Subprime Students: How For-Profit Universities Make a Killing By Exploiting College Dreams

As Cornell professor Noliwe Rooks and journalist Kai Wright have reported, black college enrollment has increased at nearly twice the rate of white enrollment in recent years, but a disproportionate number of those African-American students end up at for-profit schools. In 2011, two of those institutions, the University of Phoenix (with physical campuses in 39 states and massive online programs) and the online-only Ashford University, produced more black graduates than any other institutes of higher education in the country. Unfortunately, a recent survey by economist Rajeev Darolia shows that for-profit graduates fare little better on the job market than job seekers with high school degrees; their diplomas, that is, are a net loss, offering essentially the same grim job prospects as if they had never gone to college, plus a lifetime debt sentence.

Much of the American public does not understand the difference between for-profit, public, and private non-profit institutions of higher learning. All three are concerned with generating revenue, but only the for-profit model exists primarily to enrich its owners. The largest of these institutions are often publicly traded, nationally franchised corporations legally beholden to maximize profit for their shareholders before maximizing education for their students. While commercial vocational programs have existed since the nineteenth century, for-profit colleges in their current form are a relatively new phenomenon that began to boom with a series of initial public offerings in the 1990s, followed quickly by deregulation of the sector as the millennium approached. Bush administration legislation then weakened government oversight of such schools, while expanding their access to federal financial aid, making the industry irresistible to Wall Street investors.

While the for-profit business model has generally served investors well, it has failed students. Retention rates are abysmal and tuitions sky-high. For-profit colleges can be up to twice as expensive as Ivy League universities, and routinely cost five or six times the price of a community college education. The Medical Assistant program at for-profit Heald College in Fresno, California, costs $22,275. A comparable program at Fresno City College costs $1,650. An associate degree in paralegal studies at Everest College in Ontario, California, costs $41,149, compared to $2,392 for the same degree at Santa Ana College, a mere 30-minute drive away.

Exorbitant tuition means students, who tend to come from poor backgrounds, have to borrow from both the government and private sources, including Sallie Mae (the country's largest originator, servicer, and collector of student loans) and banks like Chase and Wells Fargo. A whopping 96% of students who manage to graduate from for-profits leave owing money, and they typically carry twice the debt load of students from more traditional schools.

Public funds in the form of federal student loans has been called the "lifeblood" of the for-profit system, providing on average 86% of revenues. Such schools now enroll around 10% of America's college students, but take in more than a quarter of all federal financial aid—as much as $33 billion in a single year. By some estimates it would cost less than half that amount to directly fund free higher education at all currently existing two- and four-year public colleges. In other words, for-profit schools represent not a "market solution" to increasing demand for the college experience, but the equivalent of a taxpayer-subsidized subprime education.
 

Pushing the Hot Button, Poking the Pain

The mantra is everywhere: a college education is the only way to climb out of poverty and create a better life. For-profit schools allow Wall Street investors and corporate executives to cash in on this faith.

Publicly traded schools have been shown to have profit margins, on average, of nearly 20%. A significant portion of these taxpayer-sourced proceeds are spent on Washington lobbyists to keep regulations weak and federal money pouring in. Meanwhile, these debt factories pay their chief executive officers $7.3 million in average yearly compensation. John Sperling, architect of the for-profit model and founder of the University of Phoenix, which serves more students than the entire University of California system or all the Ivy Leagues combined, died a billionaire in August.

Graduates of for-profit schools generally do not fare well. Indeed, they rarely find themselves in the kind of work they were promised when they enrolled, the kind of work that might enable them to repay their debts, let alone purchase the commodity-cornerstones of the American dream like a car or a home.

In the documentary "College Inc.," produced by PBS's investigative series Frontline, three young women recount how they enrolled in a nursing program at Everest College on the promise of $25-$35 an hour jobs on graduation. Course work, however, turned out to consist of visits to the Museum of Scientology to study "psychiatrics" and visits to a daycare center for their "pediatrics rotation." They each paid nearly $30,000 for a 12-month program, only to find themselves unemployable because they had been taught nearly nothing about their chosen field.

In 2010, an undercover investigation by the Government Accountability Office tested 15 for-profit colleges and found that every one of them "made deceptive or otherwise questionable statements" to undercover applicants. These recruiting practices are now under increasing scrutiny from 20 state attorneys general, Senate investigators, and the Consumer Financial Protection Bureau (CFPB), amid allegations that many of these schools manipulate the job placement statistics of their graduates in the most cynical of ways.

The Iraq and Afghanistan Veterans of America, an organization that offers support in health, education, employment, and community-building to new veterans, put it this way in August 2013: "Using high-pressure sales tactics and false promises, these institutions lure veterans into enrolling into expensive programs, drain their post-9/11 GI Bill education benefits, and sign up for tens of thousands of dollars in loans. The for-profits take in the money but leave the students with a substandard education, heavy student loan debt, non-transferable credits, worthless degrees, or no degrees at all."

Even President Obama has spoken out against instances where for-profit colleges preyed upon troops with brain damage: "These Marines had injuries so severe some of them couldn't recall what courses the recruiter had signed them up for."

As it happens, recruiters for such schools are manipulating more than statistics. They are mining the intersections of class, race, gender, inequality, insecurity, and shame to hook students. "Create a sense of urgency. Push their hot button. Don't let the student off the phone. Dial, dial, dial," a director of admissions at Argosy University, which operates in 23 states and online, told his enrollment counselors in an internal email.

A training manual for recruiters at ITT Tech, another multi-state and virtual behemoth, instructed its employees to "poke the pain a bit and remind them who else is depending on them and their commitment to a better future." It even included a "pain funnel"—that is, a visual guide to help recruiters exploit prospective students' vulnerabilities. Pain was similarly a theme at Ashford University, where enrollment advisors were told by their superiors to "dig deep" into students' suffering to "convince them that a college degree is going to solve all their problems."

An internal document from Corinthian Colleges, Inc. (owner of Everest, Heald, and Wyotech colleges) specified that its target demographic is "isolated," "impatient" individuals with "low self-esteem." They should have "few people in their lives who care about them and be stuck in their lives, unable to imagine a future or plan well."

These recruiting strategies are as well funded as they are abhorrent. When an institution of higher learning is driven primarily by the needs of its shareholders, not its students, the drive to get "asses in classes" guarantees that marketing budgets will dwarf whatever is spent on faculty and instruction. According to David Halperin, author of Stealing America's Future: How For-Profit Colleges Scam Taxpayers and Ruin Student's Lives, "The University of Phoenix has spent as much as $600 million a year on advertising; it has regularly been Google's largest advertiser, spending $200,000 a day."&

At some schools, the money put into the actual education of a single student has been as low as $700 per year. The Senate's Health, Education, Labor, and Pensions Committee revealed that 30 of the for-profit industry's biggest players spent $4.2 billion—or 22.7% of their revenue—on recruiting and marketing in 2010.