Layoffs at IADT

For-profit colleges eliminate positions in response to increased government regulation

Orlando's International Academy of Design & Technology (IADT) describes itself as a "private media arts college." Inside an office building shrouded by trees on South Rio Grande Avenue, students work toward associate's and bachelor's degrees in graphic design, fashion merchandising, video game production and other creative fields, and pay more than twice as much as they would at a public university to do so.

It would also be true to say, however, that IADT Orlando is a for-profit institution, concerned with earning revenue and cutting losses, much like the business that owns it, the Career Education Corporation (CEC). On Jan. 19 CEC announced it would eliminate 600 positions "across its United States operations," and on March 11, 15 staffers at the Orlando IADT campus found out they were part of that cohort. "[W]e must take this action to consolidate and streamline operations, just as other education companies have done already to remain competitive," wrote Mark Page, president of Orlando IADT, in an email to employees that day.

Enrollment has slowed at for-profit colleges across the country in the past year, and CEC, as well as other large companies, are not pointing to a lingering economic recession as the source of their woes, but rather government interference. Last October, the U.S. Department of Education announced a series of sweeping regulations of the for-profit higher education industry, mandating more extensive disclosure of information to students, harsher penalties for misrepresentation of school programs, a new compensation metric for recruiters, along with nearly a dozen more regulations, most of which will go into effect on July 1.

Because of increased federal scrutiny (which included an undercover investigation into 15 unnamed for-profit schools last year) and the tighter self-imposed admission standards, Apollo Group - which owns the University of Phoenix, the nation's largest for-profit university - said in October 2010 that it expected 40 percent fewer students to enroll the following quarter. That announcement caused double-digit percentage drops in the stocks of several large for-profit education companies, and it wasn't long before layoffs were announced: in November, the University of Phoenix said it would shed 700 employees, and on Feb. 1 Corinthian Colleges Inc. - which owns 10 Everest University locations in Florida, two in Orlando - said it would cut 600 positions, much as CEC had done less than two 
weeks prior.

The impact of the staffing cut at IADT Orlando is difficult to gauge - like many other for-profit schools, IADT Orlando is located in a building that only students and staff with security clearance can enter. For-profit schools are not required to disclose their internal workings to the same degree that public and private nonprofit schools are; instructors at such schools are rarely tenured, and therefore, are less likely to speak with reporters on the record. Several IADT staffers, however, confirmed that among the laid off were the chairs of the digital media and interior design departments, four full-time instructors and the head of the school library. (A March 21 email from IADT staff to students notified them of shortened library hours due to "construction.")

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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