Tag Archives: profit

The Beltway For-Profit Witch Trials


In mid September, the Congressional duo of George Miller and John
Tierney joined their Senate colleagues Tom Harkin and Dick Durbin and the
Department of Education in what might be described as the ongoing Beltway Witch
Trials, where the alleged witches are the colleges that are legally organized
on a profit-making basis. Messrs. Miller and Tierney proposed a new line of
assault to rein in these alleged evil doers that they have creatively named
the College
Student Rebate Act of 2012
. The objective of the proposed
legislation is to exert political control on how private sector colleges
allocate their financial resources, as the bill calls for a cap of 20 percent
for expenditures on “advertising and promotion activities, excessive
administrative expenses including executive compensation, recruiting, lobbying
expenses, or payments to shareholders.” Expenditures on these activities
exceeding the cap would need to be refunded to students and/or the government.

Rep. Miller told the Huffington
that since “for-profit colleges tend to get a great deal of
revenue directly from the federal government…how schools spend this money must
be carefully examined.”Examination is one thing, but what the bill would really
do is enable politicians and unelected bureaucrats to limit the ability of
private firms to attract customers and strengthen their brands, compensate
their managers for successful performance, protect themselves from additional
onerous regulations, and reward owners for their investments. The bill would
seriously inhibit the incentive structure necessary to promote private investment,
innovation and growth in an industry greatly in need of improved efficiency. 

Continue reading The Beltway For-Profit Witch Trials

Washington Hastens the Decline of For-Profits

The New York Times reported on Friday that the for-profit
University of Phoenix will close 115 physical campuses, dispossessing around
13,000 students and putting 800 employees out of work. Why now? Tamar Lewin, the story’s author, suggested that competition from other for-profit universities played a role. But she also cited the “steady drumroll of negative publicity about the sector’s
recruiting abuses, low graduation rates and high default rates” as a
possible cause.

Coincidentally, Lewin has been a major contributor to that drumroll. Over
the past few years she’s chronicled the fraud, abuse, and poor academic
outcomes associated with for-profits. More important in undermining
for-profits, however, is the federal government. Senator Tom Harkin has targeted
for-profits, commissioning multiple investigations and issuing massive reports
detailing the failings of the industry. But Washington has done more than just
talk. As Lewin notes, the federal government’s threat of withholding federal
aid from for-profits whose students failed to meet the Department of
Education’s standards led the University of Phoenix to push away students who
did not have “a reasonable likelihood of success.” In other words,
many students for whom a for-profit college was their last chance at obtaining
a degree were denied an opportunity. Corroborating this point, Lewin suggests
that this new policy significantly lowered enrollment and, subsequently, the
University’s profits. Unfortunately, this makes sense. Most students at
for-profits come from untraditional backgrounds and as such have low chances of
“success.” But here’s the flipside: these institutions take students
who are unsuited for traditional, not-for-profit universities and provide them
with a flexible course schedule and a degree in a practical field. They take
students who cannot thrive elsewhere and pay for that admirable quality in bad
graduation rates.

The Department of Education doesn’t seem to care about
the complicated picture. Its bureaucrats are more concerned that these
institutions elude its purview and see these regulations as a means of bringing
them in line. As a consequence, they’ve undermined the very cause that
supposedly motivates their work: expanding educational opportunities for those
who need it most. 

Three Pell Grant Scams

Many politicians, including senators such as Tom Harkin and Dick Durbin, have grown indignant over the allegedly vast amounts of higher education money captured by for-profit institutions via the Pell Grant program. In fact, they consider this something of a scam. The truth, of course, is that throughout its history, including now, the vast majority of Pell Grant funds—at least 75 percent– have gone to students attending not-for-profit colleges.

The implication of the criticism, of course, is that for-profit institutions (or at least many of them) are diploma mills, whereas the educational experience offered by institutions untainted by the corruptive influence of profits is of high quality, and provided by selfless individuals working for the public good. I think that is hogwash, but that is a subject for another day. Suffice it to say that there are documented instances where for-profit institutions pressured relatively unqualified students to enroll using Pell Grants, but there are numerous examples of not-for-profit schools doing similar things. The scam here is much broader than the good senatorial critics claim.

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Here’s How the Scholar Disappears

Political scientists Gary King (Harvard University) and Maya Sen (University of Rochester) recently produced a working paper titled, “The Troubled Future of Colleges and Universities.” Everyone interested in higher education should read it. The paper is instructive for those who want to understand how little most academics understand the crisis universities face. The problems with the paper are numerous, but I will just focus on one–their ambivalence about learning, or what they call “education.”

King and Sen uncritically assume that “education” is a unit of computer data. They define the purpose of the “modern university” as the “creation, preservation, and distribution of knowledge,” like how computers produce and distribute data to consumers. University research generates knowledge, and professors then distribution that knowledge in university classes which, until recently, were “the most sought way to get educated.”

However, the university is experiencing competition from the Internet and for-profit schools, and it may lose its ability to provide knowledge, especially considering how the University of Phoenix has apps (apps!) that put that knowledge on smartphones. Imagine the efficiency of getting educated in between rounds of Food Ninja.

The metaphor completely misrepresents how learning works; it is not a piling up of data until amount equals the common measure for “educated.” What King and Sen do reveal is their ambivalence about education itself. They say nothing of how the financial troubles of universities might deprive generations of a liberal education, as Joseph Epstein fears. Their ambivalence explains the relatively low esteem with which Harvard holds teaching, as Andrew Hacker and Claudia Dreifus detail. Harvard faculty place greater emphasis on research, largely for professional and institutional reasons. As a result, we should not be surprised that teaching suffered, since it amounts to an obstacle to research. Unsurprisingly, King and Sen recommend that traditional universities compete with Internet-based alternatives by putting undergraduates to work in faculty research projects, which is something University of Phoenix Online and Udacity cannot offer.

The solution is strange. It is hard to imagine luring students into college with promises of data coding, regression analysis, and grant-writing; worse, this solution is simply admitting defeat–universities are no longer places of learning but training facilities in quantitative methods. As Martin Heidegger prophesied in “The Age of the World View”:

The decisive development of the modern business character of science, therefore, forms people of a different stamp. The scholar disappears. He is replaced by the individual engaged in research projects. This, rather than the pursuit of scholarship, gives his work its keen atmosphere. The research man no longer needs a library at home. Besides, he is always moving about. He does business at meetings and gets information at congresses. He contracts to work for commissions from publishers, who now help to determine what books must be written.”

On a final note, the recommendation that undergraduates simply start apprenticing as research assistants comes at an unusual time for those like King and Sen, who advocate quantitative social science research. NassimTaleb, Jim Manzi, and Emanuel Derman are part of growing movement of former “quants” skeptical of the attempts to quantify human behavior and afraid of the dangers that come from living and governing as if such quantification were possible. Increasingly, the moment seems right for a heartfelt defense of the university as a place of learning, tradition, and contemplation. There is no app for that.

An Appeal for For-Profit Education

I chair the Governing Board at Grantham University in Kansas City, Missouri, an on-line, for-profit institution. Grantham diverges from Congress’ caricature of for-profits. More than ninety percent of its students have a military background; in fact, most of these students remain in active service as they pursue their degrees. Most are also first generation college enrollers. The average age of the student population is thirty and a disproportionate number are African-American or Hispanic.                                                                               

One might assume – as many in the Congress do – that Grantham is a “matchbook cover” institution offering undemanding programs and disdain for academic integrity, but nothing could be further from the truth. Though standards for admission are not up to the Ivy League’s requirements, the exit requirements are rigorous. Of course, not every student thrives. However, after considering high school grades and SAT scores, students’ success rates defy expectations.         

At last year’s Grantham commencement I observed families crying uncontrollably as their loved ones rose to accept diplomas. This wasn’t like any graduation I experienced in my 35 year academic career. Children, parents and grandparents participated in a poignant scene. For most of those present, their for-profit degree represented a pathway to a promising future.                     

There is yet another good reason to support for-profit education. Non-profit universities tend to ignore sound business practices because demand for their degrees has been inelastic. Therefore, university officials have no concept of efficiency. Having been a professor and dean at a private institution, I can confirm the existence of widespread waste, duplication, and inordinate expense on student entertainment. Higher tuition has not adversely affected student enrollment; hence, the price of college tends to be arbitrary.    

While it is true that for-profit institutions might prioritize profit over quality education, profit isn’t a dirty word when it imposes restraints on non-essential spending. For-profits’ responsibility to stockholders means that lavish, unnecessary expenditures are unacceptable. Accordingly, for-profits don’t offer the amenities that increase student satisfaction but have little impact on student success. Unlike their spendthrift peers in the non-profit world, for-profits have no sports teams, bowling alleys, or student lounges.            

If one were to establish a university de novo one wouldn’t invest in bricks and mortar. It is not coincidental that Governors’ University, organized by the governors of western states, is an on-line program. With the nominal cost of higher education beyond the reach of average income earners and explosion of student debt, on-line education will become an increasingly attractive option for both the consumers and producers of higher education. Even elite private institutions are already offering a full array of online courses.

Stereotypes die hard, so it will undoubtedly take a crisis for meaningful change to occur. With the college tuition bubble about to burst, that crisis is just over the horizon. In short order, the for-profit, on-line institution will look like a reasonable educational alternative for students, parents, and politicians who have thrown vast sums at traditional institutions of higher learning.

The 12 Reasons College Costs Keep Rising

When asked the question, “Why do colleges keep raising tuition fees?” I give answers ranging from three words (“because they can”), to 85,000 (my book, Going Broke By Degree). Avoiding both extremes, let’s evaluate two rival explanations for the college cost explosion, followed by 12 key expressions that add more detail.

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‘The For-Profits Care More for Their Students’

Inside Higher Education has just released its second annual survey of college presidents on their views about major problems and challenges facing higher education. Over 1,000 presidents responded to the survey, from all types of schools, including over 50 for-profit institutions. To me the most interesting finding is that public and private schools have somewhat different top-level issues they ponder, and that the for-profit schools are clearly more student-centered in their concerns than the not-for-profits, a marked contrast to what to some is conventional wisdom. Before discussing the differences however, it is important to note that for all three groups (public four-year schools, private four-year schools, and for-profit schools) whose data I examined, “potential cuts in federal student aid” was either the most important or second (of 14 listed) most important issue. There are two possible interpretations of this. The conventional wisdom is that college presidents are extremely concerned about student affordability and access, and cuts in federal aid threaten that access. A second, admittedly more cynical but I think more accurate interpretation, was suggested by Education Secretary Bill Bennett some 25 years ago, and addressed in a symposium at Minding the Campus February 20. Higher federal student financial aid translates into higher tuition fees, which, in turn, means more money for universities. More student financial aid means more money for universities. Taxpayer money is transferred not to students (in some meaningful sense) but to universities–a stealth form of federal higher education subsidy. The evidence is strong that this second interpretation is probably closer to the truth. Stephanie Riegg Cellini and Claudia Goldin nicely demonstrated that empirically recently in a study for the National Bureau of Economic Research, showing that schools where students were eligible for federal assistance responded with bigger tuition hikes after federal financial assistance increased than schools where students were ineligible for such aid. And my colleague at the Center for College Affordability and Productivity Andrew Gillen demonstrated it using both simple economic theory and logic (along with some empirical observation). Bill Bennett is right. I appeared on his radio show recently, and the reaction from listeners suggests many agree with the Bennett Hypothesis. But even more interesting to me was the difference in the concerns of private versus public school presidents. For the 228 presidents of public four-year schools, the other two major concerns were “declining state support” and “budget shortfalls.” Because I think the concern over student financial aid cuts is, in effect, also a budgetary concern, I would say that all three of the top concerns of state university presidents related to finances and budgets. Not only does money matter to these persons, it is almost true that “money alone matters.” Let the Market Work This is in contrast to the 372 private not-for-profit presidents included in the survey. Aside from the common concern about cuts in federal student aid, they were most concerned about “rising tuition/affordability” and “increasing competition for students.” As I see it, these reflect greater sensitivity to markets in general and the customer in particular. And these schools, on average, are more tuition-driven. At some of the schools, tuition and other fees are 70 or more percent of total revenues. Thus, if students balk at a college on cost grounds, its existence is imperiled (obviously, this is not true for wealthy highly selective admission schools, but those schools are certainly a minority of the total sample). The same applies for “increasing competition for students” which, to a private college president, leads itself to greater tuition discounting and/or provision of greater amenities like luxury dorms and recreation centers with huge climbing walls–both of which are costly. Price and quality competition are more important than in the public schools that are more insulated by subsidies from market forces. What about the presidents of the for-profit schools? Aside from the universal concern about potential cuts in federal student aid, their biggest concerns were about “student assessment and educational outcomes,” as well as “increased competition for students.” Alone among the groupings of presidents, the for-profit providers had very strong interests in student outcomes. Successful students are, on average, happier and financially more successful, so they spread the word about the fine educational offerings of the relevant school. They are good for business. As Adam Smith stated so beautifully 236 years ago, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest.” The for-profits are totally dependent on market forces for their fate. Nearly 100 percent of their income comes from fees paid by customers (to be sure, a very substantial portion of this income comes from government-run student loan programs). The incentives, therefore, are to make the customer happy, to focus with laser-like intensity on what it takes to create a class of consumer who extol the virtues of the school. Those incentives are muted (as Smith predicted) at endowment-laden schools which have 10 applicants for every place in the entering class. They are muted also at state schools where tuition dollars pay a small minority of the school’s bills. The market-driven schools focus more on outcomes, while other schools are more obsessed with inputs. Critics of for-profit higher education like Senator Tom Harkin have it backwards: it is the for-profits that care the most for students, and push them to learn, because it is in their self-interest to do so. The bashing of this sector by the Obama Administration and its allies is, therefore, all the more unfortunate. From all of this a general rule of college presidential behavior emerges: the more a school is exposed to the forces of demand and supply in a competitive marketplace, the more it is likely to focus its efforts on improving the quality and satisfaction with the learning experience. That is the primary reason why I believe true educational reform must involve exposing higher education more to market force.

One Vote Here Against For-Profits

office-cubicles-for-profit.jpgIn his recent book, Change.edu: Rebooting for the New Talent Economy, Andrew Rosen writes: “It’s rare for anyone to lay out a clear case as to exactly what the problem is with private-sector education.” Ok, here it is. The problem is not, as Rosen says, that the pairing of the words for-profit and education makes advocates of traditional education like me squeamish; it’s that most for-profits work from a model that undermines the essence of what higher education is about.Is Rosen right that most traditional colleges and university have abandoned the mission of educating students for the great world? Absolutely. Have inferior colleges lusted for too long after the prestige of the elite universities (what he dubs “Harvard envy”), spending more time, money, and energy than they should on research and scholarship than they do on teaching and learning? No disagreement here. Have they also attempted to keep the supply-line of students flowing by pumping millions of dollars into luxurious residential halls, fitness centers, water parks, and cafeterias–“Club College” at its best? Spot on again.Rosen’s also right that community colleges, which he admires for servicing nontraditional and under-served students, are failing because they try to be everything to everyone and, like their four-year counterparts, are “stretched across myriad constituencies.” Overburdened, excluding students, refusing to raise tuition, they follow an economic model that subscribes to the idea that “paying for education is primarily the responsibility of taxpayers, with students to be shielded from cost to the maximum extent.” Are Teachers Just Hirelings? But is more private-sector education the big change that we ought to embrace? Only if students are customers and professors mere hirelings who have less academic freedom in a curriculum that is more centralized, standardized, controlled. For Rosen, the virtue of the for-profit model is twofold. First, it is driven by tuition and fees and forces for-profits to keep costs (not necessarily tuition) down. Second, “private-sector educators are able to tailor their education to specific, identified learning outcomes and measure performance against those outcomes.” They can “focus almost exclusively on students (both recruiting and educating).” How so? By operating “in a far more centralized fashion”–meaning a single syllabus mandated in each course; the same readings from class to class; written assignments, quizzes, and exams that assess the same content; supervising faculty more closely to provide a uniform level of quality; designating learning outcomes in class that come together into a set of program-level outcomes across all courses in a given major. Faculty are treated as hirelings–not as experts in their field–who are basically given a syllabus and a textbook and told, “Teach this class.” At the for-profit where I taught, I wasn’t even allowed to assign additional (i.e. real) books or primary sources. That’s not how genuine teaching and learning work, but it doesn’t trouble those who are engineering education at for-profits: “By refusing to cede complete control of course design and learning assessments to each individual faculty member, it’s possible for proprietary colleges to be better able to make sure learning actually happens.” The alleged tradeoff is that this “standardized, closely evaluated process” will “hit the mark consistently. More importantly, by standardizing the curriculum, it is possible to measure outcomes and make continuous improvements that will ensure that each term of students is getting a better learning experience than the term before.” But by Rosen’s own admission for-profits are only graduating 38.1 percent of their students. This abysmal showing is corroborated by other studies–for example, a 2010 Education Trust report by Education Trust found that only 22 percent of the first-time, full-time bachelor’s degree students graduate within six years, compared to 55 percent at public institutions and 65 percent at private nonprofit colleges. The powerhouse University of Phoenix Online is one of the worst offenders, graduating only 5.1 percent of students in six years (fewer than 1 percent of its more than 253,000 students) in its B.A. program at its biggest campus. Rosen dismisses such studies, claiming that they compare apples to oranges, since students at for-profits are more likely to have kids, or full-time jobs, or be very poor–unlike typical students at traditional four-year colleges and universities. But a recent apples-to-apples study shows that graduates of for-profits also lag behind their peers in earnings and employment. Rosen gives the impression that while students at Club College and Party U are guzzling beer, eating sushi, rock-climbing, or working out in the gym, all the real studying is going on at the for-profits. Nearly halfway through the book, we finally hear about academic rigor. Patricia Feggins, a fifty-three-year-old student, was “impressed by the academic rigor of the Kaplan classes–even if, at times, she was slightly overwhelmed by the number of research papers and essays her professors required her to write.” I don’t question the sincerity of this student; I question whether she is qualified to judge what is appropriate college-level rigor. At the for-profit where I worked, I typically stopped teaching my subject every second week because I had to teach students basic skills: how to read a textbook, how to take notes, how to follow an argument during a discussion, how to write. The problem was compounded because they were expected to do in ten weeks what most students do in a sixteen or seventeen-week semester. They showed almost no interest in learning how to think; they wanted to be told what to think so that they could pass the class and move another step closer to the job their recruiter promised awaited them once they got their degree. This mindset is reinforced by educational model designed to equip people for the marketplace rather than produce human beings who are adaptable, curious, questioning, and capable of learning new concepts. Somehow technology is supposed to change this by making “education more responsive, engaging, and interesting. Imagine simulations that enable students to experience how blood courses through the body, how a volcano erupts, or how change in the price affects all competitors in a marketplace. Imagine robots and avatars that enable a student to travel to Germany in the age of Bismark, to Craig Venter’s lab as he worked to sequence the human genome, to Washington’s headquarters on Christmas 1776, or to the Enron boardroom.” Education as easy as watching TV or browsing the web. Never mind the effort of learning about these great achievements through reading documents, analyzing sources, and working through them to come to one’s own understanding. That’s so old school. Everything must be visual, literal, and available to students with a click of a mouse–hence the popularity of Wikipedia and the Khan Academy. Toward the end of his book Rosen predicts what the higher education landscape will look like by 2036: more mobile, more disaggregated, more personalized, more focused on learning outcomes, more accessible, more global, more cool. I predict that it will be all of these things much sooner than that. By 2036, higher education will be so career-driven, technocratic, standardized, centralized, efficient, and soulless, people will be clamoring to change it back to the way it was in the good old days.

A Foolish Move to Hobble For-Profit Colleges

University-of-Phoenix-billboard-300x200.jpgCurbing for-profit colleges has been a goal of the Obama administration’s department of education. The plan was to erect regulatory hurdles to a very profitable product: online courses. In pursuit of that plan, the department issued a regulation last October requiring institutions offering Internet classes to seek permission from every state in which they enroll so much as a single student. But the department failed to take one crucial fact into account: This is the 21st century, and Web-based courses aren’t just a dodge employed by educational hustlers to lure masses of gullible students into cheap, shoddy programs of the kind that used to be advertised on matchbooks.

From the Ivy League on down, hundreds of respectable non-profit colleges, public and private, offer online classes and even online certificates or degrees. It is the smaller and more budget-pinched of those institutions that are feeling the brunt of the education department’s new rule: liberal-arts schools with limited administration personnel and cash-strapped state universities and community colleges. Some of those, citing the high costs of complying with 50 different sets of state licensing criteria plus stiff licensing fees in some states, already have plans to stop accepting online students living in the more expensive jurisdictions, even though the rule isn’t scheduled to be enforced until 2014.

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For-Profit v. Non-Profit Colleges–Which Use More Federal Cash?


Are for-profit colleges and universities getting a raw deal from the government compared to their more elitist peers in the private non-profit sector of American higher education?

Vance H. Fried, writing in a recent policy analysis brief published by the libertarian think-tank, the Cato Foundation, argues just that.  Fried is a former private-practice attorney, oil company executive, and investment bankernow a professor of Entrepreneurship at Oklahoma State University. He targets private non-profit colleges and universities as the beneficiaries of federal largesse, waste and inefficiency. 

“Undergraduate education is a highly profit

Gainful Employment: A Detriment to Competition


Today the Obama Administration unveiled its long-anticipated and highly controversial final gainful employment (GE) regulation  that ties program eligibility for federal student aid to new metrics that are based on student loan repayment rates. Under the new GE rule, a vocational program can qualify as leading to gainful employment and remain eligible for federal aid if one of three metrics is met:

1.     At least 35% of former students are repaying their loans;

2.     The estimated annual loan payment of a typical graduate does not exceed 30% of discretionary income;

3.     The estimated annual loan payment of a typical graduate does not exceed 12% of total earnings.

The rule requires that a program fail to meet one of the three metric three times in a four year period before becoming ineligible for federal student aid, with 2015 being the first year that a program can lose eligibility. Education Secretary Arne Duncan defended the metrics as a “perfectly reasonable bar…that every for-profit program should be able to reach. We’re also giving poor performing for-profit programs every chance to improve. But if you get three strikes in four years, you’re out.”

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Those Accountability Rules for Student Loans

This past Monday, the Department of Education proposed “gainful employment” rules that will regulate postsecondary vocational programs, primarily those offered by for-profit colleges, on the basis of their graduates’ ability to pay back their federal student loans. Proponents of higher education reform should welcome this move, but not because it targets unscrupulous actors in the for-profit sector. More importantly, the initiative makes a rhetorically significant shift: it places postsecondary institutions and the economic value of the education that they provide at the center of discussions about student loans and college costs. It also adds a new and necessary dimension to the outcome data that the federal government can link directly to individual institutions of higher education.
The problem is not, as some critics would have it, that the gainful employment regulations overreach, but that they do not reach far enough. The current proposal singles out one set of postsecondary institutions for intense scrutiny and leaves the rest to operate as they have, feeding on federal loan dollars without having to show much in return, other than keeping their two or three-year default rate under a certain threshold. For these institutions, students who carry excessive debt and/or default after a three-year window are mainly the government’s problem, not theirs. As a result, prospective students looking to choose a college do not have access to even the most basic facts about how their future income or debt burden may vary depending on the institution that they choose. To change that, federal and state governments should embark on a broader effort to link students’ post-graduation success to the institutions that they attend, to make that information public and accessible, and to attach institution-level sanctions and rewards to performance on these indicators.
In short, policymakers should take the pro-accountability ideas underlying “gainful employment” and super-size them. Extending the effort to cover all colleges and universities that receive federal student loans would provide consumers with much-needed information about institutional quality and return on investment. The question is whether the latest foray into “gainful employment” regulations will remain a shortsighted attempt to bring greater accountability to one small sector of the postsecondary world. If the past is a guide, it could prove to be the proverbial camel’s nose under the tent flap that accountability proponents have been looking for.

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The Short-Selling of For-Profit Education

The letter, dated June 17 and addressed to U.S. Education Secretary Arne Duncan, made serious allegations of wrongdoing in the already controversial for-profit education sector: that representatives of career colleges were trolling for students at homeless shelters, loading education debt onto a problem-beset population with poor prospects for academic success in order to funnel federal loan funds into for-profit coffers. Now it turns out that the letter was orchestrated by, and its very language prepared by a Dallas woman, Johnette McConnell Early, who was being paid to investigate for-profit colleges by an investment firm that might be hoping to turn its own profits by short-selling the colleges’ securities.
Signed by Neil J. Donovan, president of the National Coalition for the Homeless, and 19 administrators of homeless shelters across the country, many of them church-affiliated, the June 17 letter contained strong language essentially urging Duncan to tighten its regulation of the for-profit sector (the department has been considering severe restrictions on federal loans to career-college students that would peg total debt to the average entry-level earnings in the job for which the students are training). The wording of the letter was ominous: It described recruiting at shelters as “a growing problem.” It continued: “For-profit trade schools and career colleges are systematically preying on our clients,” the letter continued, accusing the schools of “predatory conduct” in enticing shelter residents to run up un-repayable debt that ruined their credit ratings, turned off potential employers, and rendered the defaulting debtors ineligible for further federal student aid. The 20 signers pledged their “unequivocal support” for heavier government regulation of career colleges. Exactly one week later, on June 24, the Senate Health, Education, Labor, and Pensions Committee held the first of several planned hearings on the for-profit sector, which receives 23 percent of federal student loan funds although it enrolls only 10 percent of the nation’s college students, and has been marked by high levels of loan default and relatively low graduation rates.
The letter to Duncan from the shelter administrators, which circulated widely and was posted on the PBS show Frontline’s website, seemed yet more red meat for a Democratic Congress and presidential administration that already seems to regard with suspicion the idea of making a profit from higher education.

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What Is For-Profit Education Really Like?

From the beginning, Frontline’s new documentary College, Inc seems tailor-made to scare the living daylights out of the series’ presumably progressive audience. Viewers are first introduced to Michael Clifford, an “educational entrepreneur” without a college degree who buys up struggling colleges and resurrects them as for-profit companies. Clifford is not only making a fortune off of low-income minority students. He also happens to be a born-again Christian, and he is looking to turn a bankrupt college in Oakland, CA into “Dream Center College,” an offshoot of a Christian mega-church and rehabilitation center in Los Angeles by the same name. Indeed, viewers are introduced to Clifford’s born-again faith almost as soon as they learn anything about his profession. And the introduction to Clifford comes right before correspondent Martin Smith interviews legendary profit-seeker and hard-edged capitalist Jack Welch, who talks about his investments in higher education and “widgets” in the same sentence.
Given the variety of companies and individuals involved in the for-profit sector, particularly the number of founders, faculty, and senior administrators who have PhD’s and experience at world-class universities, Clifford seems like an odd place to start. Perhaps it’s a nod to the idea that the regulation of college acquisitions is too lax, a worthwhile point to make. But to the discerning viewer, using Clifford, and then Welch, as narrative anchors signals a definite perspective on for-profit higher education: it is full of greedy profiteers, is woefully under-regulated, and is run by outsiders who believe that education is a business.
Predictably, College, Inc goes heavy on the “profits,” and the methods used to reap them, but this leaves little room for the “education.” As a result, viewers are introduced to many of the sector’s warts and excesses, which are real and must be acknowledged, but never get a sense of how these innovative institutions are changing the way higher education is designed and delivered in the twenty-first century.

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The Failure Of For-Profit Schools

Why do our for-profit colleges seem so disappointing? Why are they plagued by high levels of student debt, high loan-default percentages, dismal graduation rates, and third-rate reputations that lead some employers to reject their graduates automatically? Sure, back in the old days there were plenty of commercial schools whose sole raison d’etre was apparently to separate students from their money: those correspondence law schools that advertised on matchbooks and the art academies that would accept you if you could doodle a stick figure onto a restaurant napkin. But today the situation seems exponentially worse. Commercial colleges, which enroll 2 million out of America’s 17 million college students, now seem to be not so much diploma mills as non-diploma mills, where the vast majority of enrollees pay tuition bills comparable to those at four-year public universities but never manage to graduate. Katherine Gibbs, for example, limped along for decades trying to offer alternate career training after the market for private secretaries dried up during the 1970s, then permanently shut its doors in 2009 amid complaints to state regulatory agencies about unqualified faculty members, shoddy and inadequate course offerings, and four-year schools unwilling to accept Gibbs transfer credits. The chain’s redoubtable foundress must be turning over in her grave.
What happened? How did a for-profit college model morph into today’s basement-reputation for-profit model, exemplified by Saturday Night Live’s fictional “University of Westfield,” where the students mainly learn how to fudge the fact that their degree are from the University of Westfield? I blame the corrupting influence of federal money, the easily available Pell grants and guaranteed loans that began to flow with the passage of the Higher Education Act of 1965. Easy federal money has contributed to a vast growth in enrollments at both non-profit and commercial institutions, a ballooning of tuition costs, and, in the for-profit sector, a focus not on the academic outcomes that might build a school’s reputation as a selling point but upon getting as many bodies as possible into their classrooms.
Let’s take the enormous—and vastly profitable–University of Phoenix, with its nearly 400,000 students in 39 states as well as online. Phoenix is regarded as one of the more reputable commercial schools, and it has gained respect over the last two years for issuing fairly candid reports about its strengths and shortcomings. Still, Phoenix and its parent company, Apollo Group, have had their troubles during the last decade—and recently entered into a $78.5 million settlement regarding allegations that Phoenix illegally paid cash bonuses and other gifts to recruiters based on the number of young people they signed up for classes. Phoenix derives an ever-increasing amount—more than three quarters during its 2008 fiscal year, according to a March article in Business Week–of its $3 billion-plus annual revenue from federal student aid. Ii’s the biggest recipient of Pell grants in the nation. Yet Phoenix’s graduation rates seem abysmal. According to the U.S. Education Department, only 4 percent of Phoenix’s students who entered four-year-programs as freshmen graduated within six years, compared with 55 percent of students at non-profit four-year schools. And an executive-search company specializing in financial services told Business Week that a Phoenix degree didn’t “add any value” to a graduate’s resume.

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