Fix the for-profit col­lege sys­tem

Austin American-Statesman - - OPINION -

Haven’t we heard this story be­fore? It fea­tures a high-pres­sure sales force per­suad­ing con­sumers in search of the Amer­i­can dream to go deep into debt to pur­chase a prod­uct of of­ten du­bi­ous value. De­fault rates are sky high. Tax­payer money is squan­dered. Top ex­ec­u­tives walk away with for­tunes.

It sounds like a de­scrip­tion of the sub­prime mort­gage in­dus­try, which came crash­ing down two years ago. But what I just de­scribed is the re­al­ity at many for-profit col­leges.

Their re­cruit­ment ads are ubiq­ui­tous, of­fer­ing vi­sions of a cap-and-gown grad­u­a­tion, fol­lowed by place­ment in a well-pay­ing job. At their best, for-profit col­leges de­liver. Many pro­vide top-qual­ity, in­no­va­tive op­tions for stu­dents who want to pur­sue post­sec­ondary ed­u­ca­tion while man­ag­ing work and fam­ily obli­ga­tions.

But se­ri­ous ques­tions have been raised about some of the ma­jor play­ers in the rapidly grow­ing in­dus­try. Crit­ics charge that many for-profit col­leges em­ploy overly ag­gres­sive re­cruit­ing tac­tics tar­get­ing low-in­come stu­dents. Stu­dents take on ex­ces­sive debt, and though dropout rates are not avail­able, there is rea­son to be­lieve that they are very high.

Crit­ics say the en­tire busi­ness model, es­pe­cially in the case of pub­licly traded com­pa­nies, is premised on a col­lege’s abil­ity to churn through thou­sands of stu­dents, whose fed­eral Pell grants of up to $5,550 and Stafford loans are paid to the school, with no ac­count­abil­ity for stu­dent learn­ing or grad­u­a­tion. Even good ac­tors are lured into the vor­tex of bad prac­tices to com­pete and meet in­vestors’ ex­pec­ta­tions.

For more than 50 years, the fed­eral govern­ment has pro­vided stu­dents with grants and loans to help pay for col­lege. It has been a pow­er­ful in­vest­ment in our hu­man cap­i­tal and our nation’s fu­ture. How­ever, an on­go­ing in­ves­ti­ga­tion by the Se­nate Com­mit­tee on Health, Ed­u­ca­tion, La­bor and Pen­sions (HELP) raises se­ri­ous ques­tions about whether stu­dents — and tax­pay­ers — are get­ting good value for the surge of fed­eral dol­lars flow­ing to for-profit col­leges.

From 2008 to 2009, 23.6 per­cent of fed­eral Pell grants flowed to for-profit schools, dou­ble the per­cent­age from 1999 to 2000. Fed­eral aid to for­profit col­leges went from less than $5 bil­lion in 2000 to nearly $26.5 bil­lion last year. At many ma­jor for-prof­its, fed­eral dol­lars ac­count for more than 80 per­cent of their rev­enue, ac­cord­ing to a Depart­ment of Ed­u­ca­tion re­port.

The HELP Com­mit­tee heard tes­ti­mony in June from Yasmine Issa, a 29-year-old di­vorced mother of twins who used Pell grants and loans to pay for train­ing to be­come an ul­tra­sound tech­ni­cian. Af­ter com­plet­ing the for-profit col­lege pro­gram in 2008, she was turned down for jobs be­cause — as she be­lat­edly learned — the pro­gram was not ac­cred­ited by the or­ga­ni­za­tion that de­ter­mines if she is el­i­gi­ble for a re­quired exam. She was left with a $21,000 debt.

Issa is not alone; 96 per­cent of as­so­ci­at­ede­gree stu­dents at for-profit col­leges take out loans, com­pared with only 38 per­cent of com­mu­nity col­lege stu­dents. And for-profit col­lege stu­dents are eight times more likely to grad­u­ate with a debt larger than $20,000.

For-profit col­leges ac­count for only 10 per­cent of stu­dents en­rolled in higher ed­u­ca­tion, but those stu­dents re­ceive 23 per­cent of fed­eral stu­dent loans and grants, and ac­count for 44 per­cent of de­faults.

Wall Street money man­ager Steven Eis­man told the com­mit­tee that many for-profit col­leges are “mar­ket­ing ma­chines mas­querad­ing as uni­ver­si­ties.” Their rapid growth is driven by easy ac­cess to fed­eral stu­dent loans, guar­an­teed by the govern­ment. “The govern­ment, the stu­dents and the tax­payer bear all the risk,” Eis­man tes­ti­fied, “and the for-profit in­dus­try reaps all the re­wards.”

Some for-profit schools spend a very large share of rev­enues — nearly 50 per­cent — on non-in­struc­tional ex­penses, pri­mar­ily mar­ket­ing and re­cruit­ing. They do a poor job of pro­duc­ing grad­u­ates but a stel­lar job of gen­er­at­ing wealth for share­hold­ers and ex­ec­u­tives. One large for-profit in­sti­tu­tion has a nearly 40 per­cent profit mar­gin, larger than most For­tune 500 com­pa­nies, in­clud­ing Ap­ple. The pres­i­dent of the largest for-profit col­lege is paid nearly 14 times the com­pen­sa­tion of the pres­i­dent of Har­vard Uni­ver­sity.

Eis­man, who was one of the first to pre­dict the col­lapse of the sub­prime mort­gage in­dus­try, sees dis­turb­ing sim­i­lar­i­ties in to­day’s for-profit col­lege in­dus­try. He es­ti­mates that stu­dents en­rolled by for-profit col­leges could de­fault on as much as $275 bil­lion in fed­eral stu­dent loans over the next decade.

Sub­prime bor­row­ers were able to walk away from their homes and, there­fore, their debt. But it is a dif­fer­ent story for mil­lions of stu­dents who take out loans to at­tend for-profit col­leges. Un­der the law, peo­ple can­not dis­charge stu­dent debt in bank­ruptcy; so if they can’t pay it off, it will ac­crue com­pounded in­ter­est in­def­i­nitely. Sub­prime bor­row­ers lost their homes, but stu­dents like Issa stand to lose their fu­ture.

In re­cent years, an ab­sence of fed­eral over­sight has al­lowed a dan­ger­ous bub­ble to grow in the for-profit col­lege in­dus­try. The chal­lenge is to crack down on the bad ac­tors and abu­sive prac­tices while pre­serv­ing the pos­i­tive op­tions and in­no­va­tions that many for-profit col­leges have pi­o­neered.

Nati Harnik

A re­port pub­lished last year found that the ad­mis­sions process at eight se­lec­tive col­leges and uni­ver­si­ties seemed to fa­vor black and His­panic ap­pli­cants, while whites and Asians needed higher grades and SAT scores to get in. But what was strik­ing was which whites were most dis­ad­van­taged by the process: the down­scale, the ru­ral and the work­ing-class.

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