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Saturday, Dec 2, 2023

Some For-Profit Schools Flunk Out

The ranks of for-profit schools in Los Angeles are shrinking.

Four of the 25 largest for-profit educational businesses operating in Los Angeles County last year have shuttered, and a fifth has announced it will close.

The largest of the group, ITT Technical Institute, shut down last month after the U.S. Department of Education, whose financial aid provides most of the revenue for these schools, tightened regulations and began to cut off aid to those that don’t comply. ITT Tech’s owner, ITT Educational Services Inc., filed for bankruptcy after the department banned the school from using federal financial aid to enroll students, leading to the closure of its 130 campuses around the country, including one in Sylmar.

L.A.-based Marinello Schools of Beauty and ICDC College, once on the Business Journal’s list of private education companies, are among those that closed in the last year.

“There are two main reasons why big for-profits are closing,” said David Halperin, author of “Stealing America’s Future: How For-Profit Colleges Scam Taxpayers and Ruin Students’ Lives.” “Schools like ITT and Corinthian closed because they started to fall so far short of compliance regulations that they couldn’t meet the requirements. With other institutions, it’s more of a market contraction due to regulations and the negative exposure the industry has had.”

Local closures

Marinello, owned by B&H Education Inc. of Beverly Hills, announced in February that it was closing in the wake of the Department of Education’s withdrawal of aid. The department accused the school of helping potential students obtain fraudulent high school degrees so that they could enroll at Marinello and of not disbursing the full amount of federal loans to students.

“Marinello’s policy of limiting student access to much-needed Title IV loan funds for this economically disadvantaged population underscores the institution’s callous attitude towards its responsibilities to both its students and the department,” the Department of Education said in a letter notifying the school of its decision to withhold aid.

The Boyle Heights campus of the school, which had more than 2,300 students and the sixth-highest enrollment of L.A. private education companies in the 2014 academic year, received 83 percent, or $29 million, of its funding from federal financial aid in the 2013-14 school year, according to the National Center for Education Statistics. Up to 90 percent of a for-profit school’s revenue can come from federal financial aid.

The crackdown by the Education Department began in 2009, at the direction of President Barack Obama. It began to formulate new rules to curb the rise of certain for-profit colleges that left students with massive debt. Among those new rules is a requirement that colleges show that their graduates’ debt on average did not exceed 20 percent of their discretionary earnings or 8 percent of their total earnings. It also requires schools to demonstrate that former students’ default rates does not exceed 30 percent.

The department notes on its website that attending a two-year for-profit institution costs students four times as much as a community college, on average, and that while students at for-profit colleges make up about 11 percent of the total higher education population, they represent 44 percent of all federal student loan defaults.

Though not directly citing the new regulations as the cause of its closure, Westwood College, owned by Denver’s Alta College Inc., shut its 15 campuses in March including its Koreatown school, which had an enrollment of 1,800.

The Denver Post reported in January that the school planned to close because of declining enrollments “due to market shifts and changes in the regulatory environment.” The paper noted that the school settled a lawsuit with the Colorado Attorney General’s Office in 2012 for $4.5 million amid allegations it misrepresented job placement rates and gave students inaccurate information about the cost of attending, wages, and the ability to transfer credits.

The Koreatown campus reported that almost 89 percent, or almost $53 million, of its revenue in 2013-14 came from federal financial aid.

ICDC College, which provided instruction in alcohol and drug counseling, computerized accounting, crime scene investigating, and health care, notified the Department of Education in May that it was closing. Joyia Emard, a spokeswoman for the California Department of Consumer Affairs, said the college closed due to “financial considerations.”

The school, whose Huntington Park campus had the fifth-highest local enrollment in 2014 with more than 2,800 students, according to federal data, drew almost 88 percent, or more than $32 million, of its 2013-14 revenue from federal financial aid. The price to attend the school, which had a graduation rate of just 47 percent, was just under $25,000 a year.

In December, Le Cordon Bleu, an international cooking school with a branch in Pasadena, announced it would close its 15 U.S. campuses in September of next year, blaming federal regulations.

Former students of some schools can continue their studies at other private institutions, while California residents can seek cost reimbursement with the California Department of Consumer Affairs. For some schools, students might be able to get their federal loans discharged as well.

Boom, bust

The recent spate of closures of for-profit colleges is the latest stage of a cycle that has been going on since the rise of trade schools and the University of Phoenix in the 1970s.

“There have been periods of boom and bust specifically linked to for-profit colleges’ ability to harvest financial aid,” said David Hawkins, executive director of educational content and policy at the National Association for College Admission Counseling in Arlington, Va. “It seems to correlate with the regulation-deregulation cycle.”

The latest boom appears to have been the biggest yet. The number of four-year for-profit institutions grew from to 777 in 2015 from 241 in 2000, according to data from the National Center for Education Statistics.

The growth was fed by successful lobbying by these schools to ease restrictions on high-pressure, commissioned sales, according to Hawkins.

“One thing the sector got very good at was advertising,” he said. “They promised big, like increasing your earning potential. They were equally ruthless with their recruitment process. They were deliberately making students feel bad about themselves. And they were targeting people who were desperate, who were low income or in dead-end jobs, who wouldn’t have a reason to doubt an educational institution.”

Schools were also allowed to enroll more than 50 percent of their students in programs that were exclusively online.

“With the advent of online education, the for-profit sector moved aggressively with enrollment in online programs,” Hawkins said.

Ray of light

However, despite the problems in the for-profit sector, schools that follow the rules have been able to succeed.

“It’s a viable model,” said William Tierney, co-director of USC’s Pullias Center for Higher Education. “They just have to be legitimate in what they’re doing.”

Hawkins agrees that the industry will survive.

“The bad actors are starting to fall by the wayside,” he said. “There are good for-profits chugging right along. There will always be for-profit colleges.”

Donny Gruendler, president of the Hollywood-based Musicians Institute, said his school, which offers programs ranging from six months to a three-year baccalaureate, offers a path for people who might not fall into a more traditional higher education route.

“For us, our for-profit status is a tax classification, not necessarily a way of life,” he said.

Despite losing about two dozen students in the 2015 academic year out of an enrollment of 1,118, over the last year the institute moved up to 11th place from 17th in enrollment on the Business Journal’s list of local for-profit schools. Gruendler attributed this to more of a focus on music than profit, making sure students had what they needed to succeed, and only accepting students the school feels it can support.

“I think there’s a perception that for-profits are maybe doing unscrupulous things,” he said. “I can’t speak on the part of every college, but I don’t know that it affects us at Musicians Institute because we do the best for the student. We try to follow all the regulations to the letter of the law.”

Gruendler also noted that the school has a large population of international students, who are not eligible for federal financial aid. About 32 percent, or almost $12 million, of the school’s 2013-14 revenue was federal financial aid. Regardless, because the school does accept some aid, it must follow the rules of the Department of Education.

USC’s Tierney predicted the industry would continue to shrink before stabilizing.

“Any industry, when something hits, there’s rapid growth, and then you have to separate the wheat from the chaff,” he said.

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