Going for Broke

When Melissa Rothrock, 33, decided in the spring of 2009 that she wanted to become the first in her family to go to college, she knew a traditional program was out of the question. The mother of four children–one of them just an infant–couldn’t afford a babysitter, and her husband was on the road for days at a time as a truck driver. An online ad targeting stay-at-home moms got her thinking about distance learning. She filled out her information, and soon the phone began to ring with calls from recruiters for various for-profit colleges who were eager to sign her up. One recruiter from Westwood College, a school headquartered nearly 800 miles (1,300 km) away in Denver, was particularly persistent, calling Rothrock at her San Marcos, Texas, home nearly every day for two weeks, she says.

Sure, she had questions–and the recruiter had all the answers. What about the school’s credentials? Nationally accredited. She was interested in perhaps becoming a criminal-case researcher or a paralegal–how much money could she make with a bachelor’s degree in criminal justice? As much as $80,000. It all sounded great. “The recruiter convinced me that I couldn’t afford not to do this,” she says.

The high-speed Internet access she needed for the classes was too expensive, so Rothrock soon found herself planted at a table at the local IHOP, with her Rent-A-Center laptop and her kids, drinking bottomless cups of coffee and using the free wi-fi. Sitting among students from nearby Texas State University at San Marcos, Rothrock thought, “I’m progressing. I’m getting somewhere. Even though I’ve got kids, I’m just like you, and I can do this.”

So too did the federal government, which awarded her $12,000 in student loans and more than $5,000 in Pell Grant money. To start, Rothrock didn’t have to pay any out-of-pocket tuition. But a year later, life began to get in the way of her studies. The family was planning a move nearly 300 miles (500 km) northeast to Mount Pleasant, Texas, and the stress was taking a toll on Rothrock’s grades. After consulting her adviser, she decided that to avoid tarnishing her transcript, she would withdraw and re-enroll the following August, when the move was complete and her two oldest kids were back in school. But when she tried to return, Westwood officials told her that the Texas workforce commission had ordered the school to stop enrolling new students in its online programs because it hadn’t been certified to operate in the state.

“You don’t expect any institution, especially an educational institution, to just blatantly lie to you,” Rothrock says. (Westwood claims that it alerted students to the problem via e-mail.)

Stories like Rothrock’s are not unusual. Anecdote by anecdote, a firestorm has been building around for-profit education for some time. But it was a scornful Government Accountability Office report released last summer that revealed a portrait of a predatory industry. The report, which questioned the higher tuition fees of for-profits compared with those of traditional schools, included outrageous undercover video footage of recruiters appearing to encourage students to omit required financial information or to claim nonexistent dependents on the Free Application for Federal Student Aid. Since for-profit colleges get huge amounts of government money–they enroll about 11% of all higher-education students yet receive nearly a quarter of all federal financial aid, for a total of $24.6 billion in loans and $7.5 billion in Pell Grants last year–many lawmakers see the situation as tantamount to massive fraud at the expense of taxpayers. “The more I’ve looked into this in the past year, the more it’s become clear that this is an open spigot of taxpayers’ money into private pockets,” says Iowa Democratic Senator Tom Harkin, chairman of the Health, Education, Labor and Pensions Committee. “It’s got to be slowed down, and in some cases turned off.”

Harkin is leading a Senate inquiry into for-profit education. In July, a batch of 13 new regulations issued by the Department of Education will take effect. They will prevent for-profits from compensating recruiters on the basis of their enrollment numbers and will require states to monitor schools more closely–a rule that might have protected people like Rothrock who unknowingly enrolled in unlicensed programs.

Critics contend that for-profits have gone after federal dollars with abandon by targeting people who have too often been left out of the traditional higher-ed equation: older students, parents, career switchers, high school dropouts, veterans, the learning disabled and the homeless. Supporters say for-profits are giving people opportunities where there were none, and history bears this out.

For-profit education can be traced back to before the Industrial Revolution, when there was a demand for agricultural-studies programs that weren’t being offered by traditional schools. Career-oriented for-profits began to thrive after World War II, when they could enroll veterans taking advantage of the GI Bill. DeVry University was one of the first approved under the bill; Westwood emerged in 1953. For many occupations, from auto mechanic to chef, stenographer to beautician, for-profit education became the norm. Another growth spurt occurred after 1972 with the advent of the Federal Pell Grant program, which subsidized tuition for low-income Americans. In 1976 the University of Phoenix was founded by John Sperling, then a humanities professor at San Jose State University, who saw the opportunity and began building an education empire.

The Virtual Classroom

But it was the internet age and the rise of distance learning that accelerated enrollment at for-profits, which has nearly tripled, to 2.2 million, since 2001. For-profits today have both virtual and physical campuses–the behemoth University of Phoenix has locations in 40 states and on the Web–and their students can earn every kind of degree, from a certificate in fashion merchandising to a Ph.D. in industrial psychology. Many are nationally accredited, though others have the more sought-after regional accreditation that puts them on comparable footing with traditional schools.

Aside from government loans and grants, there is a lot of private money at stake. “Historically, they’ve proven to be very profitable companies,” says Jarrel Price, an education analyst at Height Analytics, who noted that for-profits’ stocks became particularly attractive to investors during the economic downturn but have been underperforming since 2009 because of regulatory threats. Still, the Washington Post Co., for example, derived 59% of its revenue in the fourth quarter of 2010 from Kaplan, the for-profit education subsidiary it acquired in 1985.

None of this would be troubling if the schools produced good results–and many of them do. But some alarming trends have emerged. Graduation rates are poor: only 27% of first-time, full-time bachelor’s-degree seekers at for-profits finish within six years on average, compared with (still nothing to write home about) 55% at public schools and 65% at private nonprofit schools. For-profits also account for a high portion of student-loan defaults–more than 40%.

“Yes, we have a higher default rate than the Harvards and the Yales,” says Harris Miller, CEO and president of the Association of Private Sector Colleges & Universities, an industry group. “But if Congress required Harvard to have the same demographic as the American people, instead of drawing from the top earners in the country, they’d have very different outcomes.”

But what the industry can’t defend is the aggressive marketing tactics for-profits use to reel students in, which include, as the GAO report showed, overstating future earnings potential or job-placement rates. In the coming weeks, the Department of Education will be finalizing a highly contentious “gainful employment” rule, whereby programs with many graduates whose paychecks can’t cover their student loans–known as a high debt-to-earnings ratio–could be disqualified for federal financial aid. Miller argues that the rule would block hundreds of thousands of students from access to higher education. “Many community colleges have had to cut back their programs, which is probably the only alternative that most of these students would have,” he says.

The Bottom Line

On that point, at least, senator harkin agrees. “I think we have missed the boat in terms of providing adequate funds to community colleges,” he says. “I am not against distance learning. I think it can provide a great service to a lot of people. It’s just that … the primary purpose of the for-profit schools is to make a profit, not to educate people to get them a job.”

Christina McNeely, 47, feels that distinction as keenly as anyone. McNeely worked her way through a program in medical billing at Westwood College while she was homeless, sleeping many nights on bus-stop benches or on classmates’ floors. She was desperate for a job, which recruiters assured her would materialize, and they even promised to help her find housing. Since graduating from the program in 2010, McNeely has indeed managed to get her own apartment but only by working three jobs, none of them in medical billing. She now cleans houses, drives a forklift at a warehouse and works in a craft store every day. She is due to begin repaying her $15,000 loan this month.

“I cannot explain to you the odds I had to go against to do that and finish it. I hate them,” she says. As for paying back her loans: “It’ll take me forever.”

This article originally appeared in the May 9, 2011 issue of TIME.