this page has been edited to remove a comment that student Gay Finley made about the Everest school she attends.