Washington Post CEO, Kaplan and Predatory Accounting That Hits Poor Students Hard

In a 2010 letter to shareholders, Washington Post CEO Donald Graham admits that Kaplan University engaged in a scheme to raise tuition on poor students. The scheme was launched for the sole purpose of avoiding a violation of the Department of Education's (DOE) “90/10” rule and to assure Kaplan's profits' successful and continual reliance on subsidies from the pockets of publicly funded, federal student loan money. Most Kaplan revenues come from the federal government's Title IV program. If enough students borrow the cost of tuition, Kaplan would be in violation of the 90/10 rule.

As Graham casually noted in the letter to shareholders: ” … each time the federal government raises the maximum amount granted under Pell Grants or the maximum federal loan amount, we end up compelled to raise tuitions to comply with 90/10″ (Ibid).

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In other words, “If we can't get a 100-percent subsidy from taxpayers directly, then we will adjust the cost for our “educational products” (degrees, classes) to assure that we get it surreptitiously. Either way, we'll get it!” The Securities and Exchange Commission (SEC) report goes on:

Given that schools do not control, and generally may not limit, student lending, one of the more effective methods of reducing the 90/10 rule percentage is to increase tuition prices above the applicable maximums for Title IV student loans and grants, requiring other sources of funding to cover the remaining tuition balance, in order to reduce the percentage of revenue from Title IV sources. Although modification of the 90/10 rule could limit this potential undesirable impact on tuition, there is no assurance that the Department of Education, or Congress, will address this problem.” (Page 6 of the 2010 10-K annual report).

A cursory review of the legislative history and intent behind the 90/10 rule clearly indicates that Graham's admitted actions are in direct contradiction to the intent of the 90/10 rule – a rule designed to assure that 10 percent of monies paid to for-profit colleges come from students not covered by federal student-loan aid.[1]

Concerns with the 90/10 rule date back as far as 2003, when the Wall Street Journal reported that Kaplan was diversifying the “educational products” they sell:

Kaplan's rapid growth is also spurring the company to look for new sources of income. The federal government enforces a 90-percent ceiling on the proportion of a for-profit college's revenue that comes from federal aid. Kaplan College exceeds 80 percent. Overall, the company's schools are at about 75 percent. In part to reduce reliance on federal money, Kaplan College is adding bachelor's and master's-level programs in criminal justice, business and other subjects. School officials expect that applicants for these four-year and graduate degrees will be more likely than students seeking two-year associate degrees to afford their own education or get their employers to subsidize their tuition.”

The article went on to describe Graham's sole focus on Kaplan's growth and revenues and his contempt for education other than as something to be sold as a commodity:

At the parent company's annual meeting last May, Mr. Graham said, “Kaplan continues to go gangbusters.” Mr. Graham says Washington Post executives used to joke about Kaplan reaching $1 billion in revenue, “because it seemed so wildly unlikely.” Now that goal seems within reach. And he says one reason the Washington Post has focused on educational acquisitions is that television stations and other media properties it might otherwise seek to acquire have grown too expensive. “Given prices in media, education has been the bulk of where we have had to grow, and I love the way Kaplan grows” (Ibid).

If Kaplan is deliberately increasing tuition rates to get its hands on more government monies – utilizing a clever accounting gimmick to assure that the tuition rates exceed Title IV grant and loan limits for the sole purpose of avoiding violation of the 90/10 rule, as Graham stated in the shareholder letter – then this may represent a criminal financial scheme to fraudulently maintain access to government funds. If true, the company, Graham and other CEOs should be criminally and civilly prosecuted. Eric Holder and the Department of Justice (DOJ) should be jumping all over Kaplan for defrauding taxpayers. The DOE should be issuing loud calls for the scheme to stop.

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But they're not, even though the statements by Graham are more than two years old. The reason they're not is quite possibly the fact that both Democrats and Republicans feed at the trough of the for-profit largesse by accepting monies for their campaigns. For example, Democrat Reps. Alcee L. Hastings (Florida), Carolyn McCarthy (New York), Donald M. Payne (New Jersey), Edolphus “Ed” Towns (New York), Tim Holden (Pennsylvania) and Ted Deutch (Florida) have asked the DOE to scrap the new regulation.

Hastings alone received $47,500 from the “educational industry.” But that's not all: take a look at the “educational industry” contributions to 20 members of the House of Representatives, and you can see specifically which coin-operated politicians – Democrats and Republicans – are on the take.

The list of Democrats explains why there has not been much mainstream corporate media coverage of Mitt Romney's plugging for his friend's for-profit university as a solution to the problem of rising higher-education costs.

Top for-profit university contributors to political campaigns can be found here.

Rep. John Kline, a Republican from Minnesota, alone received $176,000 in lobbying money from the corporate, for-profit predatory universities.

But – returning to the Republicans, Graham hardly stops there – he goes on to state: “As a general matter, no university can limit how much a student can borrow under Title IV.

In other words, “Just try to stop me from getting more money: I will simply raise tuition and recoup any losses borne by 'capital' by shifting costs and raising tuition.”

Graham would like to blame poor students targeted as marks by Kaplan for borrowing too much money, but the fact is that Kaplan has created a debt sinkhole that is forcing students to borrow more and more taxpayer funds to subsidize Kaplan shareholders while they sink deeper and deeper into debt. This is unconscionable, and that the swindle masks itself as “access to education” is telling. The identical argument was made by Wall Street hucksters and banksters when they gave “liar loans” to consumers so they could be part of the “ownership society” and purchase a home they could not afford.

Graham's own words are an indictment of Kaplan's business practices and plans, but there is additional evidence that Kaplan's tuition costs for poor students enrolled in undergraduate and certificate programs are predatory, exploitative and oppressive. At Kaplan's Pittsburgh school, to use just one example, an 18-month criminal justice certificate costs $30,000, while at Kaplan's Concord Law School (which lacks American Bar Association accreditation), a three-year law degree also costs $30,000. Why the same cost? The criminal justice program is targeted at low-income minority students (the subprime students), while the “law degree” is obviously aimed at more affluent college graduates (the “prime” students) who may be less dependent upon Title IV money. This tuition equivalence is suggestive.

Commodifying Education and Growing the “Business Plan”

Time and time again, Kaplan's sordid business practices reveal a parasitic predatory scheme that drives students farther into nondischargeable debt, denies these poor students the ability to obtain loans and grant monies to cover their basic living expenses, turns education into a simple “product” or commodity that is bought and sold on the private educational market, and leaves taxpayers with the cost of subsidizing for-profit Kaplan's CEO bonuses, buyouts, shareholders, profits and costs. It is a plan fueled by both private and public debt.

Kaplan University has been growing by double digits annually. This means they must invest their surplus profits in order to continue to derive more return on profits. The “fantastic growth” at Kaplan was accomplished to a large extent by intentionally targeting poor students (especially minority, single mothers) dependent upon Pell grants and Title IV loans to fund their education. For example, in 2010, 25 percent of Kaplan Higher Education's revenues came from Pell Grants (See: “Bogus Obama Mom Grants Lure Students.”)

Kaplan has also been targeting veterans and GIs. The for-profit predator company is one of the top ten recipients of GI benefits: the amount they received went from $17 million in 2009 to $44 million in 2010, all while maintaining the highest GI dropout rate – 69 percent – among the top ten GI-attended schools.

As the company's business plan is based on “living off government funds,” the company has been busy recruiting more and more poor and disenfranchised students – Title IV-eligible students, GIs, veterans etcetera – to grow the company at double-digit rates per year (See: “Kaplan Quest for Profits at Taxpayer Expense Ensnares Veteran“). In this way, Kaplan socializes the costs of doing business and privatizes the profits.

Acquiring funding for education-related living expenses can be important for students with limited incomes. Tuition is one thing, but paying rent and buying food is a basic necessity for students. Living expenses, however, present a problem for Kaplan's for-profit extraction plans. Why? Simple: Kaplan wants to get their hands on all the money a student is eligible for. They don't care whether students need money for living expenses or whether they are homeless.

Note: Kaplan is not the only for-profit defrauding the government in regard to the 90/10 rule (See the Chronicle of Higher Education article by Goldie Blumenstyck). Readers can also see the author's article, “76 Percent of For-Profit College Students Attend Schools that are Wall Street Owned,” at Daily Censored.

1. http://congressionalresearch.com/RL32182/document.php?study=Institutional+Eligibility+and+the+Higher+Education+Act+Legislative+History+of+the+90 percent2F10+Rule+and+Its+Current+Status; http://archive.truthout.org/neoliberalism-and-for-profit-predatory-educational-industry-you-cant-regulate-a-criminal-enterprise