For-Profit Colleges Are Reinventing Themselves to Profit Off Low-Income Students

Since the mid-1990s, enrollment at for-profit trade schools and colleges has grown by 225 percent. In 2010, 12 percent of those in post-secondary programs attended a proprietary program, getting a Bachelor’s or Master’s degree or taking courses in fields like cosmetology, medical testing or computer or automotive repair. Today, roughly 1.4 million men and women are enrolled, and it’s easy to see why. Ads on Facebook and testimonials on YouTube tout flexible schedules, year-round enrollment, online options and generous financial assistance — provisions that working adults, returning veterans and single parents need if they are going to complete a certificate or degree program.

But for most students enrolled in proprietary programs, the reality of what’s offered falls far short of expectations, leaving them in serious debt. Worse, they often end up with an incomplete or even worthless degree.

Alexei, an immigrant from the former Soviet republic of Georgia, studied history and languages before coming to the US. Once here, he worked in a series of depressing, dead-end jobs, but assumed that a Master’s degree from an American university would give him the boost he needed to land a decent-paying, stable job. He investigated several programs and eventually chose the Keller Graduate School of Management, a division of DeVry University.

“The recruiters told me that Keller was affiliated with 250 Fortune 500 companies: Hewlett Packard, Apple, Google, Microsoft and many, many others,” he told Truthout. “Shortly after I enrolled I went to a school job fair where a few small businesses and the US military had tables. None were looking for managers.”

Classes were equally disappointing. “Everything was very basic,” he continues. “There was nothing hands-on and we’d cover maybe five chapters of a textbook during the semester.” Alexei says that after a few semesters he began to get angry, especially since he was borrowing tens of thousands of dollars — $2500 for each of the required 18 courses — to attend the program. Later, when he attempted to transfer to a public university near his home, he was told that none of his credits from Keller would be accepted.

“I was halfway through the coursework so I finished the degree I’d started at Keller,” he says. “But aside from a temporary one-year position, I have been more or less unemployed since graduating. Everybody who attended with me is in the same boat. As far as we’re concerned, Keller is a fraudulent school, run by vultures.”

Senate Study Confirms That the Feds Keep These Schools Going

A 5,234-page report compiled by the Senate Health, Education, Labor and Pensions Committee during the Obama administration’s second term does not use the word vulture, but it implies as much. Tom Harkin (D-Iowa), the Committee chair, told NPR that the publicly traded companies that run for-profit programs have an average profit margin of 19.7 percent. This is especially good news for the CEOs of said companies, he reported, since their average annual salaries weigh in at a cool $7.3 million.

The source of much of this money? You.

The Senate report centers on the 2009-2010 academic year and explains that 86 percent of the revenue going to for-profit schools comes from taxpayers; tax-generated funds are later disbursed through Pell grants and Perkins loans. The University of Phoenix, for example, took in $1 billion in Pell grants in 2010. Nationwide, the investigators found that during the 2009-2010 academic year, 32 billion greenbacks went to proprietary programs — and accounted for one quarter of the total spent by the feds on post-secondary training.

The upshot, if it is not already clear, is that for-profit programs get their money while students get saddled with debt — typically taking out loans that they can’t repay. According to Harkin’s report, “twenty percent who enroll at for-profit schools default within three years of starting to repay their loans and account for half of all student loan defaults.” Worse, the senators found that 54 percent of students who enroll in for-profit programs quit within 18 months, without completing their degrees or training. Equally troubling, most graduates find themselves unable to get the kinds of jobs they envisioned. Under Obama, some regulations were passed to rein in proprietary schools, and fines were levied against the most egregious violators of truth-in-advertising. DeVry, for one, was required by the Federal Trade Commission to earmark $49.4 million to refund students who completed at least one class credit between January 2008 and October 1, 2015. The settlement further requires DeVry to cancel $20.25 million in debt accrued by students who borrowed to pay tuition, books and lab fees. Unfortunately, the settlement applies only to students in DeVry’s undergraduate programs; it does nothing for grad students, like Alexei, who were enrolled at Keller.

Similarly, schools under the Corinthian College umbrella — including Everest, Heald, Kee Business College, Olympia College, Tampa College and Western Business College — were ordered to provide $820 million in restitution to students for misleading them about job placement and graduation rates, and promoting degree programs that were not offered. Kamala Harris, former California Attorney General, charged that the schools targeted the poor and zeroed in on “isolated, impatient individuals with low self-esteem.”

Even Trump University — a bogus realtor training program that existed from 2005-2010 — settled, agreeing to provide $25 million to reimburse 4,000 students who did not get what they paid for.

Protecting Borrowers

Other consumer protections established under the Obama administration include the 2015 Gainful Employment Rule.

Suzanne Martindale, a staff attorney at the west coast office of Consumers Union, explains that the rule mandates that graduates can’t have a high debt-to-earnings ratio. “If a school goes above a certain threshold — with a high percentage of students spending more than 20 percent of their income to repay their loans for four consecutive years — the school can lose its federal funding,” she explains. “Let’s say a student goes to cosmetology school and borrows $15,000 to enroll. She did this because the recruiters promised her that she’d earn $22 an hour when she finished. They also promised that they’d help her find a job. She graduates and finds work, but it pays the minimum wage. This could lead the school to be deemed a failure if students end up paying more than 20 percent of their salaries on loans.”

Shortly after becoming Education Secretary, Betsy DeVos announced that she was going to delay enforcement of the Gainful Employment Rule, and Martindale and colleagues have no idea if this is a temporary or permanent suspension. “Her actions seem to suggest that she is not going to oversee for-profit programs as closely as we think she should,” Martindale concludes.

Given the lack of federal action, several states have tried to enact regulations to protect students from deceptive advertising and false promises. Maryland prohibits proprietary schools from giving “incentives” to recruiters when they get someone to enroll, and California requires for-profits to have a graduation rate of 30 percent and a maximum loan default rate of 15.5 percent. But these states are rarities. The majority depend on litigation promulgated by public interest law firms to demand better educational offerings.

Jane Greengold Stevens, an attorney at the New York Legal Assistance Group sued ASA College, one of New York State’s largest for-profits. She argued that the program intentionally misled students.

“When we filed the lawsuit, their ads said that 80 percent of their graduates got jobs. It was a lie,” Stevens says. “Their current ads no longer give statistics. The company owner was required to stop giving false numbers when he entered into an agreement with us. But ASA persists in committing fraud on Facebook and YouTube. Their formal paid ads have been toned down, but the school takes advantage of the ephemeral quality of social media.”

Recruiting Veterans

Veterans are a particularly receptive and lucrative target.

Will Hubbard, vice president at the Washington, DC-based Student Veterans of America says that his group tries to educate service members about proprietary programs. “There is a cottage industry that creates lists of supposedly military-friendly schools. These lists are largely inaccurate,” he says. “Their methodology runs from flawed to downright terrible. We advise students to check out schools that are good for everyone and that don’t differentiate vets from others.”

Is there a reason that proprietary schools prey on veterans? I ask. Hubbard cites two. First, the GI bill provides guaranteed funding for college or trade school, typically paying the full cost. In addition, he adds, schools are required to bring in at least 10 percent of their revenue from non-federal sources. “For some reason, dollars coming from the GI bill are not counted as federal money in the 90/10 equation,” Hubbard says. “This puts a target on the backs of many returning veterans.”

Staff Are Also Exploited

While students bear the brunt of the fraudulent and deceptive marketing schemes of proprietary schools, many teachers and staff are also shortchanged.

Amanda Velez (a pseudonym) got a job teaching at the Art Institute of Pittsburgh (AI) shortly after she and her family moved to the Steel City in 2011. She admits, “When I was hired, they framed the program as something respectable and legitimate, and I was pleased to be hired to teach two online photography courses.” Velez was unfazed by a requirement that she attend an extensive unpaid training — about 12 hours long — in how to use AI’s online platform, as well as take part in extensive phone meetings with her supervisor. “At first everything seemed clear and well-organized,” Velez reports. Nonetheless, she noticed that she was discouraged from using her intellect and required to adhere to a curriculum that she did not create. The level of micromanagement at the institution also perplexed her: She encountered dictates that mandated how quickly she needed to respond to students and what she was expected to say.

“They required teachers to log on five of seven days for the entire five-and-a-half week term and you could not miss two days in a row,” Velez recalls. “Since I was new to online teaching — I’d previously taught at two brick-and-mortar colleges — I found myself spending between five and seven hours a day on my classes. I was paid $1600 a course. The worst part was that most of the students did not have high-quality cameras so I quickly realized that this course could not provide real training. I left pretty quickly once I understood that AI was unfair to both students and teachers.”

Four years after Velez left the job, in November 2015, the Education Management Corporation (EDMC), which not only operates AI, but also runs a variety of programs in 31 states, was fined $95.5 million by the Department of Justice. Then Attorney General Loretta Lynch dubbed the chain “a recruitment mill” and charged that the company took in $11 billion in student aid between 2003 and 2011. EDMC responded by selling its holdings to the Dream Center Foundation, a Los Angeles Pentecostal missionary group that plans to restructure the schools. The sale is expected to be finalized sometime this summer.

Like Velez, Lucas Greene (also a pseudonym) was initially thrilled to land a job as a teaching assistant at the New York Film Academy (NYFA), an international program that boasts of connections to cinematographers Martin Scorsese and Steven Spielberg. Greene had finished college in 2012 and the $15-an-hour salary offered by NYFA seemed acceptable, but he quickly began to notice that things were inefficient and often chaotic. “The program I worked in was basically run by people in their early 20s, with little experience,” he says. “The turnover was high, but it seemed like a good place for young people to start, especially if we were also freelancing.”

Greene began to get turned off, he says, when he was among the teaching assistants tagged to move the school from one location to another. “It was a hot summer day, and it was grueling,” he recalls. Still, he stayed. “There was virtually no oversight, the place was completely disorganized, none of us got benefits, but because I got to use expensive equipment, I hung on,” Greene explained. He finally left a few months ago, after nearly four years, and points to dozens of negative reviews on Yelp to explain why.

“The difference between NYFA and Trump University is that NYFA is not called Trump University,” wrote one disgruntled student.

“Everything here sucks,” wrote another. “This college is a complete rip off.”

Dishonest Marketing in Proprietary Ed Has a Long History

Elizabeth Imholz, special projects director at Consumers Union, says that the deceptive tactics used by proprietary colleges and trade schools are nothing new. “Right after the Second World War, when the federal government came up with money to help returning vets, the cockroaches descended to recoup federal dollars,” she says. “There were scandals about their practices back then.” Fast forward to the 1970s, she continues, and “businesses stuck their nose in the tent and pushed the Pell grant program to open up to for-profit schools.” Over the years, the grant program continued to yield to this pressure to open up, she explained, adding that in the 1980s, recruiters started going to homeless shelters and soup kitchens to entice new students. “They targeted people who wanted to improve their lives and made things much worse for them,” she says. “People’s dreams were shattered and their credit was destroyed” when they defaulted on loans.

Little has changed in subsequent decades. Despite efforts by consumer activists and attorneys, trying to shutter for-profit schools has been like a game of whack-a-mole: Force one to go under, and new ones pop up. To date, Education Secretary Betsy DeVos has not indicated whether the for-profit sector is on her radar, but no one is expecting her to do much to regulate proprietary education.

Instead, organizers suggest putting pressure on the accrediting agencies that allow for-profit schools to flourish — the Middle States Commission on Higher Education and the Accrediting Council for Independent Colleges and Schools, among them — as well as on state attorneys general to investigate and regulate the industry.