That approach sparked abuses, according to a July report by the Senate Committee on Health, Education, Labor and Pensions, led by Tom Harkin, D-Iow. The committee examined 30 education companies over two years.
The companies, which received $32 billion in federal financial aid in 2009-2010, are a poor investment of taxpayer money because they spend more on marketing than instruction, cost more than comparable programs elsewhere, have high drop-out rates and account for almost half of all student-loan defaults, even though they enroll only one in 10 students.
The report found "overwhelming documentation of exorbitant tuition, aggressive student recruiting and abysmal student outcomes," Harkin said. For-profit colleges disputed many of the findings and said their students struggle because they tend to be working adults from lower-income families.
Now, as fewer students sign up at for-profit schools, many low-income and minority students may skip college altogether, undercutting a societal goal of "open access" to higher education, said Steve Gunderson, president of the Washington- based Association of Private Sector Colleges and Universities, which represents for-profit colleges.
Both Apollo and Kaplan have instituted programs that let students try out courses before committing, to weed out those who won't complete them. At the University of Phoenix, about 20 percent choose not to attend after its free three-week orientation workshop, Apollo's Brenner said.
The company also introduced a financial-planning program this month to let students know how much they will pay monthly on their student loans after they graduate.
As students become more price-sensitive in a weak economy, "the competition has accelerated in higher education in a way that's very healthy for students," Brenner said.