How the Explosion of the For-Profit Career Colleges Are Swindling Students and Draining the Country's Coffers

By Danny Weil, CounterPunch. Posted October 27, 2009.

Co-founder of Alta Colleges Inc., Kirk Riedinger chuckled to a reporter in 2002 as he looked back at the company he helped found. In an interview in the Denver Business Journal, June of that year, Riedinger was quoted, sniggering: "We didn't have two nickels to our name."

Along with fellow Harvard Business School graduate Jamie Turner, Riedinger acquired the Denver Institute of Technology in 1987 with the help of 'hard money' from an organization called the "Funded Search." The two entrepreneurs were looking to cash in on the burgeoning 'for-profit career colleges' that have recently sprung up like Pay Day Loans, only they're subsidized by taxpayer funds in the form of federal grants.

The Denver Institute of Technology was eventually morphed into Alta Colleges, Inc., headquartered in Denver with over 12,000 students at 19 campuses in California, Colorado, Georgia, Illinois, Texas and Virginia. It boasts 20,000 graduates. That's a lot of federal money flowing to the private coffers of Alta Colleges, Inc., over $300 million by some estimates. What better way to do business and garner easy cash for investors than to offer a 'career education' to typically low income, working class students -- generally students of color -- who then qualify for taxpayer-funded financial aid which is immediately transferred to the college.

At this point it seems that Alta Colleges, Inc. and their budding entrepreneurs will need more than a few nickels to rub together. On April 20, 2009 after an intense investigation of their practices, Alta Colleges Inc. and its wholly-owned collegiate schools in Texas agreed to pay the United States Government $7 million to resolve allegations under the US False Claims Act. The False Claims Act permits private citizens to bring lawsuits on behalf of the United States and to share in any recovery. Under the just reached settlement, the whistleblowers who initiated the federal lawsuit against Alta Colleges, Inc. will receive $1.19 million for their efforts.

The explosion of the for-profit Career College Industry

The for-profit career college industry was not always a multi-billion dollar business. The whole notion of a career college dates back to the mid-19th century when urban stenography schools saw a rise in enrollment as working people looked for entry into the new industrialized economy. Once advertised as vocational, trucking, beautician and mixology schools, today, thanks to dramatic changes in the rules and regulations under the Bush administration, for-profit career colleges have not only gained favor as for-profit competitors with traditional public schools, but the for-profit industry also received substantial governmental assistance under the Bush regime which simply dismantled consumer-protection rules.

In 2002, for example, around the time Alta Colleges, Inc. saw tremendous growth and soaring profits, Sally Stroup, the top lobbyist for the University of Phoenix, was appointed the Department of Education's assistant secretary for post-secondary education. During her tenure, which ended in 2006, the Department of Education softened rules that prevented the career colleges from obtaining more than 90 per cent of their income from federal aid.

Under Stroup, the feds also reduced the level of scrutiny for the accreditation agencies (ibid). Ironically, Dr. Laura Palmer Noone, former president of the University of Phoenix is now on the Alta College's Westwood College board. She resigned from the University of Phoenix in 2006, coincidently around the same time Stroup's tenure ended.

Now instead of becoming a dental assistant or truck driver, you can take out federal grants and loans to obtain a $33,000 online bachelor's degree in "Homeland Security" from the American Public University System, a for-profit college that consists largely of a Web site (ibid). And at Alta Colleges, Inc., one can even get a degree in criminal justice.

Even though a settlement was reached with the United States Government, Alta Colleges, Inc. is hardly out of hot water. The law firm of James, Hoyer, Newcomer, Smiljanich, and Yanchunis out of Florida is now representing four former students of Westside College, one of Alta's campuses in Denver, in a demand for a class-action arbitration suit against Alta Colleges, Inc., as well as their multi-faceted subsidiaries, of which there are many. You can go to the brief filed by the law firm representing the students and see the attached exhibit of the corporate organizational chart that is Alta Colleges, Inc.

The diagram included with the brief looks like an organizational chart straight out of the criminal division of the Department of Justice, or an episode of the HBO special, the Wire. On September 21, 2009 the law firm reported on their website that an arbitrator had been finally appointed to hear the suit.

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Danny Weil is soon to publish "Charter Schools," dissecting neo-liberalism's plan for reforming education in America. He can be reached at WeilUnion@aol.com.

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