GUEST: Ripoff “colleges”: Crushing debt and subprime education

Politicians rain our money  on ripoff schools
Politicians rain our money on ripoff schools

BY LINDA STAMATO

We have been using public money to prop up private, for-profit colleges, while their students acquire crushing debt and questionable credentials.   And, more than half of the students default on their loans.  So, why, why are we doing this?  Our Congress, the one that doesn’t want to spend money (well, on certain things anyway), has no hesitation in letting the dollars flow to these outfits.  After all, Congress does care a lot about creating wealth for shareholders of corporations, and these “education corporations” receive 80 percent of their revenues from us, yes, the nation’s taxpayers.

Wonder why privatization — of education — is so dependent upon public funds?  Something about the profit potential, I guess. All those folks who rail against the use of government funds for private purposes, where are they? Where is the reduce-the-deficit crowd when we need them?

The for-profit sector has grown–tripling its enrollment—in less than a decade. At the same time, students enrolled in for-profit colleges have taken on high levels of debt in pursuit of credentials that have little chance of leading to careers that pay well; in fact, to the respected Education Trust, http://www.edtrust.org these students are on “a path into the sub-basement of the American economy.”

Nice.

All the while, lobbyists for these institutions run interference, and members of Congress, doing their bidding, continually press the U.S.Department of Education to keep the gravy train running—to the tune of some $30 billion a year.

The Obama administration did propose rules to curb the worst practices — rules that would have terminated federal financing to programs whose graduates have high debt-to-income ratios and low repayment rates—rules that would have stopped for-profit colleges from engaging in misleading recruiting and marketing practices, or, preying on students who may not understand what’s going on (sounds like the subprime mortgage crowd has found a new life).

But, in the end, following intensive, high-stakes pressure, the for-profit school and college lobbyists carried the day and managed to kill the tough regulations. The federal spigot remains open.

I should note here that during the committee debates, there were some folks present who represented “the other side.”  More than 40 civil rights and consumer advocacy groups vigorously supported the proposed rules to protect students and use taxpayers’ funds more responsibly.  As noted, they lost.

Because Congress was having none of it.  Instead of looking out for their constituents who have been ripped off by unscrupulous schools and for the taxpayers who foot the bills for both student aid and loan defaults, our lawmakers, Democrats and Republicans both, join together —see, they can do it–and lean on the DOE to protect the industry!

The members of Congress who run interference for the for-profit college crowd don’t seem to care about the way for-profit colleges recruit current and former military students specifically or the disproportionate share of military tuition-assistance funds and GI Bill benefits the sector receives through those students — or whether those students are receiving an education that prepares them for “gainful employment” after serving their nation.  Pathetic.

For-profit colleges account for just 10 percent of students, yet consume almost 25 percent of the federal financial aid budget, and, as noted, account for almost half of all student loan defaults.  Reports have 500,000 students at for-profit colleges leaving with debt, but no diploma.

Unsurprisingly, many of us (http://www.nj.com/times-opinion/index.ssf/2011/07/opinion_for-profit_colleges_dr.html ) have been asking just how long this travesty can continue.

Enter the poster boy for some of the industry’s worst practices:  Corinthian Colleges. Now, we’re getting some action, as recent headlines attest! At the same time, though, we’re also getting the shaft. http://www.nytimes.com/2014/07/13/business/flunking-out-at-a-price.html?_r=0 With 74,000 students in 107 locations, Corinthian finally hit a wall.  With declining enrollments and falling revenues, it was pushed to the edge.  The feds said, in essence, ‘enough is enough’ and refused to bail them out.  Since some 90% of its operating costs are provided by Uncle Sam, well, it’s a no-brainer:  no money, no ‘education.’  It has to close down almost all of its operations or attempt to sell them.  http://www.nytimes.com/2014/07/05/education/corinthian-colleges-to-largely-shut-down.html And, meanwhile, federal money will continue to flow in order to reduce the negative impact on students.  http://www.nytimes.com/2014/06/24/education/college-group-run-for-profit-reaches-deal-for-us-cash.html .  Several states have been after Corinthian, among others, for improper recruiting practices, boosting their numbers to generate more funds, among other things.  http://www.latimes.com/business/la-fi-corinthian-colleges-20140716-story.html#page=1

All this while Corinthian was enriching shareholders and company executives—its top five executives, over three years, shared $12.5 million in salaries and cash bonuses—even as it provided no bargain for students (or the taxpaying public).  For it, for now, the spigot has been shut off.   

We need to build on this latest development to get some good rules in place to protect students from predators and to provide value to taxpayers (and worry a lot less about shareholders).  Congress has to be held accountable: Ripping off students–and the public–is no longer an option. http://www.nytimes.com/2014/07/09/opinion/lessons-of-a-for-profit-college-collapse.html

Some members of the U.S. Senate are likely to press the DOE for tighter regulation and greater scrutiny, including Sen. Tom Harkin, D-Iowa, chairman of the Senate Education Committee. We’ll see how far that goes. If the dragged-out and costly death of the Corinthian crowd doesn’t prompt action, I don’t know what will.

Up until now, it just seems that we don’t have the backbone, the will, the interest or the capacity to resist the entreaties of lobbyists and just do the right thing for students, for their families, for the U.S. Treasury, and yes, for us, the taxpaying public.

Such is the exercise of money and power in the laboratory of paralyzed government.

Linda Stamato is co-director of the Center for Negotiations and Conflict Resolution at Rutgers University.

3 comments

  1. Joe

    This is a great article that encapsulates what is wrong with the US: the way big money corrupts our government to the benefit of the rich and the corporations at the expense of the taxpayer. From the article: “All those folks who rail against the use of government funds for private purposes, where are they? Where is the reduce-the-deficit crowd when we need them?” The reduce-the-deficit crowd is too busy trying to destroy Social Security, Medicare, Medicaid and now the ACA. Meanwhile, in most of the countries of western Europe, university education is free or extremely inexpensive. Of course the reduce-the-deficit crowd would scream socialism or communism at such a notion. And in any case, they are too busy trying to privatize public schools in the US.

  2. TK

    Ms. Stamato,

    Wow! When you blow Gabriel’s Horn, you really wail. Since 2011, no less, and still they sit, impassive.

    These tone-deaf politicians better wake soon from their paradoxical slumber, because it is past time to shake it off and exit the brothel. Too many sweet lullabies and late nights in the hands of the Privatization Sand Men, who whisper seductive tunes which tell of how great life is going to be if they just loosen up the reins a bit and spread the city gates a little wider, so the money guys can have a closer look at all that taxpayer booty.

    “Of course we’ll treat it with respect,” the privatizers are heard to say, as elected representatives start teetering in both aisles. To sleep, to sleep.

    But wait a minute. Not so fast. You elected officials—you servants of the red, the white, and the blue—you took an oath, and this is your field, the field of government. The government of the State of New Jersey and the United States of America. Does anyone remember what that means? Not just a party, no. Service to the public, yes. The entire electorate—not just the major party animals.

    Long before TV and the internet, before politicians could be picked like so much low hanging fruit and their waxen images sold to the public like buckets of poisoned apples, people of substance actually put the grey matter to the question of government, and what form it might best assume. Just a reminder, for all the big brains out there, what might really be at stake, once we stop harping on shareholder equity and private profits.

    http://en.wikipedia.org/wiki/Gabriel's_Horn

    http://en.wikipedia.org/wiki/Social_contract

    Bad things happen when elected officials are invited to spend all of their energy, and all of their limited creativity, chasing after big time campaign contributions. The fallout will materially impact, first and foremost, the lives of the “little people.”

    How many of our most vulgar politicians can even remember their oath of office without a smirk? As much as the times appear to change, some things cannot be broken.

    I refer, of course, to the spirit of a free and open society.

    An army of regulators would be a belated start. They could fuel their mission, many times over, with reclaimed bacon from the stores of unrepentant gluttons. Marching orders, on the other hand … any day now, any day. Soon, very soon. To sleep, to sleep.

  3. Linda Stamato

    NPR had a good program this morning on for profit colleges that reminds me that I had not emphasized a critical point having to do with veterans and the use of G.I. Bill and other benefits as they seek an education to provide them with “gainful employment” prospects, ahem, after serving their nation.

    How does “the industry” deal with the concern that veterans, in particular, may not be receiving an education that will lead to gainful employment? Why, it puts Colin L. Powell, former chairman of the Joint Chiefs of Staff (and secretary of state) front and center to make the case for the for-profit colleges! Gen. Powell is an adviser to Leed Equity Partners, a private equity firm that owns a stake in Education Management Corporation, the parent company for Argosy University, the Art Institutes, and other for profit colleges and education companies.
    Not long ago, Powell addressed the Association of Private Sector Colleges and Universities and urged the members to make “their case better” to Congress, but also suggested that their case “is not only about shareholder value.“ Well, I guess, that’s something…..

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