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Community colleges – typically the country’s cheapest option for higher education – face a new and unlikely rival: the fast-growing industry of for-profit colleges.

community colleges and for-profit colleges
American River College (Courtesy American River College)

To understand why students are turning to more expensive options like for-profits, it’s helpful to consider the case of Joseph Carrillo Jr., a 24-year-old who until recently attended American River College near Sacramento, California. At American River, a public community college, he had to fight to get into overcrowded classes and found himself shut out of others. Carrillo Jr. couldn’t find a guidance counselor and felt lost. It wasn’t long before he turned to the private, for-profit University of Phoenix, swayed by the university’s personal attention to his ambition and his schedule.

Everything fell into place for Carrillo Jr. at the University of Phoenix – at 17 times the cost of tuition at American River College.

“What good is cheap tuition if classes are so packed you can’t even get in?” he said.

For-profit schools such as the University of Phoenix, DeVry University and Kaplan University are capitalizing on the stress placed on community colleges by the growing numbers of students who are choosing them over four-year schools in a weakened economy, as well as those signing up for job retraining. Many community colleges have been unable to meet demand, especially with the budget cuts they’ve faced in the last few years. That’s why for-profits are stepping in.

Cash-strapped and overcrowded community colleges say they don’t like losing students to for-profit institutions, but in many cases there’s little they can do. California’s oversubscribed community college system forged an agreement last fall whereby its students could take online courses offered by Kaplan University at a deep discount. But even with the discount, the difference in tuition is staggering: $26 per credit at one of California’s community colleges, compared to $215 per credit for an online course with Kaplan. In August 2010, the California Community Colleges Chancellor’s Office ended the arrangement with Kaplan, amidst concerns about quality and whether the online courses would be recognized by the state’s four-year colleges.

For-profit schools offer professional, vocational and technical training, along with generous financial aid packages, discounts and incentives. Enrollment has soared – from 673,000 in 2000 to 1.8 million in 2008. Like community colleges, for-profits serve a large number of low-income, minority and first-generation college students. But unlike community colleges, these schools are under intense federal scrutiny for high dropout rates and for leaving students with nothing to show for time spent studying except crushing debt. For-profits have received unwanted attention for the high loan-default rate among their students, which is nearly double that of students at public, nonprofit institutions.

About 95 percent of students at for-profits take out loans, compared to only 16 percent of students at the country’s community colleges. Community college officials say one reason for-profit colleges are providing competition is their ability to offer generous financial aid packages. For-profit colleges receive some 85 percent of their revenues from federal student aid. In 2009, students at for-profits received more than $4 billion in Pell Grants – which, unlike loans, don’t need to be repaid – as well as more than $20 billion in federal loans from the U.S. Department of Education.

Under pressure from lawmakers and others, U.S. Education Secretary Arne Duncan has proposed “gainful employment” regulations that would take away federal funds from for-profits unless they can show that their students will land sufficiently well-paying jobs to justify their debt levels.

Duncan is also concerned about completion rates. More than half of the students at 16 for-profit colleges who started classes in the 2008-2009 academic year have dropped out, Sen. Tom Harkin (D-IA) said during a recent hearing in Washington D.C. Some 1.9 million students left the schools without a degree over a three-year period.

For-profits have been under increasing fire for other reasons, too. In a recent investigation, the U.S. Government Accountability Office found fraud or deceptive marketing practices at all 15 for-profits it examined.

The Association of Private Sector Colleges and Universities, which represents for-profit schools, defends the institutions and is fighting the new rules with an intense lobbying campaign. Its president, Harris Miller, says the schools do better than other institutions in helping nontraditional students, and insists taxpayers spend less on students at for-profit colleges than they do on students at public colleges that receive subsidies.

Any future impact for-profits will have on community colleges will depend on what happens after Duncan rules on the gainful employment provision that many for-profits fear will cut deeply into their business model and drive students from their institutions.

In the meantime, community college leaders like Gail Mellow, president of LaGuardia Community College in New York City, say the growth of for-profit schools takes away from much-needed federal investment in community colleges, which educate more than half of the undergraduates in the U.S.

Mellow says the “startling growth” of for-profits may be good for investors but “has come at great cost to their students, taxpayers and public colleges,” and finds it unfair that the schools draw in 21 percent of all Pell Grant money but enroll only 10 percent of all college students in the U.S.

“Because we do not have a clear vision of what higher education in America should look like, the for-profit colleges rushed into an unregulated marketplace, garnered the interest of investors, spent heavily on advertising and grew by drawing on publicly funded grants and loans,” Mellow wrote in a June 2010 column on The Huffington Post. “These national giants are sapping the public dollars that should be invested in our nation’s community colleges to build labs, hire faculty, and purchase computers.”

Freelance reporter Elaine Korry contributed to this story.

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