SALON

Tuesday, Jul 3, 2012 1:36 PM UTC

California cracks down on aid to for-profit colleges

New regulations could have “adverse impacts” on University of Phoenix’s ability to comply with federal aid rules

By

Topics: The American Independent, Education, Business, California, Regulation,

California cracks down on aid to for-profit collegesUniversity of Phoenix (The American Independent)
This article originally appeared on The American Independent.

California lawmakers dealt a blow to the for-profit college industry last week by disqualifying poorly performing schools from a key state financial aid program.

The American Independent

The California budget, which Governor Jerry Brown signed last Wednesday, imposes stricter eligibility standards on schools participating in the state’s generous Cal Grant program.

The new standards eliminate from the program some of the biggest players in the for-profit college industry, including the University of Phoenix, the country’s largest for-profit college.

In a quarterly earnings report released just days before the new standards were adopted, the Apollo Group — the University of Phoenix’s parent company — acknowledged that the potential loss of Cal Grant eligibility could have serious consequences for the company. The changes, the company warned, could lead to “increased student borrowing” and “decreased enrollment.”

Loss of the Cal Grant funds, according to the filing, could also have “adverse impacts” on the school’s ability to comply with the so-called “90/10 Rule” — a federal law requiring that no more than 90 percent of a school’s revenue come from federal student aid.

Last year, the University of Phoenix derived 86 percent of its revenue from federal student aid. If that figure were to rise above 90 percent for two consecutive years — a prospect made more likely by the school’s loss of state-funded Cal Grants — the school would no longer be eligible for federal student aid.

Still, one industry analyst issued a comment Monday afternoon stating that the new Cal Grant restrictions do not pose a significant threat to the Apollo Group.

“Despite APOL describing a potential risk to 90/10 mentioned in its most recent 10Q, we estimate that the change would impact APOL by approximately 0.5%, still leaving the company safely under the 90% mark,” wrote Trace A. Urdan, a senior analyst at Wells Fargo Securities.*

The University of Phoenix, whose students received an estimated $20 million in Cal Grants last year, has previously lobbied successfully against tougher performance measures. The school argues that the new rules unfairly “penalize” its students.

According to University of Phoenix spokesman Rick Castellano, “The final budget uses flawed and misleading data to penalize non-traditional students and would-be Cal Grant recipients based on their choice of a school that best fits their education needs.”

California’s new performance standards rely in part on federal graduation rate data. However, that rate only measures first-time, full-time students.

To qualify for the Cal Grant program, schools must now have a six-year graduation rate above 30 percent and a student loan default rate below 15.5 percent.

Castellano said the University of Phoenix will “continue to work on behalf of our students to reinstate eligibility for Cal Grants.”

Castellano declined to elaborate on how the University of Phoenix’s loss of Cal Grant eligibility may impact the school’s compliance with the 90/10 Rule.

Consumer advocates, who argue that valuable state dollars must be targeted to institutions that best serve students, are praising the tougher standards.

Debbie Cochrane, a financial aid expert at The Institute for College Access & Success, issued a statement saying the new performance standards “position California as a national leader in college accountability.”

Assemblymember Bob Wieckowski (D), who offered a bill earlier this year that would have implemented standards similar to those included in the budget, said the changes will “ensure that our valuable and limited Cal Grant funds go to responsible higher education institutions.”

“Education should be a tool used to improve the quality of people’s lives and to provide a pathway out of poverty, not into it,” he added.

*This story has been updated to include the assessment of Wells Fargo Securities Senior Analyst Trace A. Urdan.

More Sarah Pavlus.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
    Credit: AP/LM Otero

  • Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
    Credit: AP/Matt Rourke

  • A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
    Credit: AP/Jenny Aicher

  • Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
    Credit: AP/Molly Riley

  • Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
    Credit: AP/J. Scott Applewhite

  • Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
    Credit: AP/Carolyn Kaster

  • O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
    Credit: AP/Las Vegas Review-Journal/Jeff Scheid

  • Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
    Credit: AP/NASA/Chris Hadfield

  • When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
    Credit: AP/Jacquelyn Martin

  • A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
    Credit: AP/The Duluth News-Tribune/Clint Austin

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 1 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

Salon is proud to feature content from The American Independent, a progressive nonprofit news organization committed to impact journalism.

follow salon

Most Read

Popular on Reddit

links from salon.com

vote
FBI reportedly joins Bachmann campaign finance probe
120 points121 points | 3 comments
vote
Jon Karl makes things worse: He regrets “inaccurate” Benghazi email but says his story based on it “still entirely stands.” Really. ABC News?
113 points114 points | 18 comments
vote
“Jodorowsky’s Dune”: The sci-fi classic that never was.
53 points54 points | 13 comments
vote
Doug Henwood: Capitalism Thrives on Class Exploitation
43 points44 points | 4 comments
vote
Paul Krugman’s right: Austerity kills. "In an economy where we’re all in the same boat, one person’s spending is another person’s income. So when the government cuts spending, it reduces people’s income, leading to less business, more unemployment, and a vicious spiral of slowing down the economy."
37 points38 points | 18 comments

From Around the Web

Presented by Scribol
listener_new_rect The Listener: So long, Sookie Stackhouse

Recommendations