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Pay For CEOs Of For-Profit Colleges Top Of The Class

Shelly K. Schwartz, |Special to CNBC.com
Tuesday, 21 Dec 2010 | 8:51 AM ET
Sandra Baker | Photographer's Choice | Getty Images

Forget Wall Street and Silicon Valley. If you’re looking to rake it in post-graduation, set your sights on the executive floor at one of the nation’s for-profit colleges.

According to The Chronicle of Higher Education, which tracks the industry, the president and CEO of Bridgepoint Education , Andrew Clark, earns a cool $20 million a year in total compensation, including stock awards, bonuses, option awards and non-equity incentives.

Charles Edelstein, meanwhile, co-CEO of Apollo Group , the largest publicly traded higher education company which offers online and on-campus degrees through the University of Phoenix, pulls in more than $11 million in total pay.

And Kevin M. Modany, chairman and CEO ofITT Education Services, makes $7.6 million, according to the Chronicle, which cites 2009 and 2010 Securities and Exchange Commission filings.(See chart below.)

By comparison, it reports, the median total compensation last year for chief executives at public institutions was $436,111.

Just one public-university leader, E. Gordon Gee, president of Ohio State University, earned more than $1 million in total compensation for the 2008-2009 school year, while 23 private-college presidents topped the $1-million mark in 2007-8, the most recent year for which such data were available.

Defending Big Paychecks

Despite the apparent inequity, those who work within the for-profit industry argue that such salary comparisons are unfair because the skill set required to run a for-profit school is vastly different than that required for a public university.

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David Warren, for example, president of the National Association of Independent Colleges and Universities, who could not be reached in person, says salaries at private colleges and universities simply reflect supply and demand.

“Searches for these positions at a significant number of independent institutions are highly competitive, and colleges must offer compensation packages that attract qualified leaders,” he wrote in a statement on the NAICU Web site.

Presidents of such institutions must have fund-raising expertise, political savvy, solid management experience, a strong business sense, the ability to develop and deliver an educational vision for the institution, negotiating and mediating skills and the ability to represent the college effectively to diverse stakeholders, he stated.

They must also be capable of administrating organizations with thousands of employees and budgets reaching hundreds of millions of dollars at many larger institutions.

Terry W. Hartle, senior vice president of the American Council on Education, a trade association of two- and four-year public and private universities, agrees.

“Publicly traded corporations are exactly that,” he says. “They have to meet demands imposed on them by the stock market and they have to do it every quarter. We might question whether that’s fair or desirable, but I think it’s just the reality. “

All higher education institutions have procedures by which presidential compensation is set, be it by state law, or a board of trustees. Incumbents who fail to perform, says Hartle, would not collect such paychecks for long.

Critics Cry Foul

Justified or not, however, the compensation packages of top executives at publicly traded colleges are giving critics added ammunition in their quest to deliver accountability to the largely unregulated industry.

“When we see that 90 percent of those who enter doctorate degree programs [at for profit public colleges] do not earn a degree after five or six years and that almost all of them owe the government a lot of money, and then on the other side we see the enormous benefits that the principals of the colleges are getting you form a conclusion that this is primarily an activity of the enrichment of those who are engaged in these activities at the top,” says Henry

Meanwhile, many come out of school owing nearly four times the amount they would have had to borrow to attend a public community college, add critics.

Indeed, the consumer advocacy organization, U.S. Public Interest Research Group, reports that students in for-profit colleges made up only 7 percent of those enrolled in higher education in 2001 (the most recent year for which data are available), but accounted for fully 44 percent of those who defaulted on federal student loans.

As a result,lawmakers inWashington are threatening to pull federal fundingif such schools can’t demonstrate student value—and fast.

Most for-profit public colleges rely on taxpayer dollars, in the form of federal aid from the Department of Education’s Pell Grant program for low-income students.

According to Education Trust, a student advocacy group, the Apollo Group'sUniversity of Phoenix, the nation’s largest for-profit postsecondary education provider, collected more than $1 billion in federal Pell-Grant aid last year. But in 2008, its six-year graduation rate was just 9 percent.

The six-year graduation rate in 2008 was 31 percent at DeVry University .

Racking up eye-popping profits fueled by federal student aid subsidies and high-cost private student loans, these institutions have increased their enrollments by an astonishing 236 percent over the last 10 years, the Education Trust writes in its latest report.

“Their stockholders are literally making out like bandits, while their students—many of whom are low-income and minority—generally find little academic success,” the Trust writes.

Renewed scrutiny, however, has taken the shine off of the shares of many players, with most suffering steep declines in 2010.

Ultimately, Richard Garrett, managing director of continuing and professional education and online higher education for Eduventures, a Boston-based research and consulting firm, says he believes greater regulatory oversight of the for-profit higher education industry bodes well for both students and the schools themselves—redefining what a university is, how students should be targeted and how success should be measured.

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Price of Admission: America's College Debt Crisis

Such was the case during the 1980s when the government cracked down on private vocational or trade schools, which led to the 1992 revision of the Higher Education Act.

“My sense is that for the stronger, forward looking schools, this regulatory intervention will be the missing driver necessary to force innovation and take this sector to the next level,” he says. “In the short term, regulatory intervention is disruptive to their business model, but I think ultimately that’s where these schools want to go. They don’t want to be considered second rate. They want to become genuine contributors to higher education and ultimately that’s going to be measured in student success and job success rather than enrollment success.”

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