Those numbers are not an accident. For-profit schools use a business model that feasts on federal student aid. In 2010, Everest’s corporate parent collected 81.9 percent of its revenues from Title IV program funding provided by the U.S. Department of Education. More than $500 million of that revenue came from Pell Grants.
“Before the Department of Education’s legislation,” says Randy Mitchelson, author of DailyDollar Newsletter and an expert in lead generation, “it was just like the Wild West. The schools had huge budgets to buy leads online to reach out to prospective students. The play was ‘buy the lead, contact the student, get them hooked up with a student loan and who cares if they pay it.’” Department of Education rules cap the share of revenues that can be drawn from federal loans and grants. The schools comply, but barely: Harkin’s research still found that most of the national for-profit schools have the same habits as Everest. Most derive more than 80 percent of their revenues from federal aid.
Almost anyone can get a student loan because there is widespread support in existing education policy aimed to reduce financial barriers to the attainment of an education. Provided that a student meets certain citizenship requirements, has never defaulted on a loan and has no record of a drug-related felony, then he or she can qualify for at least some kind of federal aid.
The result is that while for-profit schools educate only 11 percent of American students, they receive 26 percent of all federal loans.
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