The Failings of Online for Profit Colleges - Brookings

MARCH 2019

The Failings of Online For-profit Colleges: Findings from Student Borrower Focus Groups __________________________________

Robin Howarth

Senior Researcher, Center for Responsible Lending

Lisa Stifler

Deputy Director of State Policy, Center for Responsible Lending

This report is available online at: The Brookings Economic Studies program analyzes current

and emerging economic issues facing the United States and the world, focusing on ideas to achieve broad-based economic

growth, a strong labor market, sound fiscal and monetary policy, and economic opportunity and social mobility. The research aims to increase understanding of how the economy works and what can be done to make it work better.

Contents

Acknowledgements.............................................................................................................................................. 1 Statement of Independence ................................................................................................................................ 1 Abstract ................................................................................................................................................................ 1 Summary of Findings .......................................................................................................................................... 1

The Evolution of For-profit Colleges and Online Education.........................................................................3 For-profit Online Student Outcomes in Previous Studies............................................................................. 7 Recent Enrollment Trends of For-profit Colleges and Online Programs .....................................................8 Motivation and Methodology of CRL Focus Group Research on For-profit Online Students .................. 15 Protections for Students that Attend Online For-profit Colleges ...............................................................26 Conclusion ......................................................................................................................................................29

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ACKNOWLEDGEMENTS The Center for Responsible Lending (CRL) acknowledges generous support for our student loan work from the Prudential Foundation. The authors would also like to thank Robert Lang, CRL intern, for providing his assistance in coding focus group transcripts and analyzing Department of Education enrollment data.

STATEMENT OF INDEPENDENCE The authors did not receive any financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. They are currently not an officer, director, or board member of any organization with an interest in this article. The statements made and views expressed are solely the responsibility of the authors.

ABSTRACT This report addresses the trend of for-profit colleges going exclusively online or contracting with nonprofit (mostly public) colleges to run their online programs. Using results from focus groups of for-profit student borrowers, we explore the risks that this rapid shift entails for students already vulnerable to poor outcomes. The Department of Education is seeking to weaken accountability for distance education (online) providers that enroll students across wide geographies. This approach will increase risks for students and the federal student loan program. The Department of Education should increase oversight, and states should also act to protect consumers that are enrolled in online college programs, particularly those that are for-profit, irrespective of the home state of the online program provider.

SUMMARY OF FINDINGS

? For-profits colleges enroll an outsized share of students that take only online courses: 22 percent of online-only undergraduate students and 27 percent of all online-only graduate students. (For-profit colleges enroll only 5.4 percent of all undergraduates and 8.9 percent of all graduates.)

? The online-only student enrollments of for-profit colleges are 80 percent out-of-state for undergraduates and 85 percent out-of-state for graduates. Oversight and accountability

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for distance education offered across multiple state lines is both inadequate and in flux, leaving students vulnerable to substandard educational offerings. ? Like for-profit enrollment generally, primarily online for-profit institutions focus their marketing and recruiting on African Americans, women, and adult students (25 or older) as reflected in the outsized enrollment shares of these students. ? In contrast to the high enrollment share of African Americans in for-profit online institutions, Latinos and whites are underrepresented. Latinos in particular have low enrollment shares in distance education institutions overall, irrespective of whether these institutions are for-profit, private nonprofit, or public. ? A nascent literature shows that outcomes for an online-only for-profit student are particularly poor in terms of completion and earnings after leaving school. ? CRL's focus group research shows that students that enroll in for-profit online programs are attracted by easy enrollment and assistance in procuring student financial aid, but are subsequently disappointed with the poor quality of education provided. Their hopes of improved financial stability through the pursuit of higher education meet head on with disappointing labor market outcomes and unsustainable levels of student debt.

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The Evolution of For-profit Colleges and Online Education

Until 2010, for-profit institutions constituted the fastest growing sector in higher education.1 Coinciding with this growth, online college courses and programs expanded rapidly, driven initially by the adoption of online technologies by huge for-profit institutions like the University of Phoenix, Grand Canyon University, and Walden University. The business model for the online component of these schools was characterized by institutional cost savings and user convenience generated by the scalable delivery of instructional material over the Internet.2 Through the ability to market and offer courses exclusively online at low marginal costs per student, for-profit institutions were no longer tied to place and served large numbers of students across the country from a remote location.

More recently, as the for-profit sector has been plagued by a series of investigations, closures and consolidations3, competition for online students has emerged from other sources including private nonprofit institutions such as Western Governors University, Liberty University, and Southern New Hampshire University and public institutions such as University of Maryland ? University College and Arizona State University-Skysong.4 These institutions are now driving much of the continued growth in online higher education. However, they differ in the populations they serve as discussed below under Recent Enrollment Trends of For-profit Colleges and Online Programs.

For-profit online programs are known to target and recruit students that are low-income, African Americans, veterans, and female heads of households.5 These students often qualify for substantial need-based federal financial aid, otherwise known as Title IV aid.6 For-profit colleges

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1 From 2000 to 2009, the fraction of fall enrollments in for-profit Title IV-eligible higher education institutions increased from 4.3% to 10.7%. See: Deming, David J., Claudia Goldin, and Lawrence F. Katz. "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?" Journal of Economic Perspectives 26, no. 1 (2012): 139-164. 2 McPherson, Michael S., and Lawrence S. Bacow. "Online Higher Education: Beyond the Hype Cycle." Journal of Economic Perspectives 29, no. 4 (2015): 135-154. 3 These investigations include congressional hearings, investigative reporting, and Government Accountability Office (GAO) audits as well as numerous law enforcement actions by state AG's. 4 See: . 5 See Jillian Berman, Plagued by Scandal, For-profit Colleges Target Single Mothers, Marketwatch (September 11, 2017), available at . 6 Title IV Federal Aid administered by the U.S. Department of Education represents approximately half of student aid awarded annually in the U.S. and includes federal grants (Pell, FSEOG, and others), federal Direct Loans (subsidized, unsubsidized, plus, and

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