Federal Aid for Online Courses

The New York Times March 1, 2006
SECTION: Section A; Column 6; Pg. 1

HEADLINE: Online Colleges Receive a Boost From Congress
BYLINE: By SAM DILLON

It took just a few paragraphs in a budget bill for Congress to open a
new frontier in education: Colleges will no longer be required to
deliver at least half their courses on a campus instead of online to
qualify for federal student aid.

That change is expected to be of enormous value to the commercial
education industry. Although both for-profit colleges and traditional
ones have expanded their Internet and online offerings in recent years,
only a few dozen universities are fully Internet-based, and most of
them are for-profit ones.

The provision is just one sign of how an industry that once had a
dubious reputation has gained new influence, with well-connected
friends in the government and many Congressional Republicans
sympathetic to their entrepreneurial ethic.

The Bush administration supported lifting the restriction on online
education as a way to reach nontraditional students. Nonprofit
universities and colleges opposed such a broad change, with some
academics saying there was no proof that online education was
effective. But for-profit colleges sought the rollback avidly.

''The power of the for-profits has grown tremendously,'' said
Representative Michael N. Castle, Republican of Delaware, a member of
the House Education and Workforce Committee who has expressed concerns
about continuing reports of fraud. ''They have a full-blown lobbying
effort and give lots of money to campaigns. In 10 years, the power of
this interest group has spiked as much as any you'll find.''

Sally L. Stroup, the assistant secretary of education who is the top
regulator overseeing higher education, is a former lobbyist for the
University of Phoenix, the nation's largest for-profit college, with
some 300,000 students.

Two of the industry's closest allies in Congress are Representative
John A. Boehner of Ohio, who just became House majority leader, and
Representative Howard P. McKeon, Republican of California, who is
replacing Mr. Boehner as chairman of the House education committee.

And the industry has hired well-connected lobbyists like A. Bradford
Card, the brother of the White House chief of staff, Andrew H. Card Jr.


The elimination of the restriction on online education, included in a
$39.5 billion budget-cutting package, is a case study in the new
climate. Known as the 50 percent rule, the restriction was one of
several enacted by Congress in 1992 after investigations showed that
some for-profit trade schools were little more than diploma mills
intended to harvest federal student loans.

Since then, the industry has grown enormously, with enrollment at such
colleges outpacing that at traditional ones. In 2003, the last year for
which statistics were available, 703,000 of the 16.9 million students
at all degree-granting institutions were attending for-profit colleges.

These colleges offer a wide range of courses, including marketing,
accounting, cooking and carpentry. Many attract students who have had
limited success at other schools. Some offer certificates, while others
issue associates, bachelor's, master's and doctoral degrees. About
2,500 for-profit schools are accredited to offer federal student aid.

Yet commercial higher education continues to have a checkered record,
particularly for aggressive recruitment and marketing. The Department
of Education's inspector general, John P. Higgins Jr., testified in May
that 74 percent of his fraud cases involved for-profit schools.

But commercial colleges found a sympathetic ear in the administration
and Congress in their quest to remove the 50 percent rule.
Representatives Boehner and McKeon sponsored the measure.

Laura Palmer Noone, president of the University of Phoenix, said the
growth of Internet-based learning had shown it to be effective,
especially for rural, military and working students.

Kevin Smith, a spokesman, said Mr. Boehner ''views this as removing an
unnecessary barrier to distance education.'' He added, ''While
continuing to ensure that there are strong antifraud protections in
place, he believes we need to break down more barriers to education for
low-income, first-generation and nontraditional students.''

Some academics say the nation is rushing to expand online higher
education because it is profitable, without serious studies of
effectiveness.

''This is a growth industry and you get rich not by being skeptical,
but by being enthusiastic,'' said Henry M. Levin, director of Columbia
University's National Center for the Study of Privatization in
Education.

''People at the academic conferences will say they did a survey about
Internet-based education, but there are a lot of phantom statistics,''
he said, ''and its all very promotional. We have not found a single
rigorous study comparing online with conventional forms of
instruction.''

How fast the college landscape will change is uncertain. Sean
Gallagher, a senior analyst at Eduventures, a Boston research firm,
predicted that the proportion of students taking all their classes
online could rise over the next 10 years or so to 25 percent from the
current 7 percent.

To test online learning, Congress established a demonstration program
in 1998 that allowed a few dozen colleges with online programs to
request waivers from the 50 percent rule. The Department of Education
reported last year that enrollment at eight of the colleges shot up 700
percent over six years.

Ms. Stroup has overseen the program since becoming an assistant
secretary of education in 2002.

Several opponents of lifting the 50 percent rule said Ms. Stroup had
been fair in policy evaluations. But in a 2004 audit, the Education
Department's inspector general said a 2003 report she provided to
Congress on the program ''contained unsupported, incomplete and
inaccurate statements.''

Most were assertions that online education was working as well or
better than traditional methods, with little risk. The inspector
general, citing the collapse of one participant in the program, the
Masters Institute in California, chided the Education Department for
reporting that it had found ''no evidence'' that the rule change could
pose hazards.

Ms. Stroup formally disagreed with the inspector general. In an
interview, she said a subordinate had written the report, although she
had signed off on it. In a later report to Congress, the department
acknowledged ''several possible risk factors.''

Ms. Stroup, in the interview, said she had withdrawn from all decisions
directly affecting the University of Phoenix. ''I don't see myself as
representing any one sector,'' she said. ''We try to help all
students.''

Traditional colleges, in fighting repeal of the rule, cited the Masters
Institute, whose online enrollment surged after it gained access to
federal money. The institute collapsed in 2001 during a fraud
investigation.

''What we opposed was that federal aid should go to these virtual
universities that disguise themselves as colleges, where it's just
something on the Internet with no resources behind it,'' said Sarah
Flanagan, a vice president at the National Association of Independent
Colleges and Universities, which represents nearly 1,000 nonprofit
institutions.

The Department of Education estimated the change would cost the
government $697 million over 10 years.

Representatives Boehner and McKeon have also pushed through committee
other changes sought by the for-profit industry, and lobbyists and
lawmakers gave them good chances of passage this year.

Unlike all but a few traditional universities, the for-profits have
formed political action committees to channel campaign donations,
especially to members of the House and Senate education committees.

While the $1.8 million that executives of the largest chains of
proprietary colleges and their political action committees have donated
to federal candidates since 2000 is not huge by Washington standards,
the money is strategically donated.

About a fifth -- $313,000 -- went to Mr. Boehner and McKeon and
political action committees they control, according to figures provided
by the Center for Responsive Politics, which monitors campaign
finances.

Mr. Smith said there was ''zero'' connection between the donations and
Mr. Boehner's policy decisions. James Geoffrey, a spokesman for Mr.
McKeon, said the donations had no bearing on his choices, either.

Some lobbyists for the traditional universities said that because few
of them form political action committees, they are at a disadvantage.

''If I seek an appointment with a member of Congress, I get a staff
member, if anybody,'' said David Hawkins, a lobbyist for the National
Association of College Admissions Counsellors, which as a nonprofit
group is barred from making campaign donations.

A. Bradford Card, who represents some commercial colleges in New York,
said lawmakers were responding to commercial colleges' educational
contributions. He said he had spoken several times with Mr. Boehner
about his clients' agenda. Mr. Card said he never lobbied his brother,
Mr. Bush's chief of staff.

''These are not fly-by-night schools,'' Mr. Card said ''Members of
Congress are really taking a look at this industry because they
recognize that proprietary colleges are helping people get into the
work force, pay taxes and become the best they can be.''

URL: http://www.nytimes.com

GRAPHIC: Chart: ''For-Profit Higher Education Companies''Here are the
largest publicly traded companies that manage for-profit colleges and
universities.Apollo Group2005 REVENUE: $2.3 billionENROLLED STUDENTS:
315,350 (Nov. 2005)The company provides college programs tailored to
working adults and is a leader in online education. With campuses in 40
states, its flagship is the University of Phoenix, the nation's largest
private university.Career Education Corp.2005 REVENUE: $2.0
billionENROLLED STUDENTS: 104,200 (Jan. 2006)The company operates 89
campuses in the United States, Canada and other countries. It offers
degree and nondegree programs in information technology, culinary arts
and other subjects. The Online Education Group includes the Colorado
Technical University Online.Education Management Corp.2005 REVENUE:
$1.0 billionENROLLED STUDENTS: 72,470 (Fall 2005)The company has 71
campus locations, including the Art Institutes, which operate a system
of 31 campuses and offer degree and nondegree programs in design, media
arts, fashion, culinary arts and other fields.(Sources by Company
reports Bloomberg Financial Markets)(pg. A17)