How for-profit colleges are cheating flyover America

There’s a smoldering scandal destroying lives by the thousand, and they’re the lives of the most deserving of Americans: the hard-working, hopeful poor; the unemployed vets; the newly-single moms; the strivers in minimum-wage jobs who messed up in school and want another shot.

They share two things, these flyover dreamers of the American Dream. They’re determined to do what it takes for a better tomorrow, for themselves and for their families. But their ability to climb by the standard route – by going to college and gaining standard qualifications – is marginal. Which makes them a terrific market opportunity.

It makes them gold-dust to the entrepreneurs of for-profit higher education – regardless of their chances of succeeding. As an article in Forbes put it, “Terrible Outcomes Are Very Profitable.”

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It works through a combination of two factors.

First is the availability of low-cost loans for college – for both tuition fees and living expenses. These are easy to get, even by people with bad credit and zero collateral.1

Second, the flyover dreamers don’t know much about higher education. And because they are hopeful and strongly motivated, they are likely to apply to any old institution regardless of the reputation and the quality of education they might be signing up for. 2

From a marketer’s point of view it’s a dream come true: ill-informed, highly motivated prospects who have access to tens of thousands of dollars of borrowed money. Companies set up institutions with grand names such as the Art Institute of New York, claim 90% success rates at getting students jobs, and persuade gullible hopefuls to get over their heads in debt. 3

For-profit recruiters are using high-pressure sales techniques to press ill-qualified consumers into borrowing and handing over large amounts of money

Of course, there’s nothing wrong, in principle, with for-profit education. At the skills-based, hands-on end, private efforts have long played an important role in the sector – from language schools to secretarial schools to schools for bar-tenders. 4 And there’s everything right about the generosity with which the US government enables students to get hold of funding and take it to any school they choose.

However, for-profit recruiters are using high-pressure sales techniques to press ill-qualified consumers into borrowing large amounts of money and handing it over to them. They’re persuading people to gamble the biggest loan of their lives on a sales pitch – that they’ll end up better off even after repaying the loan and spending years in the programme (when they could have been out earning money).

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So, naturally, for-profit schools throw all the resources they can muster into selling themselves. While typical non-profit institutions spend around 1% of their budget on marketing themselves, one study found for-profits spending 23% (money, of course, not available to spend on the quality of the programme). At one point, the University of Phoenix was the worldwide top advertiser on Google – outspending all the major banks and retailers with a whopping $400,000 a day.

And they target their selling on the most vulnerable people they can find. In her tell-all book Lower Ed former for-profit recruiter Tressie McMillan Cottom spells it out. They go after students who are most eligible for financial aid. “That happens to be the poorest among us,” she says. “And because of how our society is set up, the poorest among us tend to be women and people of color.” She was trained to focus on just these people, and to do whatever she needed to bring them physically into the school so they could sign up before they had second thoughts. After a while she began to wonder if this was really a good idea for them.

When they graduated last year, 88% of students from for-profit colleges owed an average of $39,950.

There’s a lot of money involved. When they graduated last year, 88% of students from for-profit colleges owed an average of $39,950. As the television programme PBS Newshour sums it up, “Students who attend for-profit college and training programs are more likely to borrow, borrow more and struggle to repay their loans.” Only 27% actually graduate (online programmes: worse) – less than half the number in traditional schools. Either way, almost everyone ends up with debt. 5

And the future? Well, it’s bad news for flyover America. The Obama administration belatedly curbed the worst excesses and shut down the key “accreditation” body run by and for many of the shadier schools – the so-called “Accrediting Council for Independent Schools and Colleges”. But it’s planning a come-back under Donald Trump’s new Secretary for Education, Betsy DeVos.

To get back in business, it will have to pass the scrutiny of the National Advisory Committee on Institutional Quality and Integrity, which vets accrediting bodies. It’s chaired, as the New York Times points out, by one Arthur Keiser. He used to run for-profit Keiser University.

 

FOOTNOTES
  1.  Loans require students to attend “accredited” schools, but in the US accreditation is not directly a matter for government. The gold standard is “regional” accreditation – half-a-dozen groups run by the universities and colleges in each part of the country that assess each other. But other accrediting bodies have been recognised by the Department of Education, including some specially devised for non-traditional and for-profit schools. One problem with this system is that few aspiring students know that “accredited” does not always indicate the same standard, or (for example) whether other schools will accept transfer credits from an institution (a huge issue if you drop out, as most of these students do). It should be noted that many for-profit schools have held regional accreditation, including the largest – the University of Phoenix.
  2.  U.S. Senator Dick Durbin from Illinois, a major critic of the for-profit sector, writes an annual letter to high school principals across the state urging them to warn their students about the problem. It’s full of interesting detail and illustrates the scale of the challenge – in just one state.
  3.  This example is from a PBS (U.S. public television) programme. For making false claims of that kind, the company that owned the “Art Institute” was ultimately fined $95m by the federal government. But Danielle Lopez, who had borrowed $25,000 in the hope of becoming a pastry chef, was – like many, many other – left in the lurch as the programme closed.
  4.  What’s more, there are some more respectable operators at the higher end, offering full degrees. Strayer University, for example, just signed a deal to train Fiat Chrysler employees. One big problem for prospective students is that there are some institutions, most notably the University of Phoenix, largest such school in the country with over 200,000 students, which straddle both sides of the line. They have many satisfied alumni, but have also been accused of recruiting students with no chance of success, and of active deception.
  5.  It’s worth noting that under U.S. law student loans, unlike credit card loans and even in some cases tax debts, are not normally dischargeable in bankruptcy.