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The For-Profit College Racket
(Photo: Textbook of Money via Shutterstock)

The For-Profit College Racket

(Photo: Textbook of Money via Shutterstock)

Part of the Series

The for-profit college industry is known to most Americans by its commercials and billboards promising potential students new skills, job training and exciting career paths. The reality is far more sinister, as Senator Tom Harkin’s new report, released last week, reveals.

“In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation,” Mr. Harkin, an Iowa Democrat who is chairman of the Senate Health, Education, Labor and Pensions Committee, said in a statement… “These practices are not the exception — they are the norm. They are systemic throughout the industry, with very few individual exceptions.”

According to Harkin’s findings, for-profit colleges take in about $33 billion each year from taxpayers (in the form of student loans), making up 85 to 90 percent of their revenues, yet they spend the large majority of that money on marketing, recruiting and executive salaries – CEOs took home an average of $7.3 million a year. Not surprisingly, this business model fails their students: 54 percent of the students who enrolled in the 30 biggest for-profit schools examined by Harkin in 2008-09 left institutions without a degree.

Looking to maximize profits, these schools target those most likely to receive lots of federal student loans: low-income students, immigrants, students of color and other nontraditional types of students. Perhaps most predatorily, they have sought to enroll veterans of the recent wars in Afghanistan and Iraq. Student loans from the G.I. Bill count as private money, not federal loans, helping for-profits stay below an imposed 90 percent threshold for revenue from the federal government while maximizing profits. It got so bad that earlier this year President Obama penned an executive order to protect U.S. troops from recruiters, saying that these schools are “trying to swindle and hoodwink you.”

Last week, Harkin held a press conference with some colleagues sharing his findings. One of the speakers was a former for-profit college recruiter who described the techniques she used to convince potential students to apply:

“The pain funnel was used to ‘demoralize potential applicants by discussing their life’s shortcomings in order to have them enroll, where their life would improve.’ Such techniques are both ‘predatory’ and ‘very successful,’ she said. Students would enroll with the ‘expectation that if they spend enough money, whether through savings or students loans, their problems would be solved,’ Brozek said. ‘For a large percentage of students who enrolled, this was simply not the case.’”

Another was a former Army captain who denounced the treatment of veterans saying that if hospitals behaved like these schools, their executives would be in jail.

The examples of abuses are shocking. Take this recent story from a report by The Village Voice’s Chris Parker, in which a recruiter from Ashford University encouraged 14-year-old Bobby Ruffin Jr. to enroll for classes without telling his parents and to let the school lie for him on his financial aid forms. Parker writes, “Bobby took online classes for almost a year. …”

“Of course, it’s illegal for kids Bobby’s age to receive financial aid…. But when [Bobby] wouldn’t endorse Ashford [University]’s lying on his financial-aid forms, administrators miraculously discovered that he was under 18. Since this left him ineligible for federal aid, Ashford was forced to return his loan money to the feds. The school wouldn’t be eating those costs. Bobby would. Ashford, which declined interview requests for this story, sent him a bill for $13,000.”

Examples like this abound.

How are for-profit schools getting away with this behavior? The same way most companies get what they want in this country: with millions of dollars in lobbying federal lawmakers, pricey lawyers and strategic campaign contributions.

This is an industry that is by and large exploitative to its students and useless to the public good. But business seems to be going just fine – for-profit universities have an average profit margin of 19.7 percent. They just won’t tell you that those profits are coming from our taxes – and at the expense of some of the most vulnerable among us.

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