WASHINGTON – Ever wonder where for-profit colleges get the money they spend on all those high billboards and television and radio ads?
Mostly from the federal government. Federal dollars account for up to 90 percent — and in some cases even more if veterans attend the school — of for-profit colleges' revenues. And while figures vary, some institutions spend a quarter or more of their revenues on recruiting, which in some cases approaches what they spend on instruction. A recent Senate report on 15 large, publicly traded for-profit education companies found they get 86 percent of their revenues from taxpayers, and have spent a combined $3.7 billion annually on marketing and recruiting.
Sen. Tom Harkin, D-Iowa, says it's simple math. "Their marketing budgets are funded by taxpayers," he said.
On Wednesday, Harkin and Kay Hagan, D-N.C., introduced a bill to try to clamp down on the flood of advertising, which has particularly targeted Iraq and Afghanistan veterans for their generous benefits under the new GI Bill. The measure would prohibit colleges of all kinds from using dollars from federal student assistance programs, including the GI Bill, to pay for advertising and recruiting.
The bill would extend a current rule that prohibits federal dollars from being used for lobbying — though the lobbying budgets of for-profit colleges are tiny compared to what they spend on advertising.
"Today we are sending a strong message to colleges that choose to spend federal dollars on advertising at a time that middle class students and families are struggling to get ahead: find the money for marketing elsewhere, not from taxpayers," said Harkin, chairman of the Senate Committee on Health, Education, Labor and Pensions. "This is common-sense, fiscally responsible legislation to maximize financial aid dollars for educating students."
The federal 90-10 rule requires colleges to receive at least 10 percent of their revenue from sources other than the federal government, but students enrolled under the new GI Bill don't count toward the limit. Because of that, for-profit colleges have been especially aggressive recruiting them.
The proposal faces long odds in Congress, where for-profit colleges have fended off less-onerous proposed registrations. While traditional not-for-profit colleges typically spend far less money on advertising, and get a much lower portion of revenue from the government, they instinctively and usually successfully resist efforts from Washington to tell them how to spend their money.
Terry W. Hartle, senior vice president at the American Council on Education, said in a statement Wednesday that the proposal contributes to an important conversation about how to ensure students are not overwhelmed by aggressive marketing tactics, but it would impose a "very complex set of requirements of all institutions because of a handful of bad actors." He said it was unlikely to be enacted this year.
Still, it reflects growing concern in Congress about the recruiting tactics of for-profit colleges, especially for veterans. Overall, for-profit colleges enroll roughly 10 percent of students. But in the first two years after the new GI Bill was passed in 2008, they enrolled 25 percent of veterans using the benefits and collected 37 percent of the payments to colleges.
In practice, colleges that already receive more money from non-government sources than they spend on marketing and recruiting would just have to keep separate accounts and could move dollars around. But conceivably, some for-profit schools could be forced to cut back on advertising and recruiting.
At 15 large publicly traded for-profit companies examined by the HELP committee, federal sources accounted for 86 percent of revenues and marketing accounted for 23 percent of total expenditures. That amounts to an overlap of 9 percent of their revenues that the companies could not spend on marketing and recruiting, which in practice would amount to a nearly 40 percent cut in such spending.
"Yes, this would be an issue for everybody (in the sector)," said Jeff Silber, managing director of BMO Capital Markets, who nonetheless said the measure would be unlikely to pass.
For instance, Apollo Group, the parent company of the for-profit University of Phoenix, the country's largest university with 356,000 students enrolled in degree programs, reported net revenue of $4.7 billion in fiscal 2011 and spent $655 million on marketing (it spent $1.77 billion on instruction and student advising). The company also reported 86 percent of Phoenix's revenue counted as federal revenue under a regulation rule called the "90/10 rule" that forbids colleges from receiving more than 90 percent of their revenue from the federal sources.
Using those figures, if the bill were to become law, and depending on its precise details, Phoenix's maximum spending on marketing would be roughly what it spent last year. However, the new bill would also prevent revenue from the new Post 9/11 GI Bill from being used on advertising. GI Bill revenue currently doesn't count toward the 90/10 rule, but it would count toward the marketing limit under this proposal. According to a report last year by the Senate Committee on Health, Education, Labor and Pensions, Phoenix collected $133 million in the preceding academic year from the new GI Bill, so it might have to reduce its marketing spending by a comparable amount.
A message left with the Association of Private Sector Colleges and Universities was not immediately returned.
Pope reported from Ann Arbor, Mich.