Monday, July 7, 2014

For-Profit Education: The British Are Even Dumber Than We Are

Public education has been under attack in the United States for some time.  Free market ideologues and predatory capitalists are anxious to get a piece of the huge educational pie.  They have been rather successful in propagating the myth that our schools are failing to educate our children and our economy is suffering as a result.  Those who might be tempted to heed this siren song should consider the one example we have of free competition between for-profit and non-profit organizations in higher education.

Steve Eisman was one of those who became famous and wealthy by betting that the subprime mortgage industry and the associated financial instruments were going to crash back before the Great Recession.  In 2010, a few years after the financial debacle when the crimes and misdeeds responsible had been identified, he was moved to make this statement:

"I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task."

As in any industry, there are good and bad actors.  What seems to have incensed Eisman was the common practice of maximizing profit at the expense of students and taxpayers.  For many for-profits the path to prosperity meant recruiting as many students as possible, whether they were capable of college-level work or not.  Once recruited, assistance was provided in obtaining student loans that guaranteed a profit for the schools even if the students failed.  Since the government would ultimately pay the bill, exorbitant tuitions could be charged even for worthless educational programs.

The profits from this scam were sufficient to purchase legislative and regulatory protection for many years, but all good things must come to an end.  The claims of enough people like Eisman eventually make it into the public consciousness, and things like false advertising eventually will get you into trouble.  The federal government also became weary of issuing loans that would never be repaid and began to threaten to withhold student loans for “subprime” academic programs.

An article by Kevin Carey in the New York Times provides an update.  Carey writes of one of the worst offenders among these educational organizations: Corinthian Colleges.

“Late last month, Corinthian Colleges, a publicly traded for-profit higher education company that enrolls 72,000 students at over 100 campuses nationwide, announced its imminent bankruptcy.”

“Facing declining enrollment and multiple investigations into its financial and educational practices from parties including the federal Consumer Financial Protection Bureau and a group of state attorneys general, Corinthian was also under pressure from Department of Education regulators demanding information about practices that, the department said, included “falsifying job placement data used in marketing claims to prospective students and allegations of altered grades and attendance.” The department announced that it was temporarily withholding some of the federal student aid money that makes up the vast majority of Corinthian’s $1.6 billion in annual revenues. The company said the cash delay would render it effectively insolvent.”

“Last week, Corinthian and the Education Department agreed to negotiate a settlement that will amount to an orderly dissolution of the company.”

The Obama administration has proposed that programs at schools whose students typically do not make enough on graduation to pay back their loans will not be eligible for student loans.  Since many schools depend on this revenue for their existence, this is a big deal.

“The industry sued to block the regulations, which remain tied up in lengthy judicial and federal rule-making procedures. But that didn’t prevent the administration from calculating which programs would have failed under the new regulations.”

Carey produced this chart detailing the results of the Department of Education in grading the various educational organizations.

Carey provides additional background.

“To end up in these categories, programs must have terrible results. At Corinthian-owned Everest College’s Newport News, Va., campus, for example, more than 500 students completed the medical assistant certificate program during the 2007-08 and 2008-09 school years. After hitting the job market, they earned an average of $12,553 per year in 2011. Since 90 percent of full-time medical assistants are paid at least $21,080 per year, according to the Bureau of Labor Statistics, this suggests that many of these students couldn’t get jobs in their field at all. The 10-month program costs ‘about $20,000,’ according to a telephone representative whom I spoke to this week only after an online representative refused to tell me the price, saying, “I don’t have access to that information.” It’s not surprising that a third of all the program’s borrowers defaulted on their loans.”

Note that Corinthian Colleges is only third on this list of bad actors.  It would not be surprising if others suffered the same fate.

The ethical and academic failings common in the for-profit industry have been know for many years.  It was with a mixture of amazement and amusement that an article was encountered bemoaning that the UK had decided to copy the system in place in the US.  It seems that once an idea invades the brain of a free-market ideologue, it is incapable of being altered.  A good idea in principle must be a good idea in practice.

The British seem to have noticed that many of the highest-rated US universities were private institutions, whereas the UK’s flagship schools were public.  They also seem to have assumed that private is always better than public.  Unfortunately, they also seemed to be unable to recognize a difference between non-profit private and for-profit private.

An article by Carol Matlack in Bloomberg Businessweek provides a look at how this is working out for the British: The British Have Their Own Student Loan Mess.

“When the British government opened up its student loan program to private institutions in 2011, Universities and Science Minister David Willetts said the goal was to unleash market forces in a system long dominated by stodgy public universities. Getting access to loans would help private colleges compete for students, he said, encouraging innovation and putting pressure on public institutions to hold down tuition increases.”

“The forces unleashed, however, weren’t exactly what Willetts had in mind. Reports of alleged abuses by private institutions are proliferating, including a recent investigation by the Guardian of a for-profit college in London that allegedly scooped up millions in loans as it tripled its enrollment with students who were recruited off the streets and rarely attended classes. Staff at additional for-profit schools have complained of similar practices and low educational standards. According to the Guardian, some 40 percent of student-loan recipients at private institutions are foreigners, including a large number of Bulgarians and Romanians.”

One of the practices employed in the US was for schools to pay people if they would just show up for class occasionally.  The tuition earned by the school was far more than the payment to the student making it lucrative to recruit the homeless, for example.  In their effort to outdo the US it seems that the British have taken this scam to another level by providing the “stipend” directly to the “student” with government funds.

“Recalling similar practices in the U.S. a few years ago, the Guardian reported last month that the for-profit London School of Science and Technology had tripled its enrollment since 2011, raking in some £6.5 million in loans for students who “blatantly” lacked qualifications to attend college. Class attendance rates are below 40 percent, the newspaper said, and students refer to the school as “the ATM” because they can receive government loans and grants for their living expenses in addition to the tuition aid provided directly to the school.”

The British were also exceptionally generous in setting the terms under which student loans must be repaid.

“Debts incurred by students at for-profit schools could weigh more heavily on British taxpayers than on borrowers because of the government’s generous repayment terms. After leaving school, borrowers don’t have to make loan payments as long as they earn less than about $35,000 a year. Those earning more make monthly payments that equal 9 percent of any income over $35,000.”

What could they have been thinking?

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