U.S. markets open in 5 hours 48 minutes
  • S&P Futures

    -13.75 (-0.34%)
  • Dow Futures

    -44.00 (-0.13%)
  • Nasdaq Futures

    -74.75 (-0.62%)
  • Russell 2000 Futures

    -5.90 (-0.31%)
  • Crude Oil

    +0.60 (+0.74%)
  • Gold

    -6.20 (-0.32%)
  • Silver

    -0.28 (-1.17%)

    -0.0004 (-0.03%)
  • 10-Yr Bond

    0.0000 (0.00%)
  • Vix

    -0.17 (-0.89%)

    -0.0027 (-0.22%)

    -0.2610 (-0.20%)

    +19.84 (+0.09%)
  • CMC Crypto 200

    -5.75 (-1.09%)
  • FTSE 100

    -3.51 (-0.05%)
  • Nikkei 225

    +19.81 (+0.07%)

Can For-Profit Schools Succeed With Just Private Dollars?

NEW YORK (TheStreet) -- Despite what I wrote in September, asking whether for-profit colleges could police themselves, I have always had hope for the sector.

In theory, "career colleges" should be more in touch with employer needs than public ones. They should be more aggressive in using technology. They should be cheaper to run, and more ready to change curricula as the job market changes.

But it turns out they're no less dependent on government aid than any other colleges. And their job placement rates are highly suspect, according to New America Foundation's HigherEdWatch.

Just like public universities and private non-profit schools, for-profit schools rely on student aid and government-backed loans for their funding. A Senate report last year showed most get over 80% of their money from the federal government.

The industry leader, the Apollo Group , which runs the University of Phoenix, got 88.7% from the government.

Also see: Saintvilus: McDonald's Still Pushing All the Right Buttons >>

The National Consumer Law Center, in a 2011 report, charged that many schools are writing private loans they know won't be paid back in order to get the 90% of tuition that can be covered by government loans. That may be why default rates on government loans to for-profit schools are higher than for other types of schools.

That puts the colleges under pressure to maintain political connections. Some are maintained by ideology. After the Department of Education put in rules demanding controls on student debt, Rep. Daniel Issa (R., Calif.), held hearings attacking the government, wrote CareerCollegeCentral.

Eventually, the industry had the rules overturned by the D.C. Circuit Court, according to its attorneys, Ritzert-Leyton.

Halting rules meant to quell excesses was cheered by conservative web sites like The Daily Caller, despite numerous reports finding low graduation and placement rates, and high rates of student loan default.

That's one way to maintain political ties to government money. There are others.

The "Person F" who brought down Rep. Jesse Jackson Jr., according to political news site Talking Points Memo, appears to be Greg Calhoun. He was working with privately held Education Corp. of America, which owns Virginia College, a Birmingham, Ala.-based for-profit college with no ties to the state of Virginia, and holder of a 21.1% default rate on its student loans, according to Find the Date.

Another political friend of the sector was former Maine Sen. Olympia Snowe. Her husband, former Gov. John McKernan, was formerly chairman for Education Management Corp. , which runs schools in 36 states, including The Art Institutes and Brown-Mackie College. EMC gets almost 75% of its funding from Title IV of the Higher Education Act, according to its annual report.

All this leads to CareerCollegeCentral, which calls itself the voice of the industry, to express worries about the industry's extinction due to a struggle for funding with community colleges.

Also see: The Great Urksby: Princeton Revisited >>

The argument made by the career college sector is that it can do better for students than traditional colleges, because it is in touch with the market. Career colleges argue that they can provide better services more efficiently than public colleges can, and maybe they can.

But if all that is true, shouldn't their funding be coming from the companies hiring their students, or from the students being hired, rather than from the government?

At the time of publication, the author had no investments in companies mentioned here.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.