Layoffs at IADT
For-profit colleges eliminate positions in response to increased government regulation
Published: April 7, 2011
Jonathan Derr, a 26-year-old who recently graduated with a game design degree from IADT, says he was "pissed" when he found out his favorite teacher was fired. "I was going to kick in the president's door and give him an earful," Derr says. "But [the teacher] took me aside and told me it wasn't a big deal; he'd find another job."
On the other hand, Nick Haruk, a 24-year-old game design student, wasn't surprised, or greatly moved, by the firings. "It's a business," he says.
Haruk questions how the government has a right to regulate a private school like IADT. Large for-profit universities, in fact, get most of their income from the government, through student tuition paid by federal loans and grants. The "90/10 rule" mandates that for-profit colleges can earn no more than 90 percent of their revenue from federal sources. Many for-profit universities come quite close: in fiscal year 2009, 79.2 percent of IADT's $182.4 million in revenue, 86.3 percent of Everest University's $309.3 million in revenue and 86 percent of the University of Phoenix's $3.8 billion in total revenue ultimately came from the federal government.
With that in mind, it makes sense that Uncle Sam would have a keen interest in seeing that students at for-profit universities graduate, secure employment and pay off their loans. According to the Department of Education, "students at for-profit institutions represent 11 percent of all higher education students, 26 percent of all student loans and 43 percent of all loan defaulters."
If too many of a university's students default on their loans within the first two years of entering repayment - a statistic called the "cohort default rate" - the school could be denied federal funds in the form of student financial aid, which, for schools earning nearly 90 percent of their revenues from government funding, would be a certain death sentence. While the University of Central Florida and Rollins College both had two-year cohort default rates of 3.3 percent in 2008, the statewide rates of Fortis College, ITT Tech and the Concorde Career Institute (all schools owned by corporations with headquarters out of state) were 6.3 percent, 12.5 percent and 15 percent, respectively.
What's more, the Department of Education is shifting from a two-year to a three-year cohort default rate next year, which will invariably drive rates up, more than quadrupling them at some schools. A rate of 30 percent over three consecutive years, or above 40 percent for one year, is grounds for ineligibility for federal funds.
In response, for-profit schools are becoming pickier in their admissions processes. For instance, Everest University recently stopped admitting students who pass the "Ability to Benefit" test, an assessment reserved for those without a high school diploma who still hope to attend college. "We get a lot of students looking for that first step up the economic ladder," says Kent Jenkins, vice president of communications for Corinthian Colleges Inc., the company that owns Everest University. "[But] a lot of studies have shown that it is those students that are most likely to be unable to pay back their loans, regardless of where they attend school."
To José Cruz of the Education Trust, a Washington, D.C.-based education think tank critical of for-profit schools, Jenkins' explanation sounds a lot like blaming the victim. "For-profit institutions spend about a third of their revenue to recruit these students. They know these students very well," Cruz says. "They know what support services they would need to graduate, and yet they're not investing in student success."
The Career Education Corporation, for its part, doesn't think its lessened investment in IADT Orlando will change the educational experience there. "This decision in no way affects the quality of education we provide our students," wrote spokeswoman Angela Holland in an email to the Weekly.
Whether that's a good thing or a bad thing is anybody's guess.
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