For-profit colleges received $1B in federal aid

Some faced government allegations before allocations
For-profit colleges received more than $1 billion in federal money that was intended to help at-need schools and students cope with COVID-19.
Published: Jul. 21, 2020 at 6:36 PM EDT
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(InvestigateTV) - American Public Education Inc. reported good news in its spring earnings call: revenue was up, costs were down and the company had nearly $200 million in cash.

The CEO of the publicly-traded company repeatedly told investors that COVID-19 had created “opportunity” for the company’s schools: one an exclusively online university and the other a nursing school.

Still, the company’s Hondros College of Nursing accepted $3.1 million in federal relief money.

When the federal government set aside almost $14 billion in the Coronavirus Aid, Relief and Economic Security Act for higher education to deal with the impacts of COVID-19, the goal was to provide aid to at-need institutions and students.

Instead, InvestigateTV has found $1.1 billion went to for-profit schools— some owned by billion-dollar companies.

The blanket aid also left less for community colleges, but it included some for-profits that have histories of allegations of false claims, enrollment discrepancies and misusing government funding.

The U.S. Department of Education was in charge of allocating the Higher Education Emergency Relief Fund money with a goal of getting the support to those in need as quickly as possible.

Education Secretary Betsy DeVos urged wealthy institutions to reject allocated funds and called on lawmakers to exempt future taxpayer relief funding.

“But as I’ve said all along, wealthy institutions that do not primarily serve low-income students do not need or deserve additional taxpayer funds,” DeVos said in an April 22 statement.

Under pressure, many Ivy League institutions with large $30 billion-plus endowments, including Harvard and Yale Universities, declined to accept the allocated federal funds.

The money that went to for-profit schools was a historic move because the U.S. Department of Education typically excludes the sector from federal funds.

Although these for-profit colleges tend to serve low-income students, many make their money through online education, largely unaffected by the coronavirus. The Department of Education explicitly excluded online-only students from CARES Act financial aid. Yet money flowed to some of the largest predominantly online schools. One such school, the University of Phoenix, received millions of dollars, though it said it distributed all its federal dollars to students who were not exclusively online learners - though it could have used money in other ways under the law.

CARES Act Allocations

The law requires schools to provide at least 50% of the allocated funds to students whose education was impacted by COVID-19. The schools have broad latitude on how to use the other half to cover COVID-19-related institutional expenses such as PPE or technology.

How much money schools received depended largely on what proportion of full-time low-income students attended the school as well as the size of the student body.

A spokesperson for the Department of Education, who declined an interview request, said in a statement that schools are also allowed to develop their own methods for distributing student aid, which then has to be reported to the department.

This latitude meant students at some schools received almost half the financial aid that others did.

Amber Morris is a student at the for-profit SAE Institute of Technology in Nashville, which is owned by an international company based in Australia. Morris got $1,100 on a prepaid card from her school.

She said the money hasn’t stopped her from being scared about what comes next.

She had just moved to Nashville from her home in Ohio in May when her 12-month program in the entertainment business was set to start. Then the campus shut down due to COVID-19.

She said the money allowed her to make rent. But Morris said she is still worried about her future

“It’s been incredibly frightening. I have never had to deal with anything like this before. It’s definitely a learning experience,” she said.

SAE Institute of Technology said it is still waiting for spending guidelines for the institutional portion of the aid from the Department of Education.

In April, a group of Democratic senators, including Elizabeth Warren, wrote a letter to DeVos, urging that the department ban for-profit schools from accessing the funds or layout strict guidelines that would only apply to them.

The senators noted that for-profit schools are typically excluded from federal funds and that they had the largest population of entirely online students prior to COVID-19, compared to other colleges.

“We believe the most legally sound interpretation of the CARES Act would exclude for-profit colleges from the fund entirely,” the letter said.

After much debate in Congress, for-profit schools were included in the federal bailout.

“Look, this isn’t about whether or not you like or don’t like my schools, this is about the students enrolled in our schools. And if there is any student out there that has been hurt by the pandemic, single-parent, dual-parent, one of them losing their job etc., they are probably in our sector,” said Steve Gunderson, president and CEO of Career Education Colleges and Universities, a lobbying and trade organization primarily made up of for-profit private technical institutes.

The majority of low-income students attend community colleges, but a large share of students at for-profit colleges are also low income, according to Congressional research.

“Just because a school is organized as a for-profit school, that does not mean it’s been making money,” Gunderson said.

Some for-profit schools have struggled to keep their doors open in recent years. Of the 236 higher education institutions that shut down between 2018 and 2019, 206 were for-profit schools. At least nine non-profit colleges have announced permanent closures and mergers since the start of the pandemic.

But some have predicted the pandemic may actually increase student interest in for-profit schools.

InvestigateTV reviewed the most recent financial filings by corporations that own some of the largest for-profit colleges and found many reported earnings significantly up year-to-date.

American Public Education Inc. raked in $2.4 million in net income in the first quarter of 2020, more than double its net income during the same period in 2019.

The company declined an interview but said in an email that all of the CARES Act money allocated to Hondros College of Nursing was going directly to students as financial aid.

Universal Technical Institute Inc., a publicly-traded company that operates a series of automotive schools, has seen a spike in student enrollment since the start of the pandemic, and its net income more than tripled in the first three months of 2020 compared to the same period in 2019. Yet, it received CARES Act funds.

The company declined a request for an interview.

“Because we are still in the process of allocating our funding, we aren’t able to provide more details at this time but we will house information, as it is available, on our website as required by the U.S. Department of Education,” according to a company email statement.

Jackson Nell, a senior analyst at the education research and technology firm EAB, said the formula’s focus on student populations, not institutional design or expressed financial need, led to the inclusion of for-profit schools, a decision that is controversial.

I think that is very much a consequence of building a blanket formula that has no kind of targeted aim in it,” Nell said.

Community Colleges in Need

A sign for free WiFi sits in the parking lot of Patrick Henry Community College in...
A sign for free WiFi sits in the parking lot of Patrick Henry Community College in Martinsville, Virginia on July 16. Due to spotty internet access in the area, the school is using CARES Act funds to expand its WiFi, even encouraging students in online classes to access WiFi in the parking lot from inside their cars.(Source: Patrick Henry Community College, Gray)

At a community college in Southern rural Virginia, new WiFi routers went up so students can access the internet, in the school’s parking lot.

When the pandemic first hit, one of Patrick Henry Community College President Angela Godwin’s priorities was getting her students, many of whom are low-income or first-generation college students, internet access.

The college is in the 11 square-mile town of Martinsville, Virginia, where about 28% of residents don’t have internet, according to 2018 census data. Godwin said broadband in the area is spotty and her own cell phone doesn’t always work reliably.

The college extended the Wifi to the parking lot so that students with weak internet access at home can at least take online classes from inside their cars while social distancing.

The college received nearly $1.5 million in CARES funds, sending out about $600 each to eligible students who attended in the spring, and about $200 more will go to those who return for classes. The cost of in-state tuition at Patrick Henry is about $2,000 for a full-time semester.

The federal formula for calculating which institutions received funds, and how much, relied heavily on the number of full-time and Pell-Grant-eligible students enrolled. The formula tended to favor four-year institutions with low-income students, leaving many community colleges scrambling for more money.

A worker wearing a face mask sits at the front desk at Patrick Henry Community College on July...
A worker wearing a face mask sits at the front desk at Patrick Henry Community College on July 16. The school has had to install desk shields and protective measures to prepare for socially distanced learning in the fall.(Source: Patrick Henry Community College, Gray)

While community colleges are home to the majority of low-income students in higher education, they are typically commuters who enroll in two-year degree programs. Many of them hold off on filing for a Pell Grant, federal aid that students can use for up to six years, until later in their educational careers, said Robert Kelchen, professor of higher education at Seton Hall University.

Nell said the formula didn’t take into account different types of student populations, especially those at community colleges.

“There was a large segment of very much at-need students that did not receive any sort of emergency financial aid assistance. I think that was one of the failures of the program,” Nell said.

The money that went to community colleges was not proportional to the percent of students in higher education who attend community colleges.

Martha Parham, senior vice president of public relations for the American Association of Community Colleges, said she wished the aid had given community college more support.

“As the least funded sector of higher education and the most in need of funding support at this time, that was a little bit of a frustration,” Parham said. “Ultimately, community colleges are pleased that they received relief of some sort.”

Patrick Henry’s Godwin said her college’s food pantry and clothing closet have been emptied out. The school has been trying to raise private funds to create an emergency support fund for students. She expects the school would need at least $700,000 more in institutional aid to stay out of the red in the fall.

“When you look at the percentage of the funding that community colleges received overall, it is minuscule compared to even Ivy League colleges receiving CARES money and the richest of the rich,” Godwin said. “We have to continue to try to get five-and-a-half cents out of a nickel.”

Tumultuous Histories

The allegations were serious: falsified high school diplomas, altered admissions test results, fraudulent federal financial aid applications.

The government alleged that the for-profit schools, owned by Education Affiliates, an investment of private equity firm JLL Partners LLC, had taken these actions to enroll unqualified students in its programs and award federal financial aid to ineligible students.

Two admissions representatives and a test proctor who worked for the company’s All-State Career School in Baltimore were criminally convicted in connection with the allegations.

In 2015, Education Affiliates settled the civil claims that also involved similar misconduct at multiple campuses, with the federal government for $13 million.

The Department of Education has also been monitoring financial aid to more than a dozen of JLL Partners’ schools for years, citing financial responsibility concerns.

Yet, at least $44 million in CARES Act funds were allocated to schools run by Education Affiliates. An additional $12 million were earmarked for other schools JLL Partners invests in.

The University of Phoenix, Colorado Technical University and American Intercontinental University were collectively allocated $9.3 million from the CARES Act. The money came just months after the U.S. Department of Veteran Affairs threatened to suspend the enrollment of GI Bill students at those universities.

The department said in March that those schools used “advertising, sales, or enrollment practices that are erroneous, deceptive, or misleading either by actual statement, omission, or intimation against GI Bill beneficiaries.”

A spokesperson for the VA said the universities have since made corrective actions, such as restitution to students and changed their marketing practices and personnel.

The University of Phoenix said in a public statement that the VA did not cite any findings of misleading advertising.

“The University has always respected that student veterans have earned the right to choose the institutions that best fit their needs, and this news vindicates that principle,” the statement said.

Perdoceo Education Corporation, the parent company of both American Intercontinental and Colorado Technical Universities, reported to the SEC that the allegations were in connection with claims it had already settled, without admitting wrongdoing, with the Federal Trade Commission and 49 states attorneys general. The company said no students were suspended from enrollment in its schools and that the issue had been “satisfactorily resolved.”

Money for Online Schools

While the CARES Act’s formula was meant to weed out online schools from getting federal dollars, dozens of for-profit schools where the majority of students are solely online, received funds, according to most recent education enrollment data.

In fact, one university declined nearly $6 million for that very reason.

Strayer University and its parent company Strategic Education Corporation declined an interview request but said in an email that the largely online university was not substantially impacted by the pandemic, due to the fact that the majority of Strayer’s students were already enrolled online prior to COVID-19.

“Given that Strayer University is predominantly online and only a small percentage of students take on-campus classes, Strayer declined to accept CARES Act funding and has established its own self-funded tuition grant to provide assistance to students who were originally enrolled in on-campus courses for the spring quarter 2020 and had to transition to online courses due to campus closures,” said Elaine Kincel, director of public relations and communications for Strategic.

But plenty of other for-profit schools with predominantly online populations accepted the funds, including, the University of Phoenix, which had more than 100,000 students across several campuses, according to the most recent government data.

More than $6.5 million in CARES Act funds were distributed to the University of Phoenix, despite the fact that more than 90% of the school’s students were entirely online students in the fall of 2018. The university estimates just 3,600 of their students are eligible for the student aid portion, according to a recent filing.

The Arizona-based school announced Tuesday that all its CARES Act money was distributed to students who weren’t solely online before the pandemic hit.

American Intercontinental and Colorado Technical Universities, both owned by Perdoceo Education Corporation, were earmarked $2.7 million in student and institutional aid. Both schools are pledging to use it all on students who attend on-campus classes— a small fraction of their student body.

Of the 36,600 students at the two schools, 94% were in entirely online programs in December of 2019, according to Perdoceo’s most recent annual report.

Perdoceo Education Corporation had a net income of $29 million in the first three months of 2020.

All three schools declined to comment.

A $74 Billion Situation

To safely open in the fall, colleges and universities will spend around $74 billion to obtain PPE, technology, and the services needed for both online and in-person classes, three dozen higher education groups said in a July 2 letter to the U.S. Senate.

The CARES Act gave colleges and universities $14 billion.

“So that cost coupled with declining revenue really creates a situation where a lot of colleges and universities, that are very dear to many people across the country, are at financial risk,” Nell said.

As the Senate works to construct the next COVID-19 relief package, Democrats have proposed a plan that would give $132 billion to higher education institutions and students.

The plan, introduced by Chuck Schumer, D-New York, and Patty Murray, D-Washington, proposes allocating funds based on overall student headcount, “helping to ensure community colleges that enroll more part-time students receive more equitable support,” according to their proposal.

The Senate is expected to look at additional relief funding later this summer.

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