Neoliberalism and the For-Profit, Predatory Educational Industry: You Can't Regulate a Criminal Enterprise
Thursday 23 September 2010
by: Danny Weil, t r u t h o u t | Report
(Photo: Chester Paul Sgroi / Flickr)
You might have been following Secretary of Education Arne Duncan and his department's attempts to reign in the for-profit universities and colleges for their criminal activities. Perhaps you recognize some of these for-profit universities and colleges, for they are well known due to their marketing and are heavily traded on the stock market - DeVry (ticker: DV), Grand Canyon Education (LOPE), as Apollo Group (APOL), ITT Educational Services (ESI), Kaplan (WOP) and Strayer Education (STRA). There are literally thousands of these schools in existence and most are online schools with office fronts that act as administration centers for the whole for-profit syndicate.
The Department of Education (DOE), after a 2010 Government Accounting Office (GAO) sting operation that unveiled the vile tactics of 15 of these predatory institutions, says it wants to adopt new regulations that would rein in the for-profit educational industry. Yet, this is not the first time the "industry" has been caught with its pants down and its fists full of dirty money. Earlier, in 2009, another GAO investigation was launched and similar acts of criminality were found (United States Government Accountability Office, Proprietary Schools: Stronger Department of Education Oversight needed to help ensure only eligible students receive financial aid, August 2009,).
Under Title IV of the Higher Education Act, any school can receive federal taxpayer funds in the form of student aid if it offers courses of study such as certificates, associate degrees, bachelor degrees, graduate degrees or professional degree programs. Proprietary schools offer a small percentage of bachelor degrees, but a substantial percentage of certificate degrees. Overall, the proprietary sector receives the smallest percentage of Title IV funds, 19 percent, as compared with the public and nonprofit, which is 48 percent and 33 percent, respectively. Although the majority of enrollees in these colleges are in four-year programs, the two-year proprietary schools account for a significant percentage of the proprietary customer base.
The Crime Scene
Before we discuss the proposed new regulations due to take effect on November 1, 2010, it is important to understand the for-profit college and university venture industry as a virtual crime scene. For that is what it is. When one begins to think about the for-profit educational industry as a larcenous crime scene then it becomes ludicrous to even consider regulations of what are criminal acts; at the same time, it also becomes apparent how the for-profits work, and the human lives they decimate and destroy in the name of education when their sole motive is profit.
Any "cop on the beat" knows that when a crime scene is found, the first thing that is necessary is to put yellow tape around the area so that no evidence is tampered with and the crime scene can remain "clean and intact" for purposes of critical investigative scrutiny. Imagine yourself a detective arriving on the for-profit crime scene. The yellow tape is all around the "industry" carnage and now you must bend down and get yourself under the yellow tape and enter into the crime zone in an attempt to gather and bag evidence, obtain information and collect any clues as to how the perpetrators operate and who they might be. Looking around inside the circumference of yellow tape, one sees the following evidence of larceny, fraud, misrepresentation and theft:
- Federal aid to students at for-profit colleges jumped from $4.6 billion in 2000 to $26.5 billion in 2009. Publicly traded, higher education companies derive three-fourths of their revenue from federal funds, with Phoenix University at 86 percent, up from just 48 percent in 2001 and approaching the 90 percent limit set by federal law. And the fact of the matter is that, although the default rate is climbing through the roof (see: "Predatory for-profit colleges and universities: the escalating default rate for student loans," July 13, 2010), the predator colleges continue to enroll more and more students knowing they cannot and will never be able to pay their loans.
- What is being sold as education for "debt" are such phony degrees as Homeland Security degrees - cost $80,000 a year for a bachelors degree; or try $30,000 to get a "Surgical Technical" degree at Kaplan University that is itself fraudulent. Culinary and arts "education" is being peddled for more than $50,000! A whole swath of surveillance and criminal justice "degrees" are being auctioned off for as much, if not more ("Drive-by predatory colleges put students into debt purgatory and deficits into the stratosphere," April 11, 2010, Weil, Danny).
- Kaplan, the for-profit predatory college whose name keeps popping up when one looks at fraud, misrepresentation, larceny of Title IV funds, theft of student funds, recruitment practices that parallel the military and many other issues such as poor professors, pre-packaged curriculum and failing colleges, has tried to privatize part of the Community College System in California.
- Kaplan College in Pembroke Pines suspended enrollment following the federal investigation covered in the 2010 GAO report referenced above. They stopped enrolling new students after federal investigators uncovered incidents of high pressure and potentially fraudulent and misleading sales tactics.
- A second Kaplan campus in Riverside, California, did the same thing. They also put new admissions on hold pending the results of an internal investigation ("Kaplan College suspends admissions at Pembroke Pines campus following federal investigation, Scott Travis," Sun Sentinel, August 5, 2010).
- Students were enrolled in the CHI/Kaplan Surgical Technology Program year after year, but they were purposefully not being told by Kaplan and their personnel that, in all likelihood, externship sites, required for the SurgTech program would not be available. If verified from further investigations, the practices amount to concealment fraud, overt misrepresentation and possible theft of Title IV funds. CHI/Kaplan upper management, well aware of the lack of externship sites needed to permit students to complete their program, continued for years to recruit and enroll students in a program whose tuition costs approached nearly $24,000 a year. When the fraud was detected, the college then engaged in illegal practices designed to reduce the number of enrollees by forcing students out on technicalities. Hundreds of students were unable to finish their programs and had their personal lives and credit history ruined ("Whistleblower Exposes How Kaplan University Cheats Low-income Minority students and The Washington Post Benefits," April 18, 2010).
- Kaplan is hardly alone in its hyperbolic predation. Corinthian College and the notorious Phoenix University have paid millions in whistle blower fines under Qui tam suits brought against the colleges.
- The Apollo Group Inc., the company that owns the University of Phoenix, fraudulently misled investors in 2004 about student recruitment policies. The panel ordered the company to pay shareholders about $280 million (January 17, 2008, The New York Times, "Fraud by University Owner Is Found").
- Jurors said Apollo officials "knowingly and recklessly" made false statements in a news release, a filing with the Securities and Exchange Commission and four conference calls with market analysts. By doing so, jurors said, Apollo violated federal securities laws (ibid).
The Washington Monthly found that in late 2009:
"The students who are flocking to these schools are mostly poor and working class and they rely heavily on student loans to cover tuition. According to a College Board analysis of Department of Education data, 60 percent of bachelor's degree recipients at for-profit colleges graduate with $30,000 or more in student loans - one and a half times the percentage of those at traditional private colleges and three times more than those at four-year public colleges and universities. Similarly, those who earn two-year degrees from proprietary schools rack up nearly three times as much debt as those at community colleges, which serve a similar student population. Proprietary school students are also much more likely to take on private student loans, which, unlike their federal counterparts, are not guaranteed by the federal government, offer scant consumer protections, and tend to charge astronomical interest - in some cases as high as 20 percent" ["The subprime student loan racket," Washington Monthly, Stephen Burd].
The criminal activity is not simply constrained to for-profit universities and colleges, as they like to refer to themselves. In December of 2009, the owners of the Business Computer Training Institute, or BCTI in Oregon, agreed to pay $3.2 million to settle six lawsuits by former students who attended its two Oregon campuses.
The lawsuits accused BCTI of fraud and unfair business practices, saying it lured students with inflated job-placement claims, but failed to provide the education it promised. The school closed in March 2005 under regulatory pressure ("Settlement with ex-students in Oregon," The Oregonian, Brent Hunsberger).
Then, there is ITT Educational Services, which reported in 2009 that new student enrollment increased 27.2 percent to 27,738 in its third quarter. With private sector lending still in decline, the for-profit educator is increasingly funding growth through an internal loan program not much different than a payday loan center. As a result, growth metrics looked impressive for ITT at the quarter that ended September 30, 2009:
- Total revenue per student increased 4.5 percent to $4,852 per student, helped by a five percent hike in tuition fees implemented in March 2009. Looking to 2010, management expects to raise tuition another 4 to 5 percent.
- The third-quarter operating margin improved 437 basis points to 36.1 percent, or $122.7 million, helped by lower advertising rates and more effective lead conversion rates (into enrolled students). ("Lessons not learned at ITT Educational Services," November 8, 2009, David Phillips, BNET online.)
As BNET online noted back in 2009, the notion of ITT lending money to students who then pay them back the money with interest through an internal loan program is shylocking:
"With a 10 percent unemployment rate in this country, the for-profit education industry is a playground for those in need of dreams. Do not be mislead by ITT's numbers, as the trail of money starts and ends back at ITT itself. Federal loan programs are falling short, so the company is dipping into its own coffers to help students cover this widening tuition gap. Up to 65 percent of its students need private lending, and analysts estimate that $100 million to $120 million in loans and scholarship assistance will need to come from ITT's internal lending program." [ibid]
Student Victims as Prey
The for-profit predatory colleges, in their mad dash to suck up as much as they can in Title IV funds, Pell grants, and other government subsidies, thus enriching their investors at the expense of students, prey on and then wolf down the most disadvantaged students they can find.
The for-profit predatory colleges sign up as many "borrowers" as they can - even pounding on homeless shelters to recruit bodies, looking for drug addicts they can enroll from recovery programs and all of this with debilitating consequences for borrowers who miss payments and borrowers' families. They set up at welfare offices, hang out at laundromats in low-income neighborhoods, recruit at public housing units, and their "recruiters" patrol the streets of distressed neighborhoods in automobiles or on foot looking for vulnerable working class bodies they can register for government cash.
As I noted at Dailycensored.com back in July of this year:
"You see, such disadvantaged students are desirable for the for-profit colleges because they qualify for federal grants and loans, which are largely responsible for the prosperity of the predators, the more bodies the colleges can 'ranch' the more money they make. When the students default and go back to alcoholism, drugs abuse, lock-down programs, mental institutions, prisons or the streets, you the taxpayer pay the government 97 percent of the loan, for you are covering the bet the students will graduate and pay their loan obligations, a bet not even Las Vegas would touch" ("For-profit predatory colleges and universities prey on the homeless while hedge fund operators get busy shorting the sector's stock: the next big economic bubble").
Many of the student-victims see the ads these syndicates run perpetually on TV hawking the educational degrees and the consumer life they promise to deliver. They promise the student this degree or that degree will bring them out of poverty or help them gain some of the material wealth they see on TV and in ads throughout their young lives. ("Stimulus Wreckage," Matt Smith, September 30, 2009 www.sfweekly.com.) They advertise themselves as conveyor belts to successful jobs in the middle of the Second Great Depression, spending as much as 50 percent of their revenue on marketing alone.
Many of the schools exclusively prey on low-income people and many candidates find out information about proprietary schools from presentations given or brochures left at food stamp offices, welfare offices or at low income housing projects. Cars with large signs on the doors have also been known to drive through housing projects slowly, like ice cream trucks (United States Government Accountability Office, "Proprietary Schools: Stronger Department of Education Oversight needed to help ensure only eligible students receive financial aid," August 2009).
The schools employ recruiters, who also attend staged or legitimate "job fairs," in an attempt to attract the unemployed, who they can then cannibalize at the fair itself. One young woman I recently talked to at the Phoenix University told me she was recruited this way. At a job fair, she was approached by an "academic counselor," who aggressively got her to the school's "financial aid counselor" the same day. These are drive-by schools, "disaster schools" without a doubt, and their tactics are ruthless, their owners are without conscience and their profits sheets are bulging.
The Public as Victims
According to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com:
"Americans owe some $826.5 billion in revolving credit, according to June 2010 figures from the Federal Reserve. (Most of revolving credit is credit-card debt.) Student loans outstanding today - both federal and private - total some $829.785 billion.
"The growth in education debt outstanding is like cooking a lobster. The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you're already cooked. (August 9, 2010, Mary Pilon, "Student-Loan Debt Surpasses Credit Cards").
By Kantrowitz's estimations there is $605.6 billion in federal student loans outstanding and $167.8 billion in private student loans outstanding. His tabulations show that $300 billion in federal student loan debts have been incurred in the last four years; this, while Americans were asleep and the corporate media purposely concealed the story (ibid). The bad news: none of the debt is dischargeable in bankruptcy and, therefore, will be paid by the general taxpayer.
According to The Chronicle of Higher Education, "one in every five government loans that entered repayment in 1995 has gone into default. The default rate is higher for loans made to students from two-year colleges, and higher still, reaching 40 percent, for those who attended for-profit institutions." ("Government vastly undercounts defaults," Field, K., July 11, 2010.)
Corinthian Colleges, another large, publicly traded player in the predatory, subprime, education market, announced in July 2010 that more than half of the loans it makes to its students will go bad. No problem, the college still makes profits for its investors and CEO's. Like most of the predatory institutions, it gets its money from government Pell grants and Title IV funds ("The Chronicle of Higher Education, Why do you think they're called for-profit," July 30, 2010).
The Phoenix University (the Apollo Group) is saddled up this year alone to receive $1 billion dollars from Pell Grants, not to mention the other $4 billion it will get from Title IV funds (ibid).
This means that government taxpayers will be on the line to cough up the money already siphoned off by the for-profit predatory schools as defaults spiral out of control and bankruptcy eludes students as an option.
The Community and State Colleges as Victims
The community colleges of the state of California, reeling from debt, entered into a memorandum of understanding this year which would have allowed students to take courses at Kaplan University, the private, online school. When the manure began to ripen, and it was discovered that the "units" would not be transferable to UC or Cal State campuses, the deal was canceled. (Larry Gordon, "Community colleges cancel deal with online Kaplan University," Los Angeles Times, August 26, 2010)
The plan, basically contracting out education for profit, was intended in part to offer students at the state's 112 community colleges a way to take courses that might have been canceled or overcrowded because of state budget cuts. But some faculty, concerned about getting entangled with a proprietary school, especially one like the notorious disaster college Kaplan, revolted. Kaplan, in its efforts to commodify education, planned to charge students a whopping $646 for a three-credit class, compared with $78 at a community college. Why? This is part of their business plan and how they take Title IV money (90 percent of their money comes from Title IV government monies).
Walmart recently announced a deal with the for-profit American Public University System (hardly public, the stock is traded daily on the New York Stock Exchange and is the brainchild of Jim Etter ("The Chronicle of Higher Education, Why do you think they're called for-profit," July 30, 2010). The "university" is better known as the American Military University, which has developed into a publicly traded, for-profit behemoth that now sucks in veterans, either those in active duty or retuning from war. The university is also the home of Larry Forness, the "professor," who lectured students on the best means of using torture, such as injecting Muslims with pig blood ("Does the American Military University (AMU) teach torture to its students or has it taught torture in the past?" WikiLeaks, March 29, 2010). Now, with the veteran market cornered, the American Public University seeks to train nine-dollar-an-hour employees for Walmart under the auspices of higher education, using government funds and especially Title IV monies.
With the current economic devastation sweeping the nation like locusts, more and more students, through visible high-level marketing, are being seduced to attend for-profit colleges. The words to the song are always the same: you need an education; we offer the best-buy in online degrees; you can do the work at your home; times are tough; to get ahead, additional and high-paying work skills are needed to thwart off individual economic collapse; and on and on. The message is very clear; there is no systemic economic problem under the current economic regime that cannot be staunched with a good, for-profit education. Insipid individualism and the commodification of education itself are now joined in a fervent embrace. All of this creates the opening for the predatory, proprietary college system, while it leaves in its wake an economic devastation for public institutions and student lives.
November 19, 2009, California Community Colleges Chancellor Jack Scott (who forged the failed deal with Kaplan) delivered the keynote speech at the opening session of the Community Colleges League of California Annual Convention and Partnership Conference in Burlingame, California.
Chancellor Scott's speech, Living in Difficult Times, addressed the issue of the growing numbers of students crowding into community colleges and how, in these lean financial times, college leaders must find creative ways to do more with less funding. Focusing on the irony of the situation, Scott noted, "At the same time our funds have been reduced, our enrollments have surged."
This fall, statewide enrollment increased at California community colleges by more than 3 percent while the funding was cut by eight percent. Colleges reported, at the time of fall registration, 95 percent of course sections were completely filled, with many students on waiting lists and some turned away with no classes available.
As Peter Phillips from Project Censored reported late last year:
"Higher education has been cut in twenty-eight states in the 2009-10 school year and further, even more drastic cuts, are likely in the years ahead. California State University (CSU) system is planning to reduce enrollments by 40,000 students in the fall of 2010. The CSU Trustees have imposed steep tuition hikes and forced faculty and staff to take non-paid furlough days equal to 10 percent of salaries. Our current budget crisis in California and the rest of the country has been artificially created by cutting taxes on the wealthiest people and corporations. The corporate elites in the US, the top 1 percent, who own close to half the wealth, are the beneficiaries of massive tax cuts over the past few decades. While at the same time working people are paying more through increased sales and use taxes and higher public college tuition." ["The Higher Education Fiscal Crisis Protects the Wealthy," November 22, 2009.]
Countless numbers of Californians are flocking to the community colleges for job-retraining after losing their jobs in the economic downturn. Community colleges are also becoming increasingly popular because the California State University and University of California campuses are full and far too expensive; more veterans are utilizing the GI Bill benefits, and the economy is forcing many to look for affordable higher education options. (Paige Marlatt Dorr, director of communications
California Community Colleges)
When public social institutions like colleges and universities collapse and when veterans return with GI Bills and no public institutions to attend, this is all good news for the predatory colleges, their owners and shareholders. For, as public colleges turn away students in droves due to financial collapse, it means more and more students will flock to the for-profit college centers in hopes of receiving an education and this, of course, means that like vampires, the schools can get their hands on more public monies - the GI Bill funds, Pell Grants, Title IV funds - all this while public institutions starve.
Ah, the beauty of privatization, the free market. But it's hardly free as stated earlier, not with the large default rates in the billions that are shouldered by hard-working Americans who are forced to pay them. The only thing that is free is the public funds transferred to private coffers of these predatory institutions that see only an exchange value in education. The proprietary schools are now like privatized pike in a public lake.
Creating the Material Conditions for the Private Ownership of the Means of Educational Production: The Role of the Neoliberal State
Acting as a collection agency, the federal government collects taxes from ordinary citizens and then distributes the money to proprietary colleges through a middle man, usually Wells Fargo or Sallie Mae. A student must enroll and be accepted at one of the proprietary schools before they can receive Title IV funds in the form of grants, loans or campus-based aid through Sally Mae, Wells Fargo, or any other third party. The schools themselves must also be "approved" by the DOE in order to participate in receiving the Title IV funds. This means the schools must be licensed or otherwise legally authorized to provide higher education in the state they are located in; they must be accredited by an agency recognized for this purpose by the secretary of the US Department of Education and they must be deemed eligible and certified to participate in the federal student aid programs by the Department of US Education (United States Government Accountability Office, "Proprietary Schools: Stronger Department of Education Oversight needed to help ensure only eligible students receive financial aid," August 2009).
This is what is referred to in government parlance as the "triad" - the threshold colleges must meet for government funding. It is the DOE, now under the tutelage of Duncan, that must oversee this entire process and ensure that only eligible students receive Title IV monies in accordance with the triad mandates. The DOE, FSA, manages and administers student financial aid assistance under the Higher Education Act passed in 1965, also known as Title IV. The programs include: William D. Ford Federal Direct Student Loan Program (Direct Loan Program), the Federal Family Education Loan Program (FFELP), the Federal Pell Grant Project (Pell Grant), the Campus Based Aid Program or the Federal supplemental Educational Opportunity Grant (FSEOG), Federal Work Study (FWS) and the Federal Perkins Loan Program (administered directly by the Financial Aid office at each school). In 2008 alone, Title IV funds provided more than $85 billion dollars in student aid of which roughly 16 percent went to the proprietary schools and colleges. That's a lions share by any estimates, especially if you look at the 64 percent default rate, which is and will eventually be paid by taxpayers.
Currently, there is what is called a "90/10 rule" which applies only to proprietary schools. What this means is that at least 10 percent of student tuition must come from means other than student-loan funds. And then there was the "50 percent rule," which required a proprietary school to offer no more than 50 percent of its courses online. These rules were enacted to address rampant fraud among proprietary schools in the 1970s and 1980s. However, in February of 2006, the 50/50 rule was repealed in a reconciliation act passed by Congress. The bill, SB1932 passed the house by a slim margin, 216 to 214, but it then went on to slide through the senate. Now, the schools can offer all their classes online and this means no need for brick and mortar. Most are now "ghost schools," or disaster colleges that reside in office buildings and hardly offer any campus life other than vending machines and computers.
As to the 90/10 rule, which simply mandated that ten cents of every dollar the proprietary school took in had to be from another source other than the federal government, it, too, has been drastically eroded if not vitiated. In July of 2008, long before the $787 billion stimulus, the federal government increased its guaranteed educational loan limits by $2,000 per student. Why? According to Business Week, they were worried that privately funded lending would dry up in the recession, but one of the shocking implications of this move directly benefited the proprietary colleges. Now, with the federal government increasing its guaranteed educational loan limits by $2,000 per student under the new Obama rules, these monies are "counted" as part of the 10 percent by the proprietary schools, creating an accounting mish mash - a paper shuffling accounting system with no transparency and where no one can actually really trace the percentages.
Borrowers must begin repayment after dropping below half-time enrollment, according to the rules of Title IV. Usually, the default rate can be seen after nine months, or 270 days, when the borrower, in this case the student, has not obtained cessation of the debt through myriad and complicated processes, or, in the case of some students referred to deferment or forbearance due to hardship or disability (United States Government Accountability Office, "Proprietary Schools: Stronger Department of Education Oversight needed to help ensure only eligible students receive financial aid," August 2009).
The social policies of the neoliberal capitalist state are responsible for laying the groundwork for creating the material conditions for the private ownership of the means of educational production. This is no surprise. Take the current "stimulus" passed by the Obama administration.
According to an article in Business Week, a web site that covers the rapidly declining state of public education:
"Career-oriented schools such as the University of Phoenix, a unit of publicly traded Apollo Group (APOL), have been benefiting from lean times as adults scramble for credentials they hope will help them find work. The stimulus enacted last month will accelerate this trend by providing an additional $15 billion in Pell Grants for students over the next two years. Apollo, which received more than three-quarters of its $3.1 billion in revenue from federal student aid in the fiscal year that ended Aug. 31, is well positioned to take advantage of the stimulus. Its Phoenix unit already is the biggest recipient of government student aid. In its most recent quarter, which ended Nov. 30, Phoenix boosted ad spending by 24 percent, to $88 million. Its enrollment rose in the quarter by 18 percent, to 385,000 students, who study at campuses in 39 states as well as online." ["For-Profit Colleges: Scooping Up the Stimulus," March 12, 2009, by Ben Elgin and Jessica Silver Greenberg.].
In a letter dated November 19, 2008, to Henry Paulson, then secretary of the US Department of Treasury, the American Association of Collegiate Registrars and Admission Offices along with the American Association of State Colleges and Universities, the Consumers Union, The National Consumer Law Center, the Project on Student Debt, the National Association for the College Admission Counseling, US Public Interest Research and the United States Students Association all wrote to urge Paulson to reconsider his plan to unleash the Bush stimulus monies for private student loans. They implored Paulson in the letter, noting that:
"Most students and families do not use private student loans to pay for college, nor should they." [Letter to Paulson, November 19, 2008, by the American Association of Collegiate Registrars and Admission Offices along with the American Association of State Colleges and Universities, the Consumers Union, The National Consumer Law Center, the Project on Student Debt, the National Association for the College Admission Counseling, US Public Interest Research and the United States Students Association]
The correspondence to Paulson indicated that only 8 percent of students currently use standard bank loans to attend university. This changed now that the banks are flush with money and looking for profitable investment strategies and new investment "opportunities." What could be better than to offer subprime loans to desperate young people looking for an education and a way to maintain civilian life? Yet, the fact is private loans are risky and expensive and lack the protections, oversight and regulations of safer federal loans. Furthermore, providers of private student loans already receive special treatment in bankruptcy at the borrower's expense. But the students don't; their loans are nondischargeable in bankruptcy.
The letter to Paulson went even further, noting the signing groups, unlike federal loans, have no real protections for borrowers and co-signers. And there is no limit to how high the interest rate can climb. The letter notes that private student loans are like subprime mortgages where the lowest income borrower is saddled with the highest interest rates and the worst terms. Not only this, but the letter goes on to point out that in cases of unemployment, disability or periods of no income - even death, their families have few options for relief (ibid).
The loans are impossible to discharge in bankruptcy courts, unlike other forms of consumer debt such as credit cards. As the associations indicated in their letter to Paulson, someone who racks up thousands of dollars buying skis on a credit card can get relief through bankruptcy. Yet, in the case of, say, a teacher saddled with private loans from the proprietary schools who can't work due to disability - she has no way out. The use of bailout monies now put the lenders' investments, or usury, in a privileged category at the expense of students and consumers.
It is criminal that billions of taxpayer dollars are allowed to be spent enabling lenders to continue to make these high risk loans, which then become defaults picked up by taxpayers. But, unfortunately, this is precisely what is going on; for Paulson, of course, didn't listen to the various gate-keeping organizations intent on protecting the public interest, nor did he care; he was more focused on bailing out his friends, not public citizens who have to work for a living. He doled out federal monies despite fervent warnings to major banks, for private student loans, just as he bailed out AIG and Goldman Sachs. The Fed bailed out the lenders of these student loans by allowing them to use subprime student loan assets as collateral for accessing federal funds. Now, the proprietary schools have another venue for slopping up funds headed for debt - thanks again to the actions of the federal government. This is legal crime committed during broad daylight hours, but, of course, no mention of it was reported in the corporate press.
But the story begins long before the stimulus bailout and Obama even thought about entering government. The DOE under George W. Bush and Rod Paige used government deregulation in an effort to help create a system of debt peonage for students, while offering larger and very profitable business opportunities to their friends, the proprietary colleges. Today, we see the chickens have come home to roost as Wall Street continues to find ways to bilk the American people and the corporate media continues to hide the crime scene. Kaplan College, for example, is owned by The Washington Post, a blood bank providing more than 62 percent of the paper's revenue ("Kaplan University: Blood Bank for the Washington Post," July 27, 2010). You can hardly count on them to run a story on the private ownership of the means of educational production.
As Sam Dillon, reporter for The New York Times, reported as early as March 2006:
"The power of the for-profits has grown tremendously," said Representative Michael N. Castle, Republican of Delaware, a member of the House Education and Workforce Committee who has expressed concerns about continuing reports of fraud. "They have a full-blown lobbying effort and give lots of money to campaigns. In 10 years, the power of this interest group has spiked as much as any you'll find."
Sally L. Stroup, the assistant secretary of education who is the top regulator overseeing higher education, is a former lobbyist for the University of Phoenix, the nation's largest for-profit college, with some 300,000 students.
Two of the industry's closest allies in Congress are Representative John A. Boehner of Ohio, who just became House majority leader, and Representative Howard P. McKeon, Republican of California, who is replacing Mr. Boehner as chairman of the House education committee.
And the industry has hired well-connected lobbyists like A. Bradford Card, the brother of the White House chief of staff, Andrew H. Card Jr.
The elimination of the restriction on online education, included in a $39.5 billion budget-cutting package, is a case study in the new climate. Known as the 50 percent rule, the restriction was one of several enacted by Congress in 1992 after investigations showed that some for-profit trade schools were little more than diploma mills intended to harvest federal student loans.
Since then the industry has grown enormously, with enrollment at such colleges outpacing that at traditional ones. In 2003, the last year for which statistics were available, 703,000 of the 16.9 million students at all degree-granting institutions were attending for-profit colleges. (March 1, 2006, New York Times, "Online Colleges Receive a Boost From Congress," Sam Dillon.)
Regulating the Criminal Enterprise
With the deficit growing astronomically due to two illegal wars, the bloated defense budget, bailouts to Wall Street and the costs of subsidizing the for-profit predatory colleges and universities, there was little the neoliberal state could do in light of the criminal activities of the private educational complex, but attempt to regulate the industry.
The new proposed rules by the DOE, due to be passed sometime in November 2010, would supposedly grant the DOE stronger authority to stop these for-profit "colleges" and schools from making false or misleading statements about financial charges. They do this regularly as the GAO report reveals and as the whole sordid history of the industry has shown. They also lie about the expected employability of their graduates, many claiming they can place students in gainful employment when, in fact, they cannot. The DOE also wants the predatory for-profit colleges, universities and schools to be barred from paying recruiters based on how many students they brought in. That's the practice now, and you can read about the whole recruitment corralling of students in an article I wrote back in 2009 entitled: "Private Predatory Colleges: How the neoliberal Alchemists Turn Debt into Profit and Citizens into Fools".
However, the most important and currently onerous "regulation" proposed for the for-profit educational industry would cut off federal aid to for-profit programs that repeatedly saddle students with debt that is defined as unaffordable under a new formula that takes earnings into account. This is the "gainful employment" rule that will drive a stake through the heart of many for-profit colleges and universities if it is passed in November of this year. The rule is all about assuring that the for-profits are offering an educational service that will prepare graduates for gainful employment. The problem - there is no employment.
It has long been believed by politicians and corporations that education is little more than a training ground for capitalist labor to eventually be exploited. Simmering education down to gainful employment is not a novel idea when one is laboring under these assumptions. Rather than see the entire enterprise of for-profit colleges as criminal, which it is, the government now seeks to rein in some of the "abuses" they see in the system they helped create. Regulating the material conditions for private ownership of the means of educational production can only come from starving the insidious institutions that fail to comply by withholding government subsidies. While certainly a start, the whole notion is problematic, for it leaves the predatory industry intact when anyone who has studied the crime scene can see that this criminal enterprise cannot be regulated; it must stopped. However, even this small bit of "rhetorical" regulatory posture has the billion dollar, for-profit industry on the offensive.
Corporations Fight the Neoliberal State Regulations With Faux, AstroTurf Groups
The for-profit, cybernetic educational industry has come forth on record, calling the illegal practices uncovered by the GAO a case of "bad apples." Kaplan officials said they found the disclosures "sickening." In a joint statement from Donald E. Graham, chairman and chief executive of The Washington Post Co., and Andrew S. Rosen, chairman and chief executive of Kaplan Inc.:
"They violate in every way the principles on which Kaplan is run. We will do everything in our power to eliminate such conduct from Kaplan's education institutions."
Similar to the movie "Casablanca," Graham, like the actor Claude Rains, seems surprised "gambling" is going on at Rick's Place. Yet, while the government is getting ready to step in and put into place policies that will allow the industry to continue its ownership of the educational means of production, albeit regulated, the for-profits are now busy building a faux revolution, akin to Dick Army's Freedom Works; or the fake coalitions put to together by the Koch brothers to fight any regulation of the coal industry; or the "Parent Revolution" out of Los Angeles controlled by Green Dot, a charter school CMO, which recruits parents to work for charter school legislation by disassembling public education. What these groups have in common is that they are heavily supported by legions of right-wing cash.
The New York Times of September 7, 2010, noted that:
"For-profit colleges have increased their lobbying against proposed Education Department rules to cut off federal financial aid to programs whose students take on too much debt for training that provides little likelihood of leading to a well-paying job" [For-profit colleges step up lobbying against new rules, New York Times, September 7, 2010.]
In addition to making personal visits to Capitol Hill, executives for many of the colleges have recently provided their employees with "personalized," standardized, form letters urging them to send them to Washington to fight the new regulations. They have also started a campaign to get their students to speak out against the new "gainful employment" regulation. Sound like the phony health care groups set out to battle Obama's health care reform? You betcha!
So far, The New York Times has found that the DOE has received about 45,000 letters on the proposed "gainful employment" rule within the last month.
John Sperling, the born-again Christian fundamentalist and founder of the nation's largest for-profit college, the University of Phoenix, emailed every member of Congress, seeking help opposing the regulations, and attached a sample letter to be sent to Education Secretary Duncan, asking him to withdraw them. He has conveniently married his new-found, fundamentalist religion with market fundamentalism.
Graham, the chairman and chief executive of The Washington Post Company, which receives 62 percent of its revenue from its various Kaplan educational businesses, visited Sen. Tom Harkin, Democrat of Iowa, whose Health, Education, Labor and Pensions Committee is holding hearings on the for-profit education industry. His goal: stop the regulations.
But the heavy, billion dollar players have done more than just urge employees and students to come out for their for-profit cause. The Education Management Corporation, the second-largest, for-profit company in the industry, hired DCI Group, a public relations firm, to contact its employees for information that could be used to create a "personalized" letter, which would then be delivered back to the employee for signature, along with a stamped, addressed envelope aimed straight at the DOE. ("Astroturf U: Goldman's For-Profit College Battles Obama Crackdown," Mother Jones, Andy Kroll, September 2, 2010.)
The AstroTurf group also drafted and is offering pre-crafted letters that students can use to send to their Congressmen. Mother Jones reported that:
"Some of the letters show little familiarity with the proposed regulations. For example, an Education Department official said, students at a particular school sent in dozens of hand-written letters asking for continued aid to for-profit colleges, but never mentioning the regulations. He said he called a letter-writer to ask whether the letter was intended as a comment on the regulations, and was told, 'This is what the school asked us to write.' He would not identify the school." [ibid]
This is not unusual and echoes the practices of many of these predatory colleges who have their professors write student papers so students can remain enrolled and thus beneficiaries of the federal dollars that end up in the coffers of the blood banks.
EDMC also has a web site, the Higher Education Action Center, guiding students or employees to oppose the regulations, offering their own "pre-crafted" letters. Argosy, a unit of EDMC, said last month in an email soliciting more comments that more than 2,000 people had used the site in the previous week.
The Real Problem Is the Private Ownership of the Means of Educational Production
Beginning in the Bush years, or actually before, the neoliberal state worked diligently to provide the material conditions allowing for the enormous growth of education for profit. In doing so, it has now created its own Frankenstein of debt and default that seeks refuge in the pockets of ordinary taxpayers. The for-profit industry, armed with billions of dollars and working off the disaster economics that has left the public sector unable to keep libraries open, let alone provide a decent opportunity for students to gain universal access to education, is now enabled with lobbyists and private firms to fight Washington tooth and nail against their proposed regulations. But this is hardly the point. For the regulations promise to leave intact a criminal enterprise that is not just a collection of bad apples, but is a rotten barrel of despair, financial ruin for students and moral outrage, not to mention the source of costs that will be thrown on the backs of ordinary Americans as students find there is no "gainful" employment under the economic policies of market fundamentalism and Wall Street crimes, and the defaults quicken. What all this means is that taxpayers may be on the hook for close to one trillion dollars or more.
I spoke to a young man of about 30 years old in my last sojourn at the Phoenix Institute in Oakland. When I asked him how his classes were going, he told me that they were going well, but he was living in his car with no job. However, he indicated, a bit animated, with the federal monies for school he received not only does he have the use of the computers and a warm place to go, but he can clean up in the office bathroom. This is privatized homelessness under Title IV that is parading as privatized education.
The free-market policies ruthlessly pursued through the calamitous corporatization over the last 30 or more years have imposed crushing and profound changes onto the lives of children and working adults. On National Public Radio, November 23, 2009, a student at one of these proprietary colleges was interviewed. She reported that she now pays $300 dollars per month to service her federal loans and that her parents had to take second jobs just to help her pay for her proprietary education. Currently, she cannot find a job, so her answer: she will borrow more money now to go on to graduate school, for in this way, she will not default on her loans, meaning wage garnishment, withheld social security and an inability to rent or buy a home. Debt peonage and a lack of public and civic life are forcing her and her family into the brutal margins of society (NPR, "All things considered," November 23, 2009).
Each and every day I receive letters and emails from students asking me what they can do to stop the predation. These are students whose lives are now ruined; they cannot get credit, they cannot involve themselves in any financial life and they cannot rent apartments or go to school.
Whistleblowers, known as Former Disgruntled Employees (FDE's) have written me telling me of the ghastly policies they have witnessed and/or participated in, but they dare not use their names or they will find that the power and authority of these for-profit dungeons of despair will literally blackball them from the industry overnight. I have spoken with countless lawyers who have told me they have no resources to fight the billion dollar industry attorneys.
There is no "college experience" at these proprietary schools; there are not even libraries at most of these schools or facilities where students can meet. At many of the proprietary schools that offer a "campus," one finds the colleges really languish in grimy storefronts in large office buildings along side other businesses, like insurance companies, mortgage outfits and financial institutions that share the office building rent. Usually the administration office of the "campus" is comprised of simply a desk and rows of computers; the food services are vending machines dominated by Pepsi and Coca Cola and the class rooms are rented to corporations when not in use by the proprietary school. At the Phoenix Institute's "campus" in Pasadena, California, the college sits in a large office building that shares tenancy with the Rand Corporation, harbored on the upper level floor. The college also makes $25,000 - $30,000 per month just renting out the classrooms when they are not in use (interview with former Phoenix employee).
As I chronicled back in 2009, for-profit predatory colleges for years marketed to the disenfranchised, the down and out, the sub prime students and, thus, they make up the "fringe economy" of other such predators like cash loans, payday loans, title loans for cars, check-cashing scams and the like. These "operations of higher predation" have been caught recruiting students at housing projects, welfare office, unemployment offices, laundermats in poverty stricken areas and, now, yes, the true down and out - the homeless and often drug addicted segments of our population, mostly minority. They actually enter homeless shelters where they rabidly prey and feed on the underclass of America ("For-profit predatory colleges and universities prey on the homeless while hedge fund operators get busy shorting the sector's stock: the next big economic bubble," July 19, 2010, dailycensored.com).
As any crime fighter knows, you cannot regulate larceny. What needs to be done is to build a sustainable economy that can provide a quality, public school experience for our nation's children. However, as long as education is boiled down to training for a capitalist society in ruins, this can hardly expect to take place. As the public sector diminishes due to the disaster capitalism of the last 30 years, we can only hope to see a few changes in the form of regulations. Until then, look for this storm to pass, as once regulations are passed, paying to get around them becomes part of the business plan as it always has been. In the interim, look for the for-profit educational scam that was and has been allowed to exist thanks to the partnership between business and the neoliberal state to be the next big financial bubble just waiting to burst.
"Astroturf U: Goldman's For-Profit College Battles Obama Crackdown," Mother Jones, Andy Kroll, September 2, 2010.
"Community colleges cancel deal with online Kaplan University," Larry Gordon, Los Angeles Times, August 26, 2010.
"Does the American Military University (AMU) teach torture to its students or has it taught torture in the past?" WikiLeaks, (March 29, 2010, Weil, Danny).
"Drive-by predatory colleges put students into debt purgatory and deficits into the stratosphere," April 11, 2010, Weil, Danny.
"For-Profit Colleges: Scooping Up the Stimulus," March 12, 2009, by Ben Elgin and Jessica Silver Greenberg.
"For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices," GAO-10-948T, August 4, 2010.
"For-Profit Colleges Step Up Lobbying Against New Rules," New York Times, September 7, 2010.
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Letter to Henry Paulson, November 19, 2008, by the American Association of Collegiate Registrars and Admission Offices along with the American Association of State Colleges and Universities, the Consumers Union, The National Consumer Law Center, the Project on Student Debt, the National Association for the College Admission Counseling, US Public Interest Research and the United States Students Association.
NPR, "All things considered," November 23, 2009; "Online Colleges Receive a Boost From Congress," March 1, 2006, New York Times, Sam Dillon.
Paige Marlatt Dorr, director of communications, California Community Colleges.
"Predatory for-profit colleges and universities: the escalating default rate for student loans," July 13, 2010, Weil, Danny.
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"Student-Loan Debt Surpasses Credit Cards," August 9, 2010, Mary Pilon.
The Chronicle of Higher Education, "Why do you think they're called for-profit," July 30, 2010.
"The Government vastly undercounts defaults," Field, K., July 11, 2010.
"The Higher Education Fiscal Crisis Protects the Wealthy," November 22, 2009.
"The subprime student loan racket," Washington Monthly, Stephen Burd.
United States Government Accountability Office, "Proprietary Schools: Stronger Department of Education Oversight needed to help ensure only eligible students receive financial aid," August 2009.
"Whistleblower Exposes How Kaplan University Cheats Low-income Minority students and The Washington Post Benefits," April 18, 2010.
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