Today, almost tens of billions of tax dollars are being dedicated to funding for profit institutions that have little interest in their clients than extracting as much from them as possible. These institutions are not what you might think they are. They’re schools. And the live off government money providing almost none of the earnings advantages that traditional schools do. Worst of all, this racket preys upon two groups: GIs returning from hard fought wars and the most disadvantaged in our nation.
These schools are often on-line companies, which for a not-so-modest price will provide a degree upon the completion of a set requirements. They have spent countless lobbying dollars to acquire accreditation and political support. And they are particularly attractive to groups our government under serves. The first is the working poor — often minorities, who cannot afford to give up their jobs to enroll in a tradition full-time school. The second are non-traditional students, veterans in particular who find that they are too old to surround themselves with 18 year olds who are emotionally only moments away from high school or perhaps do not feel particularly at home going to what are often seen as the most liberal of institutions: colleges and universities.
The state helps pay for these two groups to attend schools, and often the schools are for-profit institutions. The the case of the working and poor, federally subsidized loans help provide otherwise unable funds for education. Veterans, by contrast, have paid for their education through their service. And appropriately, the government helps pay for their education through the GI Bill.
These government programs are the lifeblood of for profit education. Despite being less than 10% of total enrollments, for-profits now claim about 25% of Federal loans and grants. On average, three quarters of the revenue of for-profit schools comes from government grants and loans. Perhaps most recognizable to readers, the Apollo Group’s University of Phoenix receives almost 90% of its revenue from the state (the University of Phoenix has almost 18,000 GIs; though the GI bill pays for their education, the degrees they earn provide little in the way of income gains). Indeed, the state is the greatest growth industry for for-profit colleges. In 2001 the Apollo group received only 48% of its funding from federal aid and grants. While these companies are claiming their work and innovation for their growth, in fact almost 100% of their growth is explained by government largesse.
What are these companies doing with the additional money they are claiming from the state? They are pocketing it. Of the additional $1.1 billion that the top three private companies raised from government programs, only 9% went to educational expenses (faculty compensation or instructional costs). By contrast, for getting more and more money from the government, the executives at these institutions are being handsomely rewarded. In 2009, their top five executives of the Apollo group made a total of $34.7 million.
The costs go far beyond the grants that the state provides. Indeed, it seems we will have to keep paying for these loans — as well those who take them on. The US Public Interest Research Group found that though for-profit colleges only make up 7% of those taking out federal loans, they represent 44% of the defaults on these loans.
The problems are only getting worse. In the last decade, government support of these institutions has increased five-fold. In 1990 less than 1% of all students went to for profit schools, and less than 10% of schools were for-profit. Those numbers are now 10% and 25% respectively. Steven Eisman, a hedge fund manager who predicted the housing collapse, now has his eyes on the next big short. Eisman estimates that over the next decade we will see $275 billion in loan defaults from students for-profit colleges.
Eisman’s measures seem a little inflated to me. But not by that much. What do students get out of these schools? And what do these schools do for students? I’m afraid the answer is, “not much.” Most students who attend schools run by the three biggest for-profit companies drop out after one year (indeed, at one school, 96% drop out!). These rates are particularly worrying as on average, students who drop out receive no earnings advantage for their year of school, yet they depart with around $10,000 in debt. Further, these schools often provide personal loans to students — loans structured to be repaid at exceptionally high rates of 4 to 8 times their initial value.
Part of the reason for profit schools have been able to claim so many federal dollars is that they have structured themselves to meet a need that is under met by our present schools. Colleges are not particularly available to working and poor students, or those students who seek to return to school in their 20s and 30s. On average, for-profit schools tend to have far more minority and poor students than traditional colleges. But providing an education to an under served population is not enough, particularly if that education does not come with the capacity to pay off the debts in the process of its acquisition. Worse — providing an education to the already disadvantaged by further disadvantaging them with debt is unjustifiable.
For profit companies that provide education show us two things: our education system is systematically failing the most disadvantaged. These people need a system structured to help them. For-profit schooling seems to do little than profit off the disadvantaged by taking tax dollars used to try and help them. We must have the will and moral drive to do more.
* An explanatory note: My most recent attempt at public sociology failed. Basically the magazine that asked me to write a series was sponsored by a for profit eduction outfit. And I wrote something very critical of for profit eduction. Rather than trash the thing, I thought I’d post it here. It’s more of an editorial style than any other blog post. But I wasn’t going to spend more time reworking it…