No Time to Subsidize Profit: an Overview

Thursday, August 26th was a day of reckoning for the for-profit college industry in America. After years of indiscriminate expansion, fueled by billions of dollars in public money, with virtually no oversight, publicly traded for-profit colleges were forced to turn over some very basic information to Sen. Tom Harkin's Health, Education, Labor and Pensions (HELP) Committee.

These figures include:

• A spreadsheet with detailed school-by-school data on revenue from sources including Pell Grants, all federal student loan programs, Department of Defense tuition assistance benefits, vocational rehabilitation funds, private loans, institutional loans, state loans, state grants, student-paid tuition, employer-paid tuition, and any and all other sources.
• For the period July 1, 2007 to June 30, 2010, the number of students enrolled in online, in-person and hybrid programs; the number of new students enrolled each month by program, campus and mode of instruction; the total number of program completers each year; the total number who left by formally withdrawing or by stopping class attendance.
• Detailed information, with randomized identification numbers, for each student who entered the college between July 1, 2007 and June 30, 2009, including enrollment date and completion or graduation status.

Once these numbers are made available to the public, we will finally start to get a more complete picture of this industry. This information request will be followed by another in September, which asks for even more. You can read the details at the links above.

Harkin's committee has been hot on the heels of the for-profit college industry, which is a good thing, since no one else seems to be. For-profit colleges used to be a small niche, usually privately owned trade or vocational schools. But legal changes abetted consolidation in the industry, on-line education made it possible to reach larger numbers of potential customers, and now we have a number of behemoth for-profit college chains that make huge profits. Enrollment in for-profit colleges has surged, increasing 225% from 1998 to 2008.

The vast majority of their revenue comes in the form of federally subsidized student aid programs, such as Pell Grants and federal student loans. In 2008-2009, $23.9 billion flowed from federal Title IV student aid programs through students to for-profit colleges. According to analysis from Harkin's committee, 50% of the expenses of the publicly traded for-profit colleges went toward education expenses, 31% of their expenses were for marketing and recruitment. Put simply, U.S. taxpayers annually shell out billions of dollars for profit and marketing expenses to for-profit colleges.

When President Obama took office, one of the first initiatives he announced was to bolster college completion rates. This admirable goal was seized upon by the for-profit colleges as their chance to establish themselves as a legitimate and essential component of the American higher education system. For example, consider this quote from the CEO of the Career College Association:

"This is not a slam on community colleges, but the reality is that they do not have the resources to do what President Obama wants them to do."

And here is the nut of the scheme.

State budget stress leads to higher education cuts causing higher tuition. Then politicians decry higher tuition rates that they caused, and attempt to compensate by increasing student aid programs. The public higher education system is forced to cut back just as demand increases. And the natural beneficiaries of this cycle of dysfunction are for-profit colleges. While the public system cuts, they expand. While there is political pressure to hold down public college tuition, there is investor pressure to increase tuition and reduce educational expenses at for-profit colleges. And lost in all of this is a focus on the essential outcomes of higher education: preparing a diverse population for the demands of life in a complex global economy and for their responsibilities as engaged citizens.

It is the students who lose out. Investigations and lawsuits have uncovered a shady world of recruiters who lie to students about the cost of for-profit colleges, the nature of student aid, and the success rates of their graduates. Students who do not complete a program find that their credits do not transfer and they lose their investment. Those who do complete are saddled with enormous debt burdens that they can never repay. And unlike the ways in which wealthier folks easily shed their debts, federal student loans cannot be discharged through bankruptcy.

The for-profit college scam is like so many other right-wing scams - done on the backs of poor and minority folks while being done "for their benefit." For all the trumpeting about choice and access, the fact is that for-profit colleges saddle their students with enormous and unsustainable debt loads.

In Minnesota, we've done more than nearly any other state to subsidize the for-profit college industry. Minnesota has seen a larger and larger proportion of its need based state student aid go to for-profit colleges while it has been rapidly decreasing its support of public higher education. Over $20 million of Minnesota State Grant funds flow annually to for-profit colleges. The proportion of Minnesota State Grant funds flowing to the for-profit colleges has increased at a similar pace to national trends.

Similar to Rob Levine's work here on the Cucking Stool and elsewhere about the charter school and school choice scams, I'll be bringing you a series of posts about the for-profit college industry in Minnesota. And they are very similar - the same ideology and techniques are at play, and the results are similar. I think one paragraph from the HELP committee's report captures it perfectly:

Evidence suggests that for-profit schools charge higher tuition than comparable public schools, spend a large share of revenues on expenses unrelated to teaching, experience high dropout rates, and, in some cases, employ abusive recruiting and debt-management practices. What distinguishes for-profit schools from public and non-profit private institutions is that they have an obligation to maximize profits for their shareholders. Indeed, securities law sanctifies the notion that each corporation must act in the interest of its shareholders. However, this imperative could conflict with the objective of Federal student aid programs, which is to increase access to a quality higher education. This evidence, and the potential conflicts underlying it, points to the need for rigorous government oversight and prudent regulation to safeguard the investments of taxpayers and students.

Investing in a world-class public higher education system will allow Minnesota to compete in a global economy, and attract new businesses and residents. Continuing the trend of neglecting public higher education will lead to a vicious cycle of higher tuition, less access, and a less prepared citizenry.

Next: Minnesota's disinvestment in public higher education and increasing subsidy of for-profit colleges.

Aaron Klemz is an Instructor in the Communication Department at Century College, White Bear Lake, Minnesota. His views here are his own, not that of his employer or any other organization.

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