Tuesday, August 24, 2010

More on For-Profit Schools

For those of you who were aghast to learn that a few of the for-profit colleges were offering cash to homeless people if they would apply for student loans and attend class, you will be happy to learn that the pressure is gradually being turned up against these people. An article in Businessweek entitled "What’s This Degree Worth?" shines a spotlight on Education Management Corp. (EDMC), 38% owned by beloved Goldman Sachs. The main theme is that the schools run by EDMC have been known to charge exorbitant fees for essentially worthless degrees.

The lead story is about a young woman who wished to have a career designing video games. She enrolled in the Art Institute of Fort Lauderdale. Tuition and fees for a degree in game art and design added up to $70,000. The best she could do after graduating was a $12 an hour job recruiting employees for video game companies. She was soon laid off and now makes a living as a stripper in a night club. She has thought of going to another college, but she would have to start from the beginning because none of the credits from the "Art Institute" would be acceptable at a traditional school. She was sold an expensive degree in a field that perhaps does not even exist, or, at least, can not provide a salary commensurate with the debt accrued.

A second story involves a woman who attended Argosy University in Dallas. She acquired a doctorate in clinical psychology at the cost of $130,000 in student loans and $150,000 in private loans for living expenses. When she enrolled she was told the school would be accredited by the American Psychological Assn. (APA). When she graduated she discovered that positions with a decent salary were not available to her because she had a degree from an unaccredited institution. Argosy is still "preparing" for the accreditation process. A group of students is suing Argosy for having provided them with false information.

I want to add a personal observation. Within the past week I heard one of these schools advertising on the radio a program in "Construction Supervision." Whoever heard of such a field?

There are two aspects of the situations described above. One involves the greed for easy money on the part of the schools. That is a well-understood phenomena that can be dealt with whenever an outbreak is detected. The second involves the apparent gullibility of the students. Why would one plan to spend more money at an unaccredited college than it would cost to get an equivalent degree at a traditional school? As the article points out for-profit schools are offering culinary degrees for $40,000 to $50,000, but a beginning cook only makes about $18,000 a year. If the person is lucky, it will only take a lifetime to pay off that debt. Part of what is happening must involve preying on students who either could not gain entry to a traditional school for some reason, or who are unable to defend themselves against the onslaught of misleading claims and promises that school recruiters are providing. This only makes the behavior of the schools more despicable.

These practices have not escaped the notice of Congress. The GAO was tasked to send undercover agents to several schools posing as prospective students. The results of the report are available from the GAO. Here is the meat from the Executive Summary.
"Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO's undercover applicants. Four undercover applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid--for example, one admissions representative told an applicant to fraudulently remove $250,000 in savings. Other college representatives exaggerated undercover applicants' potential salary after graduation and failed to provide clear information about the college's program duration, costs, or graduation rate despite federal regulations requiring them to do so. For example, staff commonly told GAO's applicants they would attend classes for 12 months a year, but stated the annual cost of attendance for 9 months of classes, misleading applicants about the total cost of tuition. Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options. However, in some instances, undercover applicants were provided accurate and helpful information by college personnel, such as not to borrow more money than necessary. In addition, GAO's four fictitious prospective students received numerous, repetitive calls from for-profit colleges attempting to recruit the students when they registered with Web sites designed to link for-profit colleges with prospective students. Once registered, GAO's prospective students began receiving calls within 5 minutes. One fictitious prospective student received more than 180 phone calls in a month. Calls were received at all hours of the day, as late as 11 p.m.....Programs at the for-profit colleges GAO tested cost substantially more for associate's degrees and certificates than comparable degrees and certificates at public colleges nearby. A student interested in a massage therapy certificate costing $14,000 at a for-profit college was told that the program was a good value. However the same certificate from a local community college cost $520. Costs at private nonprofit colleges were more comparable when similar degrees were offered."There is an article here describing the Administration’s response.
"The proposed rules released today by the U.S. Department of Education would link U.S. student aid eligibility at Apollo Group Inc., ITT Educational Services Inc., Career Education Corp. and other education companies to former students’ salaries and debt repayment rates. The rules may cut off access to federal student grants and loans at about 5 percent of all for- profit education programs, Secretary Arne Duncan said in a telephone call with reporters yesterday."

"Students earning two-year associates’ degrees at for-profit colleges had an average student-loan debt of $14,000 in 2007- 2008, about twice that of students at nonprofit colleges, the department said in a statement."

"If the rules were in effect today, programs enrolling about 8 percent of the students at for-profit colleges nationwide would lose eligibility, the Education Department said."

"Under the proposed rules, the Education Department would monitor loan repayments and starting salaries among graduates of for-profit colleges. To remain fully eligible for student loans, education companies would have to show the agency that at least 45 percent of their former students are paying off their student loans, or that graduates pay less than 8 percent of their total income or less than a fifth of their "discretionary income" on student loan payments."
Critics of the Administrations plan state that his is a step in the right direction and is a good approach, but they believe the restrictions proposed are not severe enough. In my current state of outrage I would tend to agree.

Let us finish on a pleasant, harmonious, perhaps-all-will-be-well-with-the-world note.
"Near their peak in April, Goldman’s shares in EDMC were worth $1.39 billion. Since then they have fallen by 42 percent, to about $800 million."


  1. Hi, Rich
    Steve here. Nice to hear from you. I like the article you wrote but wonder about the advertisement for Strayer University on this blog -is that one of those for-profit schools??? I have seen many of their adds out here in NC, but never looked into them.

  2. I have not seen Strayer listed among the evil doers. The Washington Post did give the Strayer president a column a few days ago where he claimed that for-profit schools have a role to play and we should not paint all with the same brush. So Strayer appears to be one, but perhaps a different breed?


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