They rake in millions of dollars in federal tuition aid and still charge students more than $20,000 a year, on top of scholarships and grants.
Despite their high prices and promises of good jobs, more than a dozen of the Bay Area's most expensive trade schools graduate fewer than half of their students, report alarming rates of students defaulting on their loans -- or both.
While Californians have been hearing for years about runaway tuition at the state's public universities, the state -- and now the federal government -- is demanding better results from a different sector of the higher education world: for-profit colleges.
Squeezing the for-profit sector would be "all to the good," said UC Berkeley education Professor Emeritus Norton Grubb. "They enroll low-income students, they charge them high tuition, they get them all on student aid and then the students drop out, leaving them with no increased earnings potential and a lot of student debt."
Take the $25,700-per-year Everest College in Hayward, where one in three former students did not earn enough to repay their student loans. Or the 1,900-student University of Phoenix in San Jose, which brought in $17 million in federal student aid in 2010-11; it reported a graduation rate of just 19 percent and a student loan default rate of 26 percent.
New federal regulations proposed for vocational programs and President Barack Obama's initiative to tie student aid dollars -- both grants and loans -- to schools' affordability and performance could also affect institutions like the $24,000-per-year Ex'pression College for Digital Arts in Emeryville, whose students relied on $9.7 million in federal education aid in 2010-11.
To understand where federal student aid money goes and how well the investment is paying off for students and taxpayers, this newspaper analyzed U.S. Department of Education data for more than 100 Bay Area schools. The analysis of federal financial-aid data from 2010 to 2011 found:
Last year California cut from its tuition aid program more than 130 private colleges with low graduation rates and too many student loan defaults. Some wonder if the federal government will follow the state's lead to hold colleges responsible for their performance.
Today, only 50 for-profit schools in California remain eligible for state-subsidized tuition; 115 do not.
"I think I'd be crazy not to be worried," said Daniel Levinson, CEO of Ex'pression College, which lost its state aid eligibility because of its 17.9 percent loan default rate.
For-profit colleges say they open doors for low-income students who want to become medical assistants, sound technicians, mechanics and cooks -- education unavailable to them elsewhere. And federal data shows a handful of Bay Area trade schools do appear to be serving their students well; Alameda Beauty College and MTI Business College Inc. in Stockton, for example, have graduation rates above 75 percent and single-digit default rates.
But some former students say their schools overpromised the kinds of jobs they would land after earning a degree. More than four years after she graduated from Heald College in Hayward, paying $65,000 for an associate degree in business administration, Rachel Tenorio says she has yet to find a job in the field.
"I regret it, definitely," the Hayward resident said. "I tell people I know that it's not worth it. You're better off going to a community college."
Obama last month singled out some of the sector's bad actors during a town-hall meeting.
The students, he said, "Get out of these for-profit schools loaded down with enormous debt. They can't find a job. They default. The taxpayer ends up holding the bag. Their credit is ruined, and the for-profit institution is making out like a bandit."
Obama's concern that current federal aid policies prop up problem schools reflected a more sweeping higher education proposal that will require congressional approval. But on Aug. 30, the U.S. Department of Education proposed cutting off aid to vocational programs whose¿ graduates spend too much of their paychecks on student loans.
If its standards were imposed today as written, the department predicts 974 programs at colleges nationwide, about 10 percent, would fail. If they failed a second year, they would lose funding.
The federal government awarded about $50 billion in tuition grants, including aid for military veterans, in 2011-12 -- the largest source of grant aid and nearly five times what states contributed. In all, the office of Federal Student Aid issues more than $150 billion annually -- a figure that includes grants, loans and other aid -- to 15 million students.
Many college students receive more than $10,000 annually in state and federal aid.
Industry supporters say their colleges are being unfairly targeted and note that their students are less likely than other college graduates to have a financial safety net.
"Here's a bunch of students who want to go to school. They can't get into the state system, and they don't have any alternative except for the private for-profits," said Levinson. "We're not here to rip off students."
But with opportunity and cost comes risk. Within three years of getting their first loan bill, nearly 19 percent of former students from Bay Area for-profit schools defaulted -- compared with about 5 percent of public and private nonprofit university borrowers during the same period, the newspaper's data analysis revealed.
(Community college borrowers were just as likely to run into loan trouble as those from for-profit schools, but only 3 percent had to borrow, compared with 66 percent of students at for-profit colleges.)
Even students who graduate can have a hard time finding full-time work in their fields. Only about half of the grads from WyoTech Fremont, which specializes in car and motorcycle repair, found the kind of jobs they prepared for within six months of graduation, newly required state reports reveal.
WyoTech, Heald and Everest, with more than 14,000 students at nine Bay Area campuses, are run by Orange-County based Corinthian Colleges Inc., a company that has drawn lawsuits claiming that it defrauds students. Attorneys general in six states and the U.S. Securities and Exchange Commission are investigating Corinthian, according to SEC filings that do not specify reasons for the probes.
"They go after these kids who come out of high school with no future who are just sitting around," said John Fallat, a San Rafael attorney. He won a settlement in a 2007 suit arguing that Corinthian falsely promised easy employment to a woman who studied at one of its Santa Clara County campuses to become a medical assistant.
In a pending case, nine former WyoTech students who took heating and air-conditioning classes in Fremont claimed in 2008 that they had taken out student loans for as much as $40,000 each, but their training did not make them employable. Instructors sometimes appeared to be drunk, fell asleep in class and could not answer basic questions, and equipment was outdated, according to their suit.
In 2007, the company paid $4.3 million to settle a lawsuit brought by then Attorney General Jerry Brown claiming it committed fraud, gave falsified records to the state, and ran ads misrepresenting the jobs students would find.
A Corinthian Colleges spokesman said the allegations against WyoTech were unfounded and that the company was working to lower its default rates.
Students now must take a financial literacy class before they graduate to make sure they are prepared to meet their loan obligations, and the company now has technology to help it reach students behind on their payments, said spokesman Kent Jenkins.
But smart budgeting will only take you so far when you're making $24,000 before taxes and owe $5,500 a year in loan payments, the average figures reported for recording arts grads from Ex'pression.
Taking a smoke break at the Emeryville campus, sound arts major Ryan Cooper, of San Jose, said although a pile of debt awaits him after he graduates next year, he's getting excellent training at the college -- and is banking on getting a good music industry job.
After hearing the earnings statistics, Cooper exhaled.
"That's a lot to think about," he said.
Follow Katy Murphy at Twitter.com/katymurphy.
See how California schools compare in costs, graduations, student debt at www.mercurynews.com/education