When Sarah E. Gagliano enrolled in 2006 at the Art Institute of Philadelphia - a for-profit college - she dreamed of a career in fashion design.

Instead, she is nearly $100,000 in debt with no degree. A poor academic student, she quit about halfway to a bachelor's degree.

Gagliano has since defaulted on her private loans, which the school helped her get, and could be forever haunted by the debt, which even bankruptcy generally can't erase.

"I don't even know what to do. . . . It's very depressing," said Gagliano, 21, who earns $8 an hour at Insomnia Cookies, a delivery service to college students.

With enrollment soaring at for-profit colleges, more students are taking on crushing debt, but students at these colleges default at higher rates and graduate at lower rates than their peers at nonprofit and public schools.

Advocates say the schools help low-income, less-prepared students fulfill their dreams. Critics contend they prey on low-performing students and load them with untenable debt.

Education Management Corp., the Art Institute's parent company, which enrolls nearly 140,000 students at 97 campuses, says it encourages cautious borrowing. "We take seriously our responsibility of ensuring that families and students . . . are provided as much support and assistance as possible to ensure their understanding of the financial-aid process," said Jacquelyn P. Muller, spokeswoman for Education Management in Pittsburgh.

Carise Mitch, a spokeswoman for the Art Institute, said it educated borrowers about their loans and debt at the start and end of school, quizzed them to assess their understanding, and made them take a "default prevention" workshop. About 64 percent of Art Institute students are enrolled in bachelor programs, 27 percent in associate programs, and 9 percent in diploma programs.

Struggling students can get help at an academic center, Mitch added.

"We make every effort to support our students and supply them with the tools they need to complete their degrees," she said. "We know that to incur the costs of college without attaining the degree is a hardship for any student, wherever they choose to attend college."

Gagliano and her family accept partial blame for her predicament, but say school officials failed to warn her or counsel her about the impact of the mounting debt or suggest she might want to leave. Gagliano recalled taking the quiz and getting information upon admission, but no workshop or exit interview.

"At some point, someone should have said, 'We think you're wasting your time and money,' " said Tom Hemphill, Gagliano's grandfather.

On the road to a degree

A self-described C or B student in high school, Gagliano considered only two colleges: Towson University, a public university outside Baltimore, her hometown, and the Art Institute, her mother's alma mater. Towson rejected her.

The institute's programs include culinary arts, photography, and fashion design. Tuition and room and board for a bachelor's degree over three years - Gagliano's aim - top $118,000. The costs are $7,200 per quarter for tuition and $2,700 to live in a student apartment.

When Gagliano enrolled, she said, Art Institute officials told her and her mother, Betsey, that she could face $75,000 in debt by graduation.

"But I thought I'd also have a degree and, hopefully, a job," Gagliano said.

She qualified for little financial aid; the Gaglianos said they could not recall how much. Betsey Gagliano said she and her then-husband had earned $50,000 annually.

Gagliano received federal loans of $12,131 at 6.8 and 6.0 percent. The rest of her education she would have to finance herself, with private loans.

She received her first private loan of $23,402 at 10.75 percent interest from Sallie Mae in 2006 under its "opportunity" loan program for students with weak or insufficient credit history. Gagliano had no history and no qualified cosigner.

In July 2007, Gagliano took out another private loan for $18,375, then private loans of $2,500 in December 2007 and $21,465 in March 2008. All were at 8.25 percent interest.

Gagliano's grandparents, of Chestnut Hill, recalled hearing the amount of her debt, nearly $100,000, last spring when they met with financial-aid officers at the institute.

"I thought we were going to fall off our chairs," Susan Hemphill said.

For-profit schools generally cost considerably more than community colleges and public universities. And a study by the College Board found that students at for-profit universities - unable to get enough government aid to pay for their schooling - resorted to private loans much more than those at other types of schools.

For-profit students, who make up about 9 percent of all college students, are also more likely to default on government loans. (Private loan default information is not available.)

Of the 400,000 college students who were scheduled to begin repaying their loans in 2007 and defaulted in 2009, 44 percent attended for-profit schools, said the U.S. Department of Education.

The Art Institute, for example, had a default rate of 15.2 percent in three years, according to a draft federal study. Nationally, 21.2 percent of students at for-profit schools defaulted in that time, compared with 11.8 percent for all types of schools.

The three-year study does not include an overall rate for Education Management. But the company reports its two-year loan default rate at 8 percent, compared with 11 percent for the industry, based on students who left school in 2007 and defaulted by 2009.

Students at for-profit schools also borrow larger amounts, said Lauren Asher, president of the Institute for College Access and Success.

Graduates of for-profit four-year schools had an average debt of $33,000, compared with $20,200 for public-school graduates and $27,650 for graduates of private nonprofit colleges.

One of the greatest predictors of defaulting, experts say, is failure to graduate, a situation that fits Gagliano. In this area, too, for-profits perform below average.

The Art Institute graduates 40 percent of its students within 150 percent of the normal time, higher than the industry's 38.1 percent graduation rate, Department of Education data say. That compares with 64.4 percent at private nonprofit schools and 53.3 percent at public schools.

And the company reports that its graduates do well. About 85 percent get jobs in their fields or related fields within six months of graduation, with an average salary of $32,000 for those with bachelor's degrees.

A tough haul

Gagliano struggled academically at the 3,500-student Art Institute, in Center City, almost from the start.

She became disillusioned with her fashion-design major, started skipping class, and was put on academic probation. In her second year, she switched to photography but still struggled.

"I wasn't the best student, honestly," she said.

The Hemphills received a panicked call from Gagliano last spring; she could get a loan to cover tuition but would need a cosigner for a cost-of-living loan.

The Hemphills suggested Gagliano take time off and work. School officials warned that tuition could rise in the interim, the Hemphills said.

She dropped out last spring, with eight course withdrawals, four failures, and a 1.9 grade point average over two-plus years, transcripts show. Her GPA was below 2.0 in six of the 10 quarters she attended. The Art Institute terminates students for poor performance, said Mitch, the spokeswoman. Gagliano was not one of them.

Growing and profitable

While some of Education Management's students face daunting debt, the company has enjoyed rising profit.

In 2009, its net income was $104.4 million, up from $66 million the year before - a 58 percent jump, said Jeffrey M. Silber, an analyst for BMO Capital Markets.

Its enrollment grew about 22 percent in the last six months of 2009, much of that fueled by online course-takers, the company reported in an earnings call.

The growth mirrors a boom in for-profit higher education. In fall 2008, enrollment grew 21.1 percent to nearly 1.8 million, the Education Department said. That compared with a jump of 4.8 percent in overall postsecondary enrollment to 19.5 million.

Founded in 1962, Education Management is among the largest providers of postsecondary education, with a student body larger than state school systems.

Its Pennsylvania schools also include art institutes in Pittsburgh and York.

The company went private in 2006 when it was bought by equity funds including Goldman Sachs Capital Partners. Although Goldman Sachs and the others remain among the largest shareholders, the company returned to public status in October.

As private loan sources dried up for students in the poor economy, Education Management in August 2008 stepped in to become an intermediary lender, as have some other for-profit schools. The company says it expects to lend $70 million to students under the program in fiscal 2010.

The company reported that its bad debt had increased to $50.6 million, or about 4 percent of net revenue, for the six months ending in December, up from $35.1 million the year before. It attributed the increase to the new loan program, higher default rates, and the economy.

For-profits in crosshairs

Advocates of the for-profit industry assert that their more than 1,400 schools - 25 percent of which offer bachelor's degrees and the rest associate degrees or less - educate a high percentage of first-generation college, minority, and low-income students.

"A higher percentage of our students are older and independent, too," said Harris Miller, chief executive officer and president of the Career College Association in Washington. "They don't have Mommy and Daddy to fall back on to pay for an education or to take out a plus loan."

But because of the large debts students at for-profits incur, the schools are coming under increased scrutiny from education and law enforcement officials and consumer groups that hear complaints from students drowning in debt. Often, those students have no degree for all their debt.

The for-profit University of Phoenix in December agreed to pay $67.5 million to the federal government and $11 million in legal fees to settle a lawsuit filed by two former admissions officials who accused the company of illegally paying recruiters solely based on the number of students enrolled. The parent company, Apollo Group Inc., said it admitted no wrongdoing.

Stemming from the same case, the firm also paid a $9.8 million fine to satisfy a 2004 U.S. Department of Education monitoring report that cited aggressive recruitment tactics by the company, including paying recruiters based on the number of students they enrolled.

The University of Phoenix's chief executive officer at the time was Todd S. Nelson, who currently heads Education Management.

Education Management has faced inquiries by attorneys general in three states over lending practices and its relationship to third-party lenders, the company disclosed in documents filed with the Securities and Exchange Commission. The Massachusetts case is active, and Oregon and Illinois ended inquiries with no action against the company, state officials said.

The federal Education Department also is looking at for-profit schools, which took in nearly one in four federal student Pell grant dollars in 2008-09, a total of $4.3 billion, almost double the amount of a decade earlier.

The department is considering regulations that would prevent vocational and career programs from loading students with more debt than they can repay, based on projected earnings. The regulations, too, would fully prohibit incentive compensation for recruiters.

Miller said the proposals unfairly targeted for-profits.

"We do understand that there has to be some kind of rational relationship between what a student borrows and his or her lifetime earnings," he said. "We don't believe that that determination should be made based on the first two or three years of what you earn out of school."

At the National Consumer Law Center in Boston, complaints about for-profit companies include aggressive recruiting, admission of unqualified students, and lack of explanations of loan debt, said Deanne Loonin, director of the center's Student Loan Borrower Assistance Project.

Her office receives far fewer such complaints about nonprofit private and public colleges, she said.

Gagliano's case shows the need for change, said Irv Ackelsberg, a consumer lawyer who spent 30 years at Community Legal Services, where he fielded complaints about the proprietary higher education industry.

"The whole idea that someone would graduate from the Art Institute with a debt burden comparable to Penn Law School is pretty astounding," he said.

On Saturday, with bill collectors calling daily, Gagliano's bank loans slipped into default. She makes less in a month than the more than $900 she owes in loan payments.

"It's pretty scary," she said.