The For-Profit College Scam -- Pocketing Tax Dollars and Subsidizing Economic Inequality

Most students who attend college today are getting an education. But more and more are not getting the education they expected. They’re getting fleeced -- by for-profit colleges that are making millions for their top execs and saddling ill-prepared students with many thousands of dollars in crushing debt.

These for-profit schools have become the hottest phenomenon in American higher education. Yet two decades ago they barely existed. In 1990, less than 1 percent of U.S. college students attended a for-profit school. Today for-profits enroll nearly 10 percent of the nation’s college students.

What’s driving this enrollment explosion? Your tax dollars. For-profit colleges enroll a modest tenth of the nation’s college students. But they collect -- from the federal government -- nearly a quarter of the nation’s college student aid dollars, over $21 billion in all.

Those billions have translated into multi-million paychecks for the power suits who run the for-profit educational industry. Over the last three years, the top five execs at three industry giants -- the ITT Technical Institute, Corinthian Colleges, and the Apollo Group -- took home a combined $130 million.

These execs, charges financial analyst Steven Eisman, are operating “marketing machines masquerading as universities.” Most all of these “marketing machines” follow the same basic three-step formula.

First, enroll anybody with a pulse. Some for-profits, notes Eisman, even have recruiters “trolling casinos and homeless shelters.”

Second, charge humungous tuitions. Kaplan University Online,  U.S. Senator Tom Harkin from Iowa revealed earlier this month, charges $33,390 for an associate degree in business administration. At Northern Virginia Community College, a public institution, that same degree can be earned for $8,500.

Third, push your enrollees to sign up for federal loans you know they’ll never be able to pay back. No big deal. The for-profits get the loan dollars up-front. Only students -- and taxpayers -- take any hit when students default.

And students at for-profit colleges certainly do default. Over recent years, notes Iowa’s Harkin, they’ve collected 23 percent of federal student loans and grants and suffered “a staggering 44 percent of defaults.”

For-profit higher ed companies, at the same time, have become some of the world’s most lucrative businesses, with profit margins that run 40 percent, over four times the going profit rate at defense contractors and other firms that get the bulk of their revenue from taxpayer dollars.

If current trends continue, says financial analyst Steven Eisman from FrontPoint Partners, we’ll be “on the cusp of a new social disaster.” For-profit students will owe, he estimates, “$330 billion on defaulted loans over the next 10 years.”

The U.S. Department of Education has proposed new regulations that aim to end these current trends. The new rules would, among other changes, deny federal student aid to for-profits that “graduate” large numbers of students who can’t earn enough money to repay their debts. The new rules would also penalize for-profit school officials who deceive students into enrolling.

But the for-profit industry has mobilized a massive push to water down the new rules. The for-profits, the New York Times reported last week, have been twisting student arms to send in protest letters.

This phony “grassroots” pushback against the Education Department’s proposed reforms may or may not pay off for the for-profits. But even if the bulk of the new reforms go into effect, the huge rewards that for-profit college execs have been collecting give them a continuing -- and maybe irresistible -- incentive to seek new loopholes and game the system.