The For-Profit College Racket

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A University of Phoenix billboard is shown in Chandler, Ariz. (AP Photo/Matt York)

A University of Phoenix billboard is shown in Chandler, Ariz. (AP Photo/Matt York)

The for-profit college industry is known to most Americans by its commercials and billboards promising potential students new skills, job training and exciting career paths. The reality is far more sinister, as Senator Tom Harkin’s new report, released last week, reveals.

“In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation,” Mr. Harkin, an Iowa Democrat who is chairman of the Senate Health, Education, Labor and Pensions Committee, said in a statement… “These practices are not the exception — they are the norm. They are systemic throughout the industry, with very few individual exceptions.”

According to Harkin’s findings, for-profit colleges take in about $33 billion each year from taxpayers (in the form of student loans), making up 85 to 90 percent of their revenues, yet they spend the large majority of that money on marketing, recruiting and executive salaries – CEOs took home an average of $7.3 million a year. Not surprisingly, this business model fails their students: 54 percent of the students who enrolled in the 30 biggest for-profit schools examined by Harkin in 2008-09 left institutions without a degree.

Looking to maximize profits, these schools target those most likely to receive lots of federal student loans: low-income students, immigrants, students of color and other nontraditional types of students. Perhaps most predatorily, they have sought to enroll veterans of the recent wars in Afghanistan and Iraq. Student loans from the G.I. Bill count as private money, not federal loans, helping for-profits stay below an imposed 90 percent threshold for revenue from the federal government while maximizing profits. It got so bad that earlier this year President Obama penned an executive order to protect U.S. troops from recruiters, saying that these schools are “trying to swindle and hoodwink you.”

Last week, Harkin held a press conference with some colleagues sharing his findings. One of the speakers was a former for-profit college recruiter who described the techniques she used to convince potential students to apply:

“The pain funnel was used to ‘demoralize potential applicants by discussing their life’s shortcomings in order to have them enroll, where their life would improve.’ Such techniques are both ‘predatory’ and ‘very successful,’ she said. Students would enroll with the ‘expectation that if they spend enough money, whether through savings or students loans, their problems would be solved,’ Brozek said. ‘For a large percentage of students who enrolled, this was simply not the case.’”

Another was a former Army captain who denounced the treatment of veterans saying that if hospitals behaved like these schools, their executives would be in jail.

The examples of abuses are shocking. Take this recent story from a report by The Village Voice’s Chris Parker, in which a recruiter from Ashford University encouraged 14-year-old Bobby Ruffin Jr. to enroll for classes without telling his parents and to let the school lie for him on his financial aid forms. Parker writes, “Bobby took online classes for almost a year. …”

“Of course, it’s illegal for kids Bobby’s age to receive financial aid…. But when [Bobby] wouldn’t endorse Ashford [University]’s lying on his financial-aid forms, administrators miraculously discovered that he was under 18. Since this left him ineligible for federal aid, Ashford was forced to return his loan money to the feds. The school wouldn’t be eating those costs. Bobby would. Ashford, which declined interview requests for this story, sent him a bill for $13,000.”

Examples like this abound.

How are for-profit schools getting away with this behavior? The same way most companies get what they want in this country: with millions of dollars in lobbying federal lawmakers, pricey lawyers and strategic campaign contributions.

This is an industry that is by and large exploitative to its students and useless to the public good. But business seems to be going just fine – for-profit universities have an average profit margin of 19.7 percent. They just won’t tell you that those profits are coming from our taxes – and at the expense of some of the most vulnerable among us.

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  • Don Williams

    In 1968, I was “hired” as a “counselor” (sales rep) for a radio broadcasting school in Dayton, Ohio. I learned the canned pitch, had lots of appointments (I had been a radio personality in the Dayton market, so I was known as a radio professional) and had dismal results selling. The reason was simple. I did not believe in what I was doing nor that the school provided a good broadcasting education. Some of the families I met with would talk about how they could forgo necessities in order for their child to be able to go to the school. It was a scam in my opinion and my career with this outfit was short-lived. I couldn’t swindle people, taking their money for an education that I new could be got while getting paid by radio stations. These kids could do what I did when I as 16: go to work for a small market radio station and learn it there. The ability to do this isn’t as available today as then, but it can still be done. There are over 12,000 radio stations on the air in the USA. The vast majority in small or medium sized markets.

  • Eliot W. Collins

    Students also pay high tuition to “not-for-profit” schools and end up with “worthless” degrees. These students do not even earn enough to pay off their college loans. Their administrators and tenured professors, however, do quite well. Let’s see THEM get higher paying jobs in private industry.

  • Jerry Fair

    This is why I hate the congress so much. They allow millions of taxpayer dollars to prop up these scam schools and it is all dishonest but legal because it has the stamp of approval of the great congress of the united states. The congress should be shut down. It is nothing but an organized crime center. Stop the spending. Stop the waste. Stop the corruption. STOP.

  • Jeanne Allison

    No one in “not-for-profit” schools makes 7 million dollars. No one. And, in today’s world, many of the full-time faculty are not tenured, and some have even come from private industry, where they made more money, to teach believe they believe in the value of a real education. I’m not saying everyone of them is perfect, but I’ve worked for private industry, not-for-profit schools, and one for-profit school. No one, NO ONE, is as shady as the for profit educational industry. It is a racket like none other, preying on the educated.

  • Anonymous

    This is not a new problem, but I’m glad to see this new coverage of it. (Also read “Leveling the field: What I learned from for-profit education” by Christopher R. Beha, published in October 2011 in Harper’s Magazine:

    The for-profit college racket is like a cancer, and is but one among a litany of ills that plague our nation and society. I can’t get started on that now; it’s too dark. But good luck to anyone optimistic enough to work toward brighter futures!

  • Sage McCarey

    You are 100 percent right Jerry Fair.

  • Dee smith

    This is the dark side of our economy. When you hear Newt, he does not say you won’t pay taxes but that everthing should be privatized. We will pay taxes for less services, but money funnels to businesses. We in turn will pay again! I wish Americans would get smarter about this. I graduated college with zero debt. I do not believe in student or car loans. People should stop doing this!!

  • Lindi

    Why not dig a great big hole and and dump our tax dollars into it directly? These “schools” need to either be regulated or shut down. How about no student aid without proof of education?

  • Jerry Fair

    I vote for shutting them down.

  • Jerry Fair

    Oh and you might want to shut the congress down too while you are at it.

  • Jerry Fair

    I think so. The trouble is being right and a $1.95 will get me a cut of coffee. Where are these congressmen we pay so much to make decisions that are supposed to be in the public’s interest? Special interest is all that matters to those bums. Just once I would like to see the congress do something that made sense. You’ve got the crazed neo-cons on one side and the wimpy progressives on the other. The results are always the same-waste and corruption on a grand scale. Shut the whole thing down and forget about it.

  • DavidinSantaFe

    Another good example of how the banks have made money on the vulnerable. Most of the money is Federal coming from student loan programs. Congress passed a bankruptcy law that does not forgive student debt. Graduation rates are low. Students and taxpayers lose; banks win. Thanks to Tom Harkin for exposing the scam.

  • Sharon Stanford

    Two words: Football Coaches. Other than that, I agree with you 100%