Tougher laws needed to rein in for-profit college abuses

by Chavi Khanna Koneru, NC Policy Watch, December 11, 2014.

We’ve all that had that moment when we see a television commercial for a for-profit college, like the University of Phoenix or ITT Technical Institute, and suddenly we’re overcome by a feeling that something’s not quite right—but very few of us realize how deep the for-profit college scam really runs.

For-profit colleges, a term that in itself sounds contradictory, are schools operated by businesses with the interests of investors and stockholders in mind. Their goal is to make as much money as possible.

From this perspective, students are potential customers and college counselors are salespeople with quotas to fill. These salespeople aren’t generally interested in whether the prospective student has the potential to succeed at their school or whether they will become one of the more than fifty percent of students who never graduate.

As a result, the counselor/salesperson isn’t going to volunteer that the credits students earn often won’t transfer to other colleges or graduate programs. Nor will they tell them that most of the certificate programs won’t allow them to legally practice in their state. All this salesperson cares about in far too many instances is enrolling this student as quickly as possible, before he or she has a chance to research the school and make an informed decision. In fact, counselors at for-profit colleges have been terminated for not enrolling enough students and, until a few years ago, counselors earned bonuses based on how many “sales” they brought in.

So, without regard for the financial ability of the student, these counselors frequently urge their “customers” to enroll in the school and to take out massive loans that can almost never be discharged. Ultimately, for-profit colleges don’t care about whether a student graduates or gets a job. Their sole interest is in the thousands of federal dollars that go right into the income column of their balance sheet when a student enrolls and takes out a loan.

In 2009, the CEOs of for-profit colleges took home on average annual income of $7.3 million. This is money that far too often came from taking advantage of poor students, usually minorities and veterans, and leaving them saddled with debt they will never be able to pay off.

Defenders of for-profit colleges argue that students aren’t compelled to take out loans to attend these colleges. But the fact is that the majority of the students who enroll in for-profit colleges have a household income that is at or below the federal poverty line. It is absurd to even imply that these students might have an extra $15,000 a year to pay tuition at these schools without the assistance of a loan.

You might wonder why these programs cost four times as much as a comparable community college, especially if so many aren’t offering a valuable education. One very important reason is that in order for a for-profit school to make money, it must inflate tuition to a level that requires students to take out a federal loan. If it wasn’t obvious enough that for-profit colleges value money over student education, data shows that these schools spend twice as much on marketing than on educational services. In 2009, for-profit schools spent $4.2 billion on just marketing, advertising and recruiting.

One key reason for-profit colleges are getting away with this scam is that the federal government doesn’t have strong rules in place. The U.S. Department of Education has attempted to require colleges to show that the estimated annual loan payment of a typical graduate doesn’t exceed 20 percent of their discretionary income (or eight percent of their total earnings) through the “gainful employment” rule. While this rule doesn’t do nearly enough to address all the problems with for-profit schools, it was a step in the right direction. Unfortunately, the association of for-profit schools is making it difficult to put any rules in place – a fact that is not surprising, given that 99% of for-profit schools wouldn’t be able to meet this standard.

Since more than 90% of the income of for-profit schools comes from federal taxpayer dollars, the for-profit college scam directly affects all of us. We must urge the government to put stricter regulations in place and work towards closing many of these institutions, which offer next to nothing by way of education. Moreover, despite the claims of apologists of for-profit schools, there is a great alternative to these scam schools—community colleges, which charge one-fourth of the tuition and where you can earn credits that will transfer to accredited schools.

The bottom line: Our tax dollars would be much spent supporting community colleges, which enable students to get an affordable and valuable education from teachers who are passionate about helping them succeed, rather than lining the pockets of fat cat CEO’s and profit-driven investors.

Chavi Khanna Koneru is an attorney living in Raleigh.

- See more at: http://www.ncpolicywatch.com/2014/12/11/tougher-laws-needed-to-rein-in-for-profit-college-abuses/#sthash.H6WDP47d.dpuf