- DEFAULT THIS! Gov. Brown's budget axes the Cal Grant for colleges with higher default rates, like the University of Phoenix.
The nation's largest for-profit college is aggressively lobbying against a proposal in California that would disqualify it and other proprietary schools from a key state financial aid program.
It's the latest battle in a multi-year struggle over the standards that schools must meet in order to benefit from the generous Cal Grant program. On one side is the University of Phoenix and its parent company, the Apollo Group—a massive education company whose campaign contributions fill California political coffers and whose lobbyists have helped beat back two similar legislative threats in the state in the past 18 months.
On the other side are consumer advocates who say that for-profit colleges offer inferior educations while saddling vulnerable students with debt, and they've recently received support from Gov. Jerry Brown. Faced with a fiscal crisis that has already led to massive cuts in the state's higher education system, Brown wants to tighten rules that exclude schools with high student loan default rates from the program. The tougher standards would have the greatest impact on for-profit colleges, which have some of the highest default rates.
The stakes are high. Last year, University of Phoenix students got an estimated $20 million in Cal Grants, the most of any for-profit college in the state and, according to one analysis, more than the top 10 community colleges combined. The funding—which can cover tuition, fees, living expenses and books—is a vital part of the school's business model.
The University of Phoenix says it is unfairly targeted by the proposed changes. The school contends that its high default rates result not from the quality of the education it provides but from the fact that it serves a nontraditional—and financially riskier—student population of older, working adults.
"There's no question that our students take a bigger hit [from Brown's proposal] than any other college student in the state," says University of Phoenix spokesman Ryan Rauzon. "It's clear that policymakers are trying to attach meaning to a default rate as some sort of indicator on academic quality, failing—or refusing—to acknowledge that maybe it has more to do with the economy, the financial situations of certain types of students.
"These are adult students," Rauzon continues. "They've got complicated financial lives, not to mention they're juggling a lot. They've got kids, they've got car payments, they've got childcare payments and mortgages, some of them are working multiple jobs. They're going one night a week for four hours, one class at a time or they're taking classes online."
But critics say that rather than helping nontraditional students succeed, for-profit colleges often take advantage of them, providing an inadequate education that leaves them burdened with substantial debt.
Debbie Cochrane, a financial aid expert with the Institute for College Access and Success, supports the stricter institutional eligibility standards, which, she argues, will push underperforming schools to better serve both students and taxpayers.
"The combination of relatively weak state oversight and generous state grants is something that has made the state of California an attractive place for for-profit colleges to do business," says Cochrane. "If a student took out loans to go to college and then is unable to repay them, either the degree they earned wasn't a quality enough degree where they could get a good paying job or the school perhaps fell down on its responsibility to inform the student about what their repayment options are."
The purpose of stricter standards is not to "kick schools out," says Cochrane, but to "use the Cal Grant dollars to put an incentive in place for colleges to serve students better."
The storied Cal Grant program had long been spared from budget cuts. But last year, facing a budget deficit, lawmakers were forced to further reduce state spending.
Anticipating cuts to the program, the California Student Aid Commission, which is responsible for distributing Cal Grants, recommended several options for lawmakers to consider. Reporting at the time listed the University of Phoenix among the institutions that would lose access to Cal Grants under new default-rate based restrictions, a result that would have been disastrous for the school.
But the Apollo Group—and the rest of the private college industry—fought back with an intense lobbying campaign. According to state records, the Apollo Group spent a total of $150,040 on lobbying in California from January 2011 through the end of March 2012. The company lobbied on Cal Grants and related bills throughout that time period.
The Apollo Group also spent heavily on electoral contributions, donating $113,000 to state-level politicians in California throughout 2011. The vast majority—$91,000—went to the California Democratic Party, whose members dominate both houses of the state legislature.
Rauzon says that by aggressively lobbying, the University of Phoenix is standing up for its students. "In California, we've got 120 legislators, we've got the Student Aid Commission, we've got the governor, and we're going to try to reach all of them in as many different ways as we can within the law of political activity, and argue heavily that you shouldn't cut University of Phoenix students out."
Those efforts paid off. After intense negotiations, California lawmakers tweaked the regulations on the Cal Grant program, raising the default-rate threshold—damaging some for-profit colleges, but narrowly sparing the University of Phoenix.
But now the school is battling the biggest threat yet to its Cal Grant eligibility: Gov. Jerry Brown's revised budget proposal released in May.
Brown is perhaps an unlikely foe for the University of Phoenix. The company donated $25,000 to his 2010 gubernatorial campaign, and in December, he appointed a longtime Apollo Group executive to the California Student Aid Commission.
But confronted with a $16 billion budget shortfall, Brown proposed brutal spending cuts across the board, including restricting Cal Grant institutional eligibility to schools with a three-year cohort default rate below 15 percent. It was a drastic change from his January budget recommendation, which proposed maintaining the current 24.6 percent threshold.
The University of Phoenix's default rate is moving in the opposite direction. The company disclosed that the draft three-year rate for the 2009 cohort, to be finalized in September, was 26.7 percent, a substantial increase from the 2008's 21.1 percent.
Assembly Democrats have released a budget plan that recommends approving a modified version of the governor's proposal on Cal Grant institutional eligibility. The plan includes "placeholder" language setting the cohort default rate limit at 15.5 percent. The following day, a state Senate committee approved the 15.5 threshold.
As the clock ticks down past state lawmakers' budget deadline, the Apollo Group is engaged in an all-out lobbying effort against the proposal.