Removing Plaque at the Gum Line: For-Profit Universities, Emboldened by the Midterm Elections, Seek to Prevent Any Regulations

Over the past year, I have written extensively about the phenomenon of for-profit universities. My work included a series of interviews with a disgruntled former employee of Kaplan University who would not expose his name at the time due to pending Department of Justice suits (known as qui tam suits) against one insidious institution of higher predation – in this case, notorious bilker and theft maiden, Kaplan University.

In a Tuesday, November 10, 2010, New York Times article, the whistleblower finally revealed his name. Whistleblower David Goodstein is a hero to many for putting his reputation and future job prospects on the line to bring attention to the subprime racket now called “private proprietary schools.”

The Department of Justice would not unseal the qui tam case brought by David and three others, who sought justice for students, teachers, and others who are low-hanging fruit for the predators. Qui tam cases are whistleblower cases put forth by citizens acting as their own attorneys general. This particular case was first put to the Department of Justice, which sealed it pending the Department of Education’s investigations. Kaplan is notoriously one of the worst of the for-profit, predatory colleges, competing with the University of Phoenix, Corinthian Colleges, and many others, in theft, larceny and criminal activity.

As any dentist of any worth understands, in order to prevent tooth decay, gum disease and oral rot, one must get rid of the plaque at the gum line: in the case of the for-profit, predatory universities, this translates not into making these colleges accountable and acceptable, but into driving them out of business before they swallow our citizenry whole and leave taxpayers with one trillion dollars to add to the federal debt. However, this seems not to be in the cards as the Obama administration has looked instead to regulate the “industry” and the private ownership of the means of educational production, thus, assuring its permanency. This is troubling, for a simple flossing will not rein in the abusive scandals that are part of the business strategy of these colleges. Courting them and working with them as Obama does, will not prevent the rot, and certainly is not hygienically acceptable to a nation exposed to these for-profit institutions’ financial rapacity in the name of helping working-class and minority students. It is time for the nation to remove the plaque with painful political scraping that will assure that they cannot continue to operate as a crime syndicate.

Is this possible in a nation run by multinational financial corporations aimed at using our children to feed their for-profit gimmicks masquerading as education? Not unless people rise up and demand a stop to these institutions and their practices. This is where the public must come into play. For, without an uprising, the game will simply go on, with a few rules sprinkled in that would actually legitimate the “regulated” industry, while allowing it to continue its prevarications and predations all over the world.

The Obama administration seeks to regulate these for-profit behemoths, but as I wrote for Truthout, you cannot regulate a criminal enterprise. This would be like passing regulations to govern gang rape or home invasions. The plan is unacceptable; the schools must be shuttered and cut off the drip line of federal funds, the lifeblood of their intuitions.

One of the new educational regulations bantered around calls for not allowing Kaplan and others to require students to pay for excessive units for simple undergraduate courses. If the new regulation passes, then the for-profit, educational, industrial complex will have to base their credit-hour assessments on the standard used at public community colleges and state universities – one credit being worth one hour of instruction and two hours of study per week per semester. This rule would not only require that a new “value” be placed on credits offered by the likes of Kaplan, but would also mean declining revenue for the for-profit, educational, industrial complex as it would lower the amount of revenue they can get from their students, boost their instructional costs and reduce the amount of federal revenues they receive from Title IV, Pell grants and the GI Bill. It could also bring more scrutiny to for-profit colleges’ and universities’ access to federal aid. This is the last thing these “free market” predators want.

Take for example, one of the four Kaplan Universities in Texas. There, Kaplan offers Writing 101 as a five-unit course, according to another former Kaplan teacher whose name I do not wish to disclose. At community colleges, a Writing 101 class is offered for three units, as anyone who has taken lower level courses knows. However, according to the Chronicle of Higher Education, a Kaplan spokesman said the institution increased the credit values of some of its ten-week courses, beginning in 2003-2004 from four credits to five (The Chronicle of Higher Education, October 22, 2010, “For Profits Design Credits to Maximize Federal Aid,” page A1).

Arguing they needed to bring more “parity” between lower division and upper division courses, and that they need to better serve what they call “the new emerging majority” of students, Kaplan and other for-profits argue that traditional calendars keep many working students shut out of traditional public colleges. This, they say, is why they offer such high credit values and accelerated programs that lead to their paper degrees.

The real issue is economic. Once a student has completed 36 units, the student is then eligible to qualify for higher levels of student loans, which go straight into the revenues of the for-profit colleges. And after a student has completed three quarters, measured out in inflated units, they can qualify for even higher loans, which all fund the for-profit colleges. The whole thing is little more than a racket with students as cash cows for the private educational industrial complex.

This is the other part of the Kaplan, and frankly most, if not all, of the for-profit college business plans – requiring excess credit units for profit. The for-profits like Kaplan, simply design credits to maximize the federal aid they can siphon off the student bodies they enroll. By increasing the credit “exchange value” of their courses, the for-profits also increase their profit margins as the cost of their faculty and overhead hardly increase. This is called “credit hour inflation” and is how Kaplan and other for-profit colleges and universities also can accelerate the time their courses take to complete, making “graduation” from these insidious institutions faster. Each unit costs hundreds of dollars, and by assuring that a simple English composition class be offered for five units and not three, The Washington Post corporation – Kaplan’s parent company – can make millions off the backs of unsuspecting students. Many of these loans will never be repaid, but thrown into the public trough to be added to spiraling federal deficits for future generations that will pay the costs.

Furthermore, the former Kaplan teacher indicated that, in order to avoid dropping students, her job for the students who didn’t know parts of speech and could not read was simply reduced to getting them to write an essay that was comprehensible and “passable.” She went on to tell me that her job was minimized to having students write a single, five-page essay for the five units that would pass a literacy smell test at the college and that plagiarism was used to facilitate the process.

Each of the units is priced at hundreds of dollars and requiring five units for a three-unit class is one of the specific abuses the Obama administration is looking to rein in: selling excess units to students, often semiliterate, for gain. The Chronicle of Higher Education noted in their October 17, 2010, article, “Academic Credit: Colleges’ Common Currency Has No Set Value, colleges resist regulators’ calls for consistency,” just how these phony colleges use excess credit selling to profit off working-class students, mostly minority. In another exposé, the Chronicle found that the Obama administration would like to put a stop to all this conniving and cheating by the predatory colleges.

A new rule from the US Department of Education governing the definition of credit hours could be costly to some higher-education providers.

For-profit colleges commonly arrange their schedules to attract working adults and others seeking convenience. Those arrangements are also a huge financial boon to the colleges. By basing their academic calendars on the minimum course-credit requirements to qualify a full-time student for federal financial aid, the colleges make it easier for their students to maximize their use of loans and grants – the lifeblood of most for-profits.

An associate degree, typically thought of as a two-year degree under commonly used calendars, is designed to take three academic years. That allows students to take on a more manageable workload – and it also means they can tap into the bigger federally subsidized loans allowed to full-time students only after they reach their third academic year. Students pursuing bachelor’s degrees gain access to the higher loan amounts before they’re even halfway through their degrees. The approach also makes it easier for the neediest students to receive additional Pell Grant money (October 17, The Chronicle of Higher Education, Sarah Lipka, “Academic Credit: Colleges’ Common Currency Has No Set Value, colleges resist regulators’ calls for consistency.”)

The strategy, while perfectly legal and even lauded by some advocates for working-class students, is one of the reasons for-profit colleges end up with such a disproportionate share of federal student aid. For-profit colleges enroll fewer tha 10 percent of all undergraduates, but account for more than 20 percent of Pell Grant funds and of federally subsidized student loans (October 17, 2010, Goldie Blumenstyk, “New Federal Rule Threatens Practices and Revenue at For-Profit Colleges, Change in definition of ‘credit hour’ could affect the colleges’ share of federal student aid”; October 17, 2010, The Chronicle of Higher Education, Sarah Lipka.) The Chronicle of Higher Education’s article from October 15, 2010 by Goldie Blumenstyk and Ron Coddington, “How a For-Profit Pace Can Increase Student-Loan Debt,” explains how the for-profit mafia actually works the system to steal taxpayer monies and leave students in debt purgatory.

In similar regulatory news, the Obama administration has been looking to implement what could be a neck wringing for the university CEOs, shareholders and Wall Street profiteers: it is called the “gainful employment act,” as I wrote in the Truthout article referenced above. Basically, the act would not allow these avaricious and phony diploma mills to saddle students with debt while secretly knowing those students will never be able to repay that debt. The administration is seeking to implement this clause in new regulations to put an end to the theft of Title IV funds and Pell Grants by racketeers, who seek to cannibalize poor and working-class, minority students with false promises of jobs that do not exist, while shoving those students into the grave of debt peonage.

Under the gainful employment rule, programs at for-profit schools and nondegree vocational programs at public and nonprofit schools would be held accountable for how much debt their graduates accumulate relative to annual income, and for whether former students are repaying the principal on their loans. Programs that fall short of standards could face enrollment limits or lose eligibility for federal aid. Analysts say a cutoff of aid would effectively kill the programs. If passed, the Obama administration estimates that 5 percent of about 53,000 programs nationwide would be found ineligible and that about three-fourths of those cut off would be from the for-profit sector. Industry executives predict greater fallout and say many students would be displaced. This is all bad news for the for-profit driven New York Stock Exchanged “universities and colleges.”

The for-profit, educational, industrial complex fights back with high-paid lobbyists and millions to stop regulations

For-profit schools receive about $1 of every $4 spent on federal Pell grants for students in financial need. That totaled more than $7 billion in the last school year – up from nearly $1 billion a decade earlier. For some for-profit schools, federal grants and loans account for most of their revenue.

“It’s their livelihood,” said Mark Kantrowitz, a college finance analyst with the web site FinAid. The Obama proposal “has the potential to severely impact the industry in terms of what programs they can offer, what their revenues are going to be, what their profits are going to be.” But he said the government has “a good argument” for seeking to rein in student debt.

For-profit schools offer degrees and certificates, often through online courses, in fields including health care, the law, cosmetology and the culinary arts. The Washington Post Co. operates for-profit schools through its subsidiary Kaplan and owns more than 8 percent of the stock of Corinthian Colleges, another for-profit company, based in Santa Ana, California.

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The largest provider of for-profit higher education, Apollo Group, which is based in Phoenix and has 470,000 students, issued a forecast at the end of October that their enrollment of new students at its University of Phoenix would decline. The company said it was taking steps that would affect enrollment at a time of “ongoing regulatory and other scrutiny.” They don’t like the media reports that have “portrayed the sector in an unflattering light.” The for-profit university and college sector stocks didn’t take the news well; although share prices have been dropping for the past year, they fell sharply in November.

The potential of the new gainful employment rule to impact the industry through scrutiny and regulation is itself running into problems, especially now that the midterm elections have catapulted right-wing conservatives and the for-profits’ caretakers into office.

The Washington Post had to run a story about the unscrupulous business tactics of the for-profits, no doubt to the chagrin of Donald Graham, president of the WOP, as it is called on the New York Stock Exchange. The Post reported, as have I and many others following the trail of tears these colleges march students down:

“Federal data show that 11.6 percent of student borrowers from for-profit schools default on their loans within two years of beginning repayment, compared with 6 percent from public colleges and 4 percent from private, nonprofit schools. Some experts note, however, that default rates are often high at nonprofit schools with many low-income students. [October 22, 2010, The Washington Post, Nick Anderson, “For-profit schools lobby to avoid proposed federal aid rule.”]

But there is more, much more, as I wrote earlier in Truthout. The corporations that run the more than 2,000 predatory colleges and trade schools in the US are mounting a daily, no-holds-barred, well-funded and corporate-financed campaign against the Obama administration’s regulatory effort to tighten rules for their access to federal aid.

The industry has held Capitol Hill rallies to bully Congress to reject the rules; they have run corporate-funded advertisements in national newspapers; they have hired big-name lobbyists to roam the corridors of Congress and influence legislation and they have orchestrated and written thousands of comments on the proposed regulation in an effort to kill or at least dilute it. This month, the for-profit industry CEOs are beginning a round of private meetings with senior Education Department officials to argue their case, and there is no doubt they will have some clout, especially now with the shift in Congress even further to the right and in favor of market fundamentalism.

In the past decade, the educational, for-profit, industrial complex has more than doubled its market. One in every ten post-secondary students attends one of these storefront tele-universities. With public education costs going through the roof and more American students being turned down at public institutions due to public budget cuts, the share of for-profits can be expected to rise. Stocks of for-profit colleges have fallen sharply in recent months, as hedge fund operators have gleefully testified to the Department of Education as they bet on their downward spiral. All of this due to the fact that the new proposed regulatory rules could bruise the profit margins of the schools and, in some cases, actually black bag them.

One has to go back as far as the 1990s to see any legislation of this sort being proposed to curb abuses of the for-profit, educational industry. Recent comments from current administration officials signal the proposals would address their concerns that students from for-profit schools often end up with nondischargeable debt (all debt is exempt from bankruptcy and, thus, must be paid for by taxpayers) and little or no job prospects. The CEOs of these heavily traded, educational industry stocks rebut the need for regulations and argue that their schools offer older, minority and low-income students opportunities for a happy and bright employment future. They also point to the need for market-driven education as the public institutions continue to fail or fall short on programs and funds due to past profligacy with student tuition in the quest for investment opportunities on Wall Street that blew up back in 2008.

Certainly, disaster capitalism is at work here as the public sector is continually starved for funds, meaning that community, state colleges and universities are unable to offer “seats” to students who wish to attend them, as the increased costs of tuition spiral virtually out of control.

The Post goes on to note:

“Education Management arranged for Lanny Davis, who was special counsel to President Bill Clinton during campaign-finance controversies in the 1990s, to become a spokesman for an industry group called the Coalition for Educational Success.

Another industry group, the Association of Private Sector Colleges and Universities, brought several hundred students and hundreds of others associated with for-profit colleges to the Capitol on Sept. 29 to protest the proposed rule. ‘My education, my job, my choice,’ they said. Some companies are joining such coordinated efforts. Others appear to be working the issue mainly on their own.” [October 22, 2010, The Washington Post, Nick Anderson, “For-profit schools lobby to avoid proposed federal aid rule.”]

As profits may be in jeopardy, the private owners and major stockholders of the educational means of production have now “lobbied-up.” Take Corinthian Colleges, with about 110,000 students in the Everest, Wyotech and Heald schools: they hired former House Democratic leader Richard A. Gephardt (Missouri) as a lobbyist. The Washington Post, owner of Kaplan, with about 112,000 students, hired Steve Elmendorf, a former Gephardt aide, as a lobbyist. They also hired Anita Dunn, a former communications director in the Obama White House, as an adviser (read, lobbyist) for them. Industry lobbyists and leaders know that the screws might be tightened on corporate profits and they have aligned their interests by pooling money for an outright push-back against any regulations.

Johnny-come-latelies, Sens. Tom Harkin of Iowa and Richard Durbin of Illinois have been highly critical of for-profits’ practices, especially in light of the two Government Accountability reports issued in 2009 and recently in 2010 that found abusive tactics resembling organized crime. Both Senators have pushed hard against the industry, but many Democrats on Capitol Hill love the for-profits. Why shouldn’t they? After all, the educational industry contributes significantly to both Democrats and Republicans in an effort to cement their influence. Their strategy continues to be to court Democratic politicians who are supportive of the for-profit college and university sector. And, according to the Post, they have done so effectively:

“Records analyzed by the Center for Responsive Politics show the industry spent more than $3 million from January through September on lobbying. Corinthian spent $570,000, the records show, Apollo $490,000 and The Post Co. $420,000.” [October 22, 2010, The Washington Post, Nick Anderson, “For-profit schools lobby to avoid proposed federal aid rule.”]

The despicable Lanny Davis, you might remember, also figured prominently when he lobbied Hillary Clinton, his old friend, on behalf of the military Honduran coup leaders who overthrew Honduras’ democratically-elected Zelaya government. He was the darling of the neoliberal Clinton administration for years and he now uses his Washington insider influence, notably with Democrats, to put forth various and sundry insidious proposals aimed to benefit private interests – this is only his latest lobbying campaign.

The Midterm Elections Could Put a Choke Hold on Any New Regulations

The midterm elections of November 2, whereby Republicans gained control over the House, could hamper any move to regulate the racketeers. The Obama administration, true to form, is now back-peddling, saying they will “work with Republicans” on these and other issues governing the for-profit predatory institutions that parade as “educational sites,” when really they are a stark reminder of the loss of true education in favor of “human capital training” programs and diploma mills.

Education Secretary Arne Duncan, the corporatizer in chief of public education, stated to The Washington Post, when pressed on the gainful employment regulation,

“None of this is set in stone. I’m not wedded to anything. We want to get it right.” [October 22, 2010, The Washington Post, Nick Anderson, “For-profit schools lobby to avoid proposed federal aid rule.”]

Duncan said this as early as September – before the Republicans swept the Congress in November’s midterms. This is not surprising, for Obama has shown no spine – preferring to act as an invertebrate on this issue as well as countless others facing a deracinated American public.

Meanwhile, Obama just led a little-publicized delegation of “educators” from Duke University, Rutgers, and others to India, where the educators hope to arm twist the Indian government into removing all regulations on having them operate in India – where 1.1 billion people reside. [November 8, 2010,, Danny Weil, “The US Needs to Tap into India’s educational market and other Foreign Markets to Bail-out its financially broken state colleges and universities.”]

Why? The public colleges, broke due to profligacy, bad bets on Wall Street and investment in capital construction projects – some of which have never been completed, like the Alston Science building at Harvard – where former Goldman Sachs and present presidential adviser Larry Summers will return. The colleges are financially empty and are spreading out internationally in search of global markets to refill their “tanks.” Not far behind them, waiting on the sidelines, are the for-profit predators, which use the face of public colleges to do the dirty work of hustling the Indian government and others, while they wait patiently for a chance to pounce into the Indian economy for profits and grab new markets, assuring imperialism in education and private profits continue unabated.

Although one might think that Obama has been cuckolded on this and other issues, the man’s established a corporatist record – from corporate-mandated health care, to corporate-run schools under Race to the Top, to corporate outsourcing of jobs, to support for corporate militarism. Consequently, backing down on for-profit university and college regulations would be consistent with the Obama administration’s form of “bipartisanship.”

Barmack Nassirian, associate executive director of the American Association of Collegiate Registrars and Admission Officers, based in Washington, and a relentless fighter for student rights and taxpayer protection from the for-profit predatory colleges, has told me in emails that those who seek to rein in the illegal activities of the for-profit, educational, industrial complex are far outspent by lobbyists and special interests intent on keeping the “industry” running on the same basis of government subsidies and no regulation without regard to the cost to students and taxpayers. Even though Nassirian emailed me on November 12, 2010, to tell me he is hopeful that the regulations preventing the for-profits from charging students for excessive credits and the gainful employment act will be successful, he is the first to note that we are fighting private ownership of the means of educational production and predatory marketing mechanisms that see the commodification of education as an exchange value in a market system bent on a form of profit that most resembles piracy.

So, as the new Congress loudly plans to dismantle any national political gains made in the first two years by the Obama administration, deals are quietly being made in smoke-filled rooms with the likes of Graham of Kaplan and other owners of the educational means of production including the University of Phoenix, Corinthian and Secretary Duncan.

Fighting Back

On October 11, 2010, I received an email from Rene D. Harrod, who works for the Economic Crimes Division of the Office of the Attorney General of Florida. She evidently had read or been directed to my writing on this issue and I have been working with her to send her students victimized by Kaplan, as she is investigating Kaplan facilities in Florida accused of fraud.

In an email sent to one former Kaplan victim I directed to her office, Harrod wrote on October 11:

Good morning, [name withheld]. I am with the Economic Crimes Division of the Office of the Attorney General. Our mandate is to enforce the Florida Unfair and Deceptive Trade Practices Act, which forbids unfair and deceptive conduct that misleads or deceives consumers and causes them injury. By statute, the penalties the Court can impose if a violation is found are up to $10,000 per incident (and up to $15,000 per incident if the injury consumer is a senior citizen). We are not a private law firm, but rather are an office of the State of Florida. I can make no promises as to what, if anything, the Office of the Attorney General will be able to do or relief we can obtain, but I cannot take any action unless I have evidence to show that that the various complaints are not isolated incidents, but rather demonstrate a pattern or practice of the business to mislead consumers, which is why I am asking for the affidavits. I do not want to put you through more grief. However, if there is a pattern of deceptive conduct, then the affidavits will help me put together a case. Please let me know if you have further questions …

Rene D. Harrod
Office of the Attorney General
Economic Crimes Division
110 Southeast 6th Street
Ft. Lauderdale, Florida 33301
Telephone: 954.712.4600
Facsimile: 954.712.4658
[email protected] [Email to former Kaplan student.]

Harrod continues to seek information relevant to her efforts to bring Kaplan to justice. The more student victims and whistleblowers that come forward, the better case may be developed to hold Kaplan and other co-conspirators criminally liable. However, with the new Congress and Obama’s penchant for working with right-wing corporatists, it will take a full scale battle to rein in the practices of what whistleblower Goodstein so eloquently calls the “Red Light District” of higher predation.

The real issue, as my previous article argued, is that criminality cannot be regulated. Although any regulations, it is argued, would be better than no regulations, the fact is that the educational means of production are falling into fewer and fewer for-profit financial hands and moving further and further away from any true education. Their criminal activities are putting more and more working people in debt, just like the subprime mortgage fiasco. Sunday, November 14, I received the following email from a woman who was ravaged by Kaplan:

“I got a call from a collection agency from Kaplan and wanted over a thousand dollars and I refuse to pay all along. I have told them I do not owe this money and always in an email. I advised the agent I wanted proof of the debt and she is requesting the ledger and I told her I am not paying it. Besides my credit is there anything else they can do to me? Should I stand my ground? I think I should and my thought is Kaplan can only threaten me to go to court, but cannot touch my house, my disability, my husband’s wages or anything else devastating. Right?”

With civilian life deliquescing in favor of military life, as unemployment rises and financial crises eat up public spheres, while jobs continue to be outsourced and hopes for social mobility vanish, the for-profit colleges and universities are well-placed to capitalize on despair and lack of hope as students are insidiously marketed to and duped into attending these institutions, resulting in grave personal and social consequences. The practices of these institutions are not only leaving students in indentured servitude for the rest of their lives, but are piling billions if not trillions of dollars onto the backs of unsuspecting taxpayers, who will be responsible for paying the bill when students default on loans. This is the tragedy that is the for-profit predatory sector, the privately-held means of educational production.