California Drops Most For-Profit Colleges From Scholarship Pool

Most for-profit colleges in California will no longer be able to accept state scholarships as a result of changes in the budget signed last week by Governor Jerry Brown.

Staring at a .7 billion budget gap, California lawmakers cut funding for the state’s Cal Grant program by nearly million and imposed stricter requirements on a year-old law barring schools with high default rates and low graduation rates from receiving the money.

Those new restrictions affect mostly for-profit colleges, which have come under attack nationally for their high student default rates and poor graduation numbers. Under the new rules, any college with a graduation rate below 30 percent and a default rate above 15.5 percent will no longer be eligible to accept the grants. Colleges where fewer than 40 percent of students take out loans, such as most community colleges, are exempt from the rule.

Students at for-profit colleges that retain eligibility will also take a funding hit in two years. The budget cuts the size of grants for private colleges by 5 percent next year, but will further reduce awards to students at for-profit colleges by more than half the following year.

Critics of the for-profit sector applauded the move. Debbie Cochrane, program director at the National Institute on College Access and Success, which advocates making college more affordable, says that in a tough budget environment, the restrictions are a responsible approach.

“The state of California spends more than 1.5 billion on Cal Grants,” she says. “It would be silly of the state to not ask if those dollars were being spent in a way that promoted student success.”

For-profit colleges admit the need to better counsel students on their level of borrowing, but Robert Johnson, executive director of the California Association of Private Postsecondary Schools, says that the mostly non-traditional students at for-profit colleges are more at risk of defaulting than students in other sectors.

“These are not people that have mommy and daddy to write a check for them,” he says.

He expects that the restrictions will reduce enrollment at for-profit colleges and make them less likely to admit students with shaky financial backgrounds.

The restriction builds on a law passed last year by California introducing graduation and default rates into a college’s eligibility for Cal Grants. Since then, Washington State has passed a similar law, while other states have enacted legislation to increase oversight of for-profit colleges, according to the National Conference of State Legislatures.

A group of 20 state attorneys general, led by Kentucky’s Jack Conway, is investigating the business practices of for-profit colleges and announced a .5 million settlement with GIBill.com, a company that marketed for-profit colleges to veterans.

The change in California also comes days after the U.S. Department of Education released information showing that some for-profit colleges are at risk of not qualifying for federal financial aid because their graduates have high default rates or high debt to income ratios.