By Alison O'Brien
When Ashley Wood was looking for colleges, she knew she needed a school that would allow her to work during the day and take classes at night. She clicked on an ad for the Art Institute of Las Vegas and asked for more information. Within hours, she got a call from an admissions counselor.
“Everything they told me was, sounded incredible. They told me it was the top-notch school, that it had the best accreditation and that I would fit perfectly there. They really persuaded my mom and I that it was the perfect school for me,” said Wood in an interview airing Thursday, July 19 at 10 p.m.ET/9 p.m. CT on NBC’s Rock Center with Brian Williams.
The next day, she visited the campus. She was admitted and attended her first class that night. Wood, who studied graphic design, said that admissions counselors never asked her for a high school diploma or for a portfolio of her work. She says the school’s staff helped her apply for financial aid, something she needed to attend school. She initially ended up with $68,000 in student loans. Before she would finish her studies, Wood would take out two additional loans for Art Institute programs abroad. Each loan was $14,000 and covered her tuition, travel and living expenses abroad. Wood says she chose to study abroad and felt no pressure from the school to do so.
After graduating, Wood did find a job as a graphic design artist, but paying off her loans has been more difficult than she imagined. Six years after enrolling, the now23-year-old Wood has $145,000 in student loan debt with interest rates as high as 12 percent.
“I honestly believe I would have to pay $2,000, $3,000 a month to get ahead on this loan. If I pay them what they’re asking, my loan literally will never be paid off,” she said.
Wood’s story of being saddled with student debt is not unique. Nationwide, student loan debt has ballooned to more than $1 trillion. It’s a problem so big that it’s drawing scrutiny at colleges across the country, but nowhere has it been as intense as at schools like the one Wood attended, for-profit colleges.
For-profit colleges appeal to people because they offer classes both during the day and at night, online and on-campus. They offer specialized fields of study like culinary arts or fashion design as well as doctorate programs in law and psychology. Commercials for the schools tout their successful graduates from business leaders to Pulitzer Prize winners and Top Chef contestants.
For-profit colleges are a $30 billion a year industry with as much as 90 percent of its revenue coming from student loans and grants, according to the Government Accountability Office (GAO). They are often backed or owned by publicly traded companies like Goldman Sachs, which owns 40 percent of Education Management Corporation (EDMC), Washington Post Company, owner of Kaplan University, and Apollo Group, owner of the University of Phoenix which has sponsored NBC's Education Nation.
Controversy has ensued over whether the missions of for-profit schools are to educate or to turn a profit for their shareholders. The schools say both; critics disagree.
“The for-profit schools, because of their business model, target low-income people, because the lower your income, the more Pell Grants you get and the more student loan you’re eligible for,” said Senator Tom Harkin, D-Ia., chairman of the Senate Committee on Health, Education, Labor and Pensions. “So it’s in your business interest to go after those poor students.”
Senator Harkin, who has spent three years investigating the industry, argues that despite the successes the schools may have had, students at for-profit schools take out more student loans, default more often and have a higher rate of unemployment than students at traditional colleges. A December 2011 report by the GAO confirmed his findings.
Though some colleges dispute the numbers, the Department of Education says that students at for-profit colleges represent about 10 percent of the nation’s college enrollment. They take out about a quarter of all student loans and grants and of all the students across the country who default on their loans, nearly half come from for-profit colleges. And when students default, it is taxpayers who pick up the tab.
Some for-profit executives, as well as an industry trade group, acknowledge that their students are more likely to default, but they say it’s because their schools serve a low-income population that is underserved by traditional colleges. They also say that many students over-borrow by taking out loans to cover things beyond their tuition. For example, students will take loans out to cover their living expenses. That is money that the schools never see.
In an interview with Rock Center, Bonnie Campbell, a spokesperson for EDMC, the second-largest company in the for-profit industry and owner of the Art Institute Wood attended, defended the company and the industry against criticism regarding its student population. Campbell is a former attorney general for the state of Iowa and a former member of the state’s board of regents that oversees its education system.
She said, “Do you think it’s appropriate to take a huge block of low-income people and ignore them, say to them, ‘Your dream to get an education and a good job really isn’t important to anybody?’ It is.”
EDMC officials say the schools provide financial aid counseling to try to keep students from borrowing more money than they need for tuition and other school-related expenses, but it is the students who are ultimately responsible for determining the amount of funds they wish to borrow. The company says that regulations prohibit them from doing anything to control or prevent this over-borrowing. EDMC and others in the for-profit industry say they are advocating to change those regulations.
Campbell went on to say that 82 percent of EDMC graduates find jobs in their field and giving students a good education is in the company’s best interest.
“If you're not educating students properly, if you're not placing them in jobs, you won't make a profit,” Campbell said.
But some former recruiters for EDMC and its schools paint a picture of a school consumed less by student success and more by profit.
“The students are just a conduit for federal money,” said Suzanne Lawrence, a former recruiter for EDMC.
Lawrence recruited students for six months and said that her job was to sign up as many students as possible and send them directly to the financial aid office.
“They’re simply siphoning money from the taxpayers and from the federal government, siphoning them through these students and on the way ruining these students’ credit, ruining their lives and filtering that money straight into their stockholders’ pockets,” Lawrence said.
Kathleen Bittel, another former recruiter at EDMC, said she too was told to boost the bottom line by recruiting students, regardless of their qualifications. She says she felt like a telemarketer when she worked for the company.
“We called and called and called…phone numbers all day long, hoping for someone to pick up the phone and talk with us,” she said.
EDMC is currently the subject of an $11 billion false claims act lawsuit by the Department of Justice along with eleven states. The suit alleges that, from 2003 to 2009, EDMC paid its recruiters solely on a per student basis, which was in violation of the Safe Harbor regulation.
"Paying people a salary is legal", said Eric Jaso, a former deputy general counsel for the Department of Education who helped draft the Safe Harbor regulation that is the center of the lawsuit. "You can adjust a salary for different factors, quality of work. You can promote people. However, you cannot adjust that salary solely on the basis of how many people they recruit."
Paying recruiters solely on a per-student basis is an allegation EDMC strongly denies.
“At all times now and then, EDMC was in compliance,” Campbell said. She says that there are other quality factors that determine a recruiters pay – including professionalism and work ethic - and that the former recruiters we spoke with were not in a position to know how compensation was ultimately determined.
"Literally impossible to determine someone's compensation without a consideration of those factors," Campbell said. She added that the $11 billion figure, which the government says represents the amount of federal funds EDMC obtained from 2003 – 2009, is patently absurd and was put in the lawsuit for the headline.
Jaso says that for-profit colleges do provide a valuable service to low-income students, but he fears that, in some cases, greed triumphs over good.
"When you pay people on a commission basis to recruit students, bad things happen,” Jaso said. "Students are unqualified. They don't stay in school, they don't graduate. They don't get good jobs. They don't pay back their student loans, and the taxpayer suffers. That's what this is all about."
This is not the first lawsuit brought against the industry for allegedly paying recruiters solely on a per-student basis. One of the largest lawsuits was against University of Phoenix owner, Apollo Group. In 2009, Apollo settled the case for $78.5 million, but did not admit any wrongdoing.
As for the EDMC case, U.S. District Court Judge Terrence McVerry called it "massive and complex." He said, in a recent ruling, that the company’s compensation plan was legal as written, and it is “certainly possible” that EDMC complied with all government regulations. Nevertheless, the question remains as to whether it was in fact illegal as implemented. EDMC vigorously contests the lawsuit, which is pending in the U.S. District Court in Pittsburgh, Penn.
Editor’s Note: In a report on for-profit colleges that aired on NBC’s Rock Center on July 19, 2012, images of the Art Institute of Boston were used.
The Art Institute of Boston is a private, not-for-profit art school, which is part of Lesley University and is not affiliated with The New England Institute of Art, a for-profit college.