Subprime opportunities at career colleges

Reserve space in the annals of marketplace greed on behalf of for-profit colleges managing to rake in record profits while turning out unsuccessful students burdened by heavy debt.

Education Trust, a nonpartisan D.C. think tank, used public data including graduation rates and student loan trends to argue convincingly that the for-profit sector of higher education has taken a page from mortgage industry. They are profiting from a business model based on student failure, rather than student success.

Federally bankrolled Pell Grants and student loans provide healthy revenue streams, injecting $24 billion into the mushrooming career-college industry. Taxpayers' return on investment is a six-year graduation rate for bachelor's degrees of 22 percent. For comparison, the six-year graduation rate at public colleges is 55 percent and 65 percent for private, nonprofit colleges.

And the one in 10 who manage to graduate from for-profit schools has nearly twice the debt load of students at private, nonprofit colleges and nearly quadruple the debt carried by students at public schools. No surprise, these debt-laden graduates default on their loans at twice the rate of students at traditional schools.

The poster child for this perverse education business model is the University of Phoenix — the nation's largest for-profit university with more than 200,000 students at campuses nationwide. U of Phoenix took in more than $1 billion in federal Pell Grant aid last year and this year could exceed a federal cap preventing schools from deriving more than 90 percent of their revenues from federal financial aid.

Oh, and the school's six-year graduation rate? Nine percent.

Our tax dollars barely at work.

This is what happens when unchecked federal education spending teams up with lax regulatory oversight.

For-profit schools hide their poor showing behind an open admissions policy. Indeed, these schools have helped broaden educational access. A greater proportion of minority students and those from low-income backgrounds start out at for-profit schools.

Nice try, but academic failure is not a function of demographics.

The students are holding up their end of the bargain. They're striving for a college education, often under tough circumstances at poorly resourced urban and rural K-12 school systems.

We've asked more young people to aspire to college and they have. Federal government statistics report 86 percent of African-American high-school seniors and 80 percent of Hispanics see college in their future.

Profiting from the business of education isn't the problem; a lack of return on the public's investment is. And at stake is American competitiveness and the goal of equal educational access.

There are pockets of success. Technical and arts colleges produce strong graduates at an impressive rate.

But the industry overall must do better, particularly as it absorbs an increasing share of students. In the past decade, enrollment shot up by 236 percent, compared with 20 percent at our public and private nonprofit colleges.

New rules on financial aid from the Obama administration and ongoing hearings in Congress signal a willingness to tackle these issues. Efforts have spawned heavy lobbying and even television ads exhorting government to keep its mitts off free markets and individual choice.

How well did a hands-off regulatory approach work with lending institutions? Just asking.

There are more similarities than not between predatory lending in the mortgage industry and in higher education. An investigation ordered by Congress found that students at for-profit colleges who balked at taking out large loans were reassured the debt would be offset by high-paying jobs, which never materialized.

These students weren't lifted out of poverty; they were mired deeper into it. Time for swift action that will make good on America's promise that education is the route upward.

Lynne K. Varner's column appears regularly on editorial pages of The Times. Her e-mail address is lvarner@seattletimes.com