1. For-Profit Schools: Profiting at Our Expense
The situation went from bad to worse for the for-profit education sector this week. This first punch came earlier in the month when the when the Governmental Accounting Office (GAO) released the details of an undercover investigation showing questionable recruiting practices from the for-profit sector.
Across the nation, there are about 2,000 for-profit colleges eligible to get federal student aid, and their enrollments have grown far faster than traditional higher-education institutions. The aggregate market capitalization of 14 publicly traded corporations in the for-profit school space was $26 billion as of July 14, according to the U.S. Government Accountability Office.
Their students got more than $4 billion in Pell Grants and more than $20 billion in federal loans last year from the Department of Education. In summary, a $26 billion-plus industry benefits from $24 billion of government largesse and loans each year. And yet, it was only this month that any serious effort was made to determine if this was federal money well spent.
Data prepared for the Department of Education by the non-profit Institute for College Access & Success shows that Corinthian Colleges, Career Education and the Washington Post's Kaplan have schools where fewer than 20% of federal student loans are being repaid. Nationally, for-profit colleges trailed public and private non-profit universities by a wide margin, with only 36% of students repaying loans, versus 54% at public universities and 56% at private non-profit schools.
James Maher, an analyst at ThinkPanmure, said Senate hearings and the GAO undercover report served to compound the revelations about the student loan repayment rates. Even though there seemed to be a sign of relief just a few weeks ago in the for-profit educations sector, "the mood has darkened and the fears have intensified again," Maher said.
Sky-high tuition costs, misrepresentations about salary expectations, the con-artistry used to ensure that students qualify for loans and the shuck-and-jive tactics used to keep them away from financial advisers until after they sign on the dotted line makes the likelihood of default far from surprising.
That's where our wallets get raided. When students don't make payments on their federal loans, the federal government and taxpayers assume nearly all the risk and are left with the costs. Students who default suffer from a poor credit record, which makes it difficult to obtain auto loans, mortgages and credit card.
Now, of course, jolted by the GAO report as well as its own findings, the Department of Education is pledging to hire more investigators and measurably increase the number of investigations related to for-profit schools. Education Secretary Arne Duncan has publicly said "the unethical and potentially illegal practices uncovered" are "unacceptable."
Just as unacceptable? How taxpayers and students have, for so long, been taking a loss ... in the name of a profit.
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