For-Profit Colleges Get Rich by Sinking Students Into Debt - and Their Scam Is Financed by Our Tax Dollars
Butch Hancock, one of Austin's finest singer-songwriters, grew up in the Texas Panhandle, out among dryland farmers and strict fundamentalist Christians. Butch once told me that he felt he'd been permanently scarred in his vulnerable teen years by the local culture's puritanical preachings on sexual propriety: "They told us that sex is filthy, obscene, wicked, and beastly-- and that we should save it for someone we love."
Today, America's higher education complex approaches students with the same sort of convoluted logic that guided Butch's sex education: "A college degree is the key to prosperity for both you and your country, so it's essential," lectures the hierarchy to the neophytes. "But we'll make it hard to get, and often not worth the getting." Touted as a necessity, but priced like a luxury, many degree programs are mediocre or worse--predatory loan scams that hustle aspiring students into deep debt and poverty.
On both a human level and in terms of our national interest, that is seriously twisted. Nonetheless, it's our nation's de facto educational policy, promulgated and enforced by a cabal of ideologues and profiteers, including Washington politicos, most state governments, college CEOs, Wall Street financiers, and debt collection corporations. What we have is a shameful ethical collapse. These self-serving interests have intentionally devalued education from an essential public investment in the common good to just another commodity. Caveat emptor and adios, chump.
A little ancient history. Back in the olden days of 1961, I enrolled in the University of North Texas. At this public school, I was blessed with good teachers, a student body of working-class kids (most, like me, were the first in their families to go to college), and an educational culture focused on enabling us to become socially useful citizens. All of this cost me under $800 a year (about $6,250 in today's dollars)--including living expenses! With close-to-free tuition and a part-time job, I could afford to get a good basic education, gain experience in everything from work to civic activism, make useful connections, graduate in four years, and obtain a debt-free start in life. We just assumed that's what college was supposed to be. It still ought to be, but for most students today, it's not even close.
The nation's fastest growing provider of higher education is, unfortunately, the worst: private, for-profit schools. Unlike community colleges, non-profit private, and four-year public institutions, the for-profits are in the learning game--as their name states-- for profit. While a few deliver an honest educational product and still make money, honesty is not the business model embraced by most of these sprawling, predatory chains, largely owned by Wall Street.
More than 40 years ago, John Sperling--a college professor-turned-entrepreneur--noticed that many local, independent trade schools provided a useful public service: They trained and certified auto mechanics, bookkeepers, therapists, and such. "Eureka!" shouted the professor/entrepreneur, spotting an opportunity for big bucks: He would consolidate the scattered, local, privately owned trade schools into a nationwide corporate-run chain of colleges selling a variety of degree programs--a McDonaldization of higher education.
Today, mass-market college conglomerates suck in millions of U.S. students, generate huge profits, and draw Wall Street speculators and hedge funds to finance their expansion. The company Sperling founded, Apollo Education Group, owns the University of Phoenix and other chains, and has subsidiaries in Chile, India, South Africa, Mexico, and Australia. In 2014, the year Sperling died, Apollo took more than $200 million in profit.
This corporatization has been a disaster for education. After all, corporations are managed and governed not to benefit consumers (in this case, students and society), but to please investors by goosing up stock prices and maximizing profits.
To achieve that Wall Street imperative, this educational sector routinely applies the full toolkit of corporate thievery: fraudulent advertising, high-pressure sales tactics, bait-and-switch scams, loan sharking, PR shams, legal dodges, political protection, and outright lying and cheating. Instead of spreading enlightenment and broadening life's possibilities, the for-profit industry has bilked and bankrupted hundreds of thousands of students. Its rap sheet is endless: 37 state attorneys general have formed a joint working group to investigate illegalities; 24 states are pursuing legal violations by specific colleges within their borders; the usually phlegmatic U.S. Department of Education has begun tentative actions against five notoriously abusive student debt collectors; and students, parents, staff, and others have launched a slew of private lawsuits.
The industry's record of criminality is made more disgraceful by: 1) preying on struggling, low-income workers (especially single moms, people of color, and veterans) desperately hoping a degree will provide a toehold in the middle-class; and 2) financing the scam with your and my tax dollars.
Yes, what we have here is a "free-enterprise" industry that's wholly sustained by federal dollars. The for-profit house-of-cards could not exist without being allowed to siphon into its private coffers the billions of dollars in student aid the government makes available annually to low-income students and veterans. "Get on our upward-mobility escalator," blare the come-ons, "and we'll enroll you in government loan programs that'll pay for it all--plus, you'll get a degree qualifying you for well-paying jobs, and we'll even help place you in them!" What's not to like? That it's a scam, of course. The for-profits drastically overcharge, knowingly piling on intolerable levels of debt; they deliver such poor education that students can't get jobs that pay enough to make loan payments; they divert precious education dollars from better and much more affordable degrees at community colleges... and they laugh all the way to the bank.
Meanwhile, the $1.3 trillion mountain of debt rung up by students at all types of U.S. colleges is endangering our entire economy. It is more than people owe on credit cards or auto loans, and second only to home-related borrowing. Student debt will soon surpass the subprime home mortgage debt that crashed the economy in 2008.
For-profit college corporations are the biggest creator of this looming danger. David Halperin, an excellent public interest watch-dog and author of Stealing America's Future: How For-Profit Colleges Scam Taxpayers and Ruin Students' Lives, sums up the industry as "an immoral enterprise."
To say there are lots of horror stories about private, for-profit colleges gouging students is like saying there are lots of ouchies in a bramble patch. A profusion of books, articles, reports, investigations, and lawsuits, as well as social media websites such as MyITT Experience.com, documents the toll.
But, you might ask, if they're so awful, how do they stay in business? The old-fashioned way: By lavishly spreading money around to the right people. And since most of their revenue comes from taxpayers, it's actually your money they're spreading.
LOBBYISTS. Growing student anger about the industry's nasties and demands for basic reforms have reached Washington and forced the colleges to respond. Not by altering their ways, mind you, but by hiring more lobbyists. To keep government funds gushing into their poorly performing schools, the industry has quadrupled its lobbying budget during the past decade. Reforms are almost impossible, Sen. Dick Durbin (D-Ill.) explained, because for-profit colleges "own every lobbyist in town."
Well, not all, but a bevy of the best-connected--from former GOP Senate Majority Leader Trent Lott to former Democratic House Majority Leader Dick Gephardt. And in 2013, a former eight-term congressman, Steve Gunderson of Wisconsin, swung through Washington's revolving door to became head honcho of the industry's chief lobbying front, the Association of Private Sector Colleges and Universities (APSCU).
As the industry drew public ire, scathing press, and sagging enrollment, the APSCU launched a save-our-bacon political "reform" plan. Gunderson's fellow for-profit college booster John Boehner (R-Ohio) fit perfectly into the scheme, which essentially became the House speaker's protectorate. As outlined in a six-page internal memo (leaked to Halperin), the APSCU bluntly said it would follow a strategy "as directed by House Republican leadership."
Sure enough, GOP representatives have aggressively (and usually unanimously) formed a solid wall blocking a modest regulatory proposal by Obama to hold the industry's worst performers accountable. Under the proposed "gainful employment rule," colleges that have a high percentage of students who don't graduate, accrue heavy debts, or are so poorly educated that they can't earn enough to repay their loans would be cut off from the federal trough.
But being reasonable and fiscally prudent is in the interest of students and taxpayers, not of for-profit colleges. So Gunderson threw a histrionic hissy-fit last year, wailing that Obama's proposal was "an ideological declaration of war against the private sector's involvement in the delivery of post-secondary education." The gainful employment rule remains bottled up.
CANDIDATES. Campaign dollars are what grease the lobbying skids, and for-profit colleges have become major grease monkeys. As the industry's reputation with the public has sunk, its political donations have soared--to nearly $3 million in last year's congressional races and $4.4 million in the 2012 presidential and congressional campaigns. Reflecting their strategic reliance on Boehner (and their anger at Obama for daring to cross them), donors allocated 70% in both 2012 and 2014 to GOP campaigns. Indeed, Boehner himself is among the top five recipients of the colleges' electioneering largesse.
The numero uno beneficiary, at $183,000, is chairman of the House Education Committee, Rep. John Kline--a faithful mule for carrying legislation to prevent new constraints and undo old rules that impede greed. The industry's third-and fourth-place money winners in the 2014 House races were Democrats Alcee Hastings and Robert Andrews: Those two pushed fellow Dems hard to pressure Obama to drop the gainful employment rule. There's a word for corporate money in, public money out, Halperin says: Corruption.
CREDIBILITY. Having destroyed their own integrity and reputations, the colleges have become bulk buyers of others' credibility. APSCU parades an A-list of political sparklies onto the stage of its lavish annual conventions: former Sec. of State Colin Powell in 2011, George W himself in 2012, ex-NATO Commander Gen. Wesley Clark in 2013, and Jeb Bush last year.
Television personalities also lend their celebrity to the schools' scams. Ubiquitous, self-promoting financial "expert," Suze Orman, has been on the payroll of the giant University of Phoenix for-profit chain, promoting its educational rip-offs on Capitol Hill and online. Comedian and TV host Steve Harvey has hyped Strayer University in TV ads. And U of Phoenix also sponsored an uplifting TV special by Al Sharpton--the MSNBC host subsequently ran a segment about the school that was panned by critics as "an infomercial."
The colleges also seek alliances with prestigious institutions. The staid Chronicle of Higher Education let the Career Education Corporation, a for-profit with one of the industry's worst default records, sponsor a Chronicle confab on student loan defaults and--get this--select all the speakers. More scandalous yet is the liaison with Marc Morial, former mayor of New Orleans and now president of the National Urban League. After writing an op-ed opposing Obama's gainful employment rule, Morial accepted a $1 million donation to the Urban League from Corinthian College, a chain so bad that the Department of Education forced it to disband and sell off its schools last year.
And let's not forget Mitt. In his 2012 run for president, Romney praised the private, for-profit model, singling out Florida's Full Sail University for "hold[ing] down the cost of their education." Actually, no. As Halperin disclosed, "Full Sail is the third-most expensive college in America." It's owned by TA Associates, whose executives funneled more than half a million bucks into Mitt's presidential run, a detail he failed to mention. Nor did Romney mention that his own private equity empire is financially linked to TA/Full Sail--he makes money if the for-profit school profits.
Tinkerers vs. changers
Among the many duct-tape-and-bailing-wire repairs proposed to reform the student loan programs are a stricter gainful employment rule, transparency on graduation employment rates, and income-contingent repayments. Fine, but why not go for a fundamental fix: Let's make higher education free.
Sure, it would be a big cost for taxpayers, but we already spend more than $120 billion a year, mostly for Pell grants and loans. Redirect that money--eliminating the corporate profiteers, the extensive lending bureaucracy, and brutish debt collection corporations--and we have most of the funding needed.
Remember the old bumper sticker: If you think education is expensive, try ignorance. We've invested for 150 years in free education through high school because we know that a broadly educated citizenry is vital to democratic, economic, and social well-being. And that investment has paid off--in productivity, middle-class expansion, and self-governing possibilities. Now's the time to double down. Today, college degrees and advanced skills are the new high school diplomas, so they must be made as universally available.
But rather than expanding educational opportunity to meet the future, America's lawmakers, Koch-headed governors, and higher-education chieftains are shrinking it. Think about it: The guardians of our country's essential system for advancing and spreading knowledge have instead unleashed predatory corporate "schools" to prey on students, sinking them into a swamp of debt instead of lifting them up and America with them. The stupidity is dazzling.
Obama at least sees the need to do better, but his proposed reforms--including a limited program of tuition-free, two-year community-college degrees--are typical of his small-steps style.
Students themselves offer our best hope for bold, fundamental change. A student rebellion of "debt disobedience" is rolling across the country, standing for the democratic principle that education is a human right and social necessity--not a product.
Coming out of Occupy Wall Street in 2012, a creative group, Rolling Jubilee, has used crowdfunding to erase more than $30 million in student debt. The Debt Collective, a much broader effort by students, organizers and lawyers, is using myriad forums and innovative strategies to challenge the very legitimacy of any student debt and demanding a return to the kind of public, tuition-free college education the University of California and other schools used to provide.
And now, the spark of direct action is enlivening the student revolt. In late February, a gutsy group called the Corinthian 15 sprang out of the Collective. Corinthian Colleges, Inc., was a huge for-profit chain with a record of lying, bullying, and such poor performance that it was denied access to the federal funds last year and shuttered. Good riddance, but Corinthian graduates are still expected to pay back the federal loans for a worthless degree.
No, say the former students, who are risking personal financial ruin. "We can't and won't pay any longer," they declared in a letter to the Education Department. Calling their generation the first "made poor by the business of education," they called for "the end of a higher education system that profits from all our dreams." As one rightly put it: "Without dissonance, there will be no change."