Are For-Profit Online Universities Deceiving Our Students?

The next time one of those late night television commercials for an online university comes across the television screen, it might be a good idea to pay attention. If you paid your taxes this year, chances are that a portion of your tax dollars went toward the advertising budget of one of the large for-profit online institutions like the University of Phoenix, Grand Canyon University, Kaplan University, and Colorado Technical University. The much higher than average cost of tuition and the low success rate of students completing the programs and finding employment has a lot of people worried. According to a recent USA Today report, outstanding student loan debt has exceeded the credit card debt of the entire United States. The high cost of education is putting students in very bad positions financially and the low quality output of these major for-profit institutions is leaving them with little chance of finding any type of gainful employment.

For-profit universities appealed to investors because they are practically guaranteed tuition payments in the form of student loans from the federal government. The 90/10 rule that these for-profits have to abide by states that the institution is allowed to receive 90% of their operating revenue in the form of federal student loans coming directly from the government. The remaining 10% needed to come from other sources until recently. Now, that remaining amount can be satisfied by educational benefits given to military personnel. According to a Frontline investigation, College Inc., for-profit colleges have about 10% of all college students attending their institutions, but they are responsible for almost half of all student loan defaults. Tighter regulations and industry oversight now has a lot of investors worried.

False and misleading advertising in addition to illegal recruiting efforts and high-pressure sales tactics are just the tip if the iceberg when it comes to the problems that plague online for-profit universities. What these institutions are spending on marketing greatly exceeds the amount spent on teaching. At $400-550 per credit hour, Grand Canyon University spent more money on advertising in 2008 than Tide, Revlon, and FedEx. While 20-25% of their revenue is spent on sales and marketing, 10-20% is spent on the faculty. They are spending more to entice a student to attend the school than they spend on the service that they are providing.

Online Universities claim to be providing a service to would-be students that the traditional system has given up on. The average debt load that a student accumulates at a for-profit university is more than double that of traditional schools. The quality of the education that students receive does not appear to be preparing them to enter the workforce. These schools do not offer tenure to any of their instructors who are pressured to inflate the grades of students.

Former University of Phoenix executive Mark Defusco stated that if the teachers would not give him the outcomes that he needed, he just wouldn’t give them another contract. Development of a new course at a traditional university takes months or sometimes years before it is approved. University of Phoenix does this in a matter of days. They will sometimes place a group of faculty members or experts in a hotel room for a weekend and basically not let them come out until they were finished with the curriculum for the new course.

If a student falls into the category of the select few who actually finish one of these programs, they are often saddled with student loan debt that they just cannot pay off. In addition, student loan debt is not forgivable in bankruptcy and the government can and will eventually garnish the wages of an individual delinquent on student loan payments. Grossly overstated wage expectations at the time of enrollment often end up leaving students feeling duped when they find that websites like are not entirely accurate with their statements regarding wage information. Websites that claim to provide wage information often have sponsors that include the likes of online universities as well as job search sites that incentivize the company to inflate their findings.

Proposed regulation for what outlines “gainful employment in a recognized occupation” aims to impose tighter regulations and transparency for students at the time of enrollment. This will allow them to see various statistics related to the outcomes of the programs that they are interested in and see for themselves what the university’s track record is for students previously attending the school in their chosen program. Regulation is set to go into effect on July 1, 2011. A link to the entire 165 page document can be found at the Inside Higher Ed website.