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Can For-Profit Schools Succeed With Just Private Dollars?

NEW YORK ( TheStreet) -- Despite what I wrote in September, asking whether for-profit colleges could police themselves, I have always had hope for the sector.

In theory, "career colleges" should be more in touch with employer needs than public ones. They should be more aggressive in using technology. They should be cheaper to run, and more ready to change curricula as the job market changes.

But it turns out they're no less dependent on government aid than any other colleges. And their job placement rates are highly suspect, according to New America Foundation's HigherEdWatch.

Just like public universities and private non-profit schools, for-profit schools rely on student aid and government-backed loans for their funding. A Senate report last year showed most get over 80% of their money from the federal government.

The industry leader, the Apollo Group (APOL - Get Report), which runs the University of Phoenix, got 88.7% from the government.

The National Consumer Law Center, in a 2011 report, charged that many schools are writing private loans they know won't be paid back in order to get the 90% of tuition that can be covered by government loans. That may be why default rates on government loans to for-profit schools are higher than for other types of schools.

That puts the colleges under pressure to maintain political connections. Some are maintained by ideology. After the Department of Education put in rules demanding controls on student debt, Rep. Daniel Issa (R., Calif.), held hearings attacking the government, wrote CareerCollegeCentral.

Eventually, the industry had the rules overturned by the D.C. Circuit Court, according to its attorneys, Ritzert-Leyton.

Halting rules meant to quell excesses was cheered by conservative web sites like The Daily Caller, despite numerous reports finding low graduation and placement rates, and high rates of student loan default.

That's one way to maintain political ties to government money. There are others.

The "Person F" who brought down Rep. Jesse Jackson Jr., according to political news site Talking Points Memo, appears to be Greg Calhoun. He was working with privately held Education Corp. of America, which owns Virginia College, a Birmingham, Ala.-based for-profit college with no ties to the state of Virginia, and holder of a 21.1% default rate on its student loans, according to Find the Date.
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