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Coronavirus stimulus package includes $1.1B going to for-profit colleges

Aarthi Swaminathan
·Reporter
·7 min read

For-profit colleges and universities are estimated to get $1.1 billion in federal funding from the coronavirus stimulus package, despite Democrats and some experts expressing deep reservations about federal dollars flowing to for-profit higher education institutions.

Out of nearly $14 billion provided by the CARES Act, which was designed to support college students and higher education, around 9% was allocated to for-profit schools including Alabama State College of Barber Styling and University of Phoenix, according to new data released on Thursday by the Education Department (ED).

“The for-profits can distribute aid to students, but as for-profit businesses they should be treated like other for-profit businesses,” Bob Shireman, a senior fellow at the Century Foundation and former Education Department official during the Obama administration, told Yahoo Finance. “Aid to a nonprofit or public college is restricted to educational and public purposes, but for-profit corporations have no such restrictions. They should not be getting institutional aid apart from the business assistance available through SBA and other agencies.”

According to analysis of data from ED by Ben Miller at the Center for American Progress, Grand Canyon University received the most federal money out of all for-profit higher education institutions, followed by National University College (NUC) and Pima Medical Institute.

The ED said that school allocations were “weighted significantly by the number of full-time students who are Pell-eligible but also takes into consideration the total population of the school and the number of students who were not enrolled full-time online before the coronavirus outbreak.”

In any case, “with respect to the question around the for profit schools, the law does not include proof of precluding those students,” DeVos added on a call with reporters. “This first tranche of funding is intended for direct support to students. And so they are going to institutions across the country of every variety.”

Democrats have long been wary of for-profit colleges, describing them as predatory entities that neither provide high quality education nor help its graduates find solid careers.

Devos, for her part, previously overturned a 2014 rule called borrower defense designed to allow students of defunct for-profit colleges to claim debt relief. Both the House and the GOP-controlled Senate voted to roll back the policy.

U.S. President Donald Trump speaks as Secretary of Education Betsy DeVos and Secretary of Agriculture Sonny Perdue look on during a briefing on the coronavirus pandemic in the press briefing room of the White House on March 27, 2020 in Washington, DC. (Photo: Drew Angerer/Getty Images)
U.S. President Donald Trump speaks as Secretary of Education Betsy DeVos and Secretary of Agriculture Sonny Perdue look on during a briefing on the coronavirus pandemic in the press briefing room of the White House on March 27, 2020 in Washington, DC. (Photo: Drew Angerer/Getty Images)

It's clear that Secretary DeVos has chosen to override congressional intent’

One thing is certain: For-profit colleges tend to saddle students with high levels of loan debt.

Data from ED in 2019, which looked at undergraduate enrollment data from 2015 to 2016 for students who went to private for-profit colleges, revealed that 85% of them took out a student loan to pay for school — averaging at around $43,600.

In comparison, only 69% of those who went to a private nonprofit and 65% of those who went to a public institution took out student loans, averaging at about $32,500 and $27,000, respectively.

Consumer advocates — like the Democratic senators — also worried about oversight of the funds.

“It's clear that Secretary DeVos has chosen to override congressional intent,” Student Borrower Protection Center Investigations Lead Tariq Habash told Yahoo Finance. “As for-profit schools receive a significant portion of CARES Act relief funds, there must be strict oversight for how these dollars are being used by an industry that has preyed on the most vulnerable borrowers for too long.”

Coronavirus cases are still on the rise, though the rate of infection seems to be slowing amid social distancing measures. (David Foster/Yahoo Finance)
Coronavirus cases are still on the rise, though the rate of infection seems to be slowing amid social distancing measures. (David Foster/Yahoo Finance)

Habash added that it was ironic that the for-profit college industry, which has “been the subject of dozens of lawsuits in recent years for deceiving borrowers, is now getting emergency relief funds.”

One prominent for-profit colleges receiving the funding — the University of Phoenix — has announced that it will “commit every federal dollar” of $6.58 million to students who were “not exclusively studying online” before the coronavirus pandemic.

“These for-profit institutions should... be restricted in their use of funds,” Ashley Harrington, director of federal advocacy at the Center for Responsible Lending, told Yahoo Finance. “No stimulus dollars should be used for advertising, market, recruitment, CEO salaries, or stock buybacks. For-profit colleges shouldn't use emergency federal COVID-19 funding relief to grow enrollment while neglecting program quality and student needs … The Department must provide oversight to ensure that this funding is actually used to support students struggling to navigate this crisis.”

Harrington added that borrower defense should still be accessible to students who may see their program or college close during this pandemic. Under that rule, students who incur student debt from attending an institution are eligible for debt relief if their school closes and there is the basis that the school had defrauded them.

Everest College, a part of Corinthian Colleges Inc., one of the nation's largest for-profit college chains, shut down in 2015. (Photo by Al Seib / Los Angeles Times via Getty Images)
Everest College, a part of Corinthian Colleges Inc., one of the nation's largest for-profit college chains, shut down in 2015. (Photo by Al Seib / Los Angeles Times via Getty Images)

‘What’s best for students’

As college campuses across the country remain closed with the possibility of a dip in revenue looming, higher education institutions have been eager for some help from the federal government.

On Thursday, the ED released $6.28 billion intended to be distributed “immediately” to “provide direct emergency cash grants to college students” who have been impacted by the coronavirus.

The money can be used for students’ course materials, technology, food, health care and child care, but cannot be used by colleges to refund room and board, despite colleges remaining closed.

“What’s best for students is at the center of every decision we make,” DeVos said in a statement. “That’s why we prioritized getting funding out the door quickly to college students who need it most. We don’t want unmet financial needs due to the coronavirus to derail their learning.”

CAMBRIDGE, MASSACHUSETTS - MARCH 12: Students move out of dorm rooms on Harvard Yard on the campus of Harvard University on March 12, 2020 in Cambridge, Massachusetts. Students have been asked to move out of their dorms by March 15 due to the Coronavirus (COVID-19) risk. All classes will be moved online for the rest of the spring semester.  (Photo by Maddie Meyer/Getty Images)
Students move out of dorm rooms on Harvard Yard on the campus of Harvard University on March 12, 2020 in Cambridge, Massachusetts. (Photo: Maddie Meyer/Getty Images)

The intention was commendable, one expert said.

“I’m still sort of in shock that Congress actually passed emergency aid for students,” Carrie Welton, senior policy consultant at the nonprofit Believe in Students, told Yahoo Finance. “For those of us who have been in this sort of student basic needs, advocating for low income students space for the last five years or so, five years ago, this would have been unheard of. If institutions are thoughtful about how they are targeting students who are at the greatest risk, it could be incredibly impactful.”

While Welton has yet to observe bad actors during this crisis, she noted that there was scope for opportunism.

“The Department of Education is giving institutions pretty broad authority on how they design and implement these emergency aid … [and so] the institution has to complete the certification and go through a couple of steps just to be able to draw down the dollars,” she explained. “Let's say hypothetically an institution has already started doing that, it's probably going to be at least a couple of days before the Department of Education releases funds to them.”

At the same time, the ED gives colleges “one year from the date of this Certification and Agreement” to report how it distributed the funds.

“Within a year says to me that institutions may not apply the proper amount of faith in getting these dollars out, and it might give bad actors ... an opportunity to think about how to game the system in that timeframe,” Welton noted.

Aarthi is a writer for Yahoo Finance covering consumer finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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