• July 31, 2014

Senators Vow to Crack Down on 'Bad Actors' in the For-Profit Sector

Tom Harkin at For-Profit Hearing

Marc Parry

Sen. Tom Harkin (far right) spoke to a reporter after Thursday's hearing on for-profit colleges. He said senators will continue to delve into whether for-profit colleges are delivering a fair return for all the federal aid their students receive.

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close Tom Harkin at For-Profit Hearing

Marc Parry

Sen. Tom Harkin (far right) spoke to a reporter after Thursday's hearing on for-profit colleges. He said senators will continue to delve into whether for-profit colleges are delivering a fair return for all the federal aid their students receive.

Senate Democrats took aim at for-profit colleges at a hearing on Thursday, promising to crack down on "bad actors" in the rapidly growing sector to protect federal student aid dollars from being wasted through fraud and abuse.

"This is taxpayer money," said Sen. Tom Harkin, the Iowa Democrat who is chairman of the Senate's education committee. "We have to seriously question the profit margins and how much is going into actual instruction."

He added that "those that know how to game the system are pulling a lot of good schools into the vortex" of bad practices. "That compels us to do something about it and stop it before it goes too far," he said.

Mr. Harkin didn't say what he had in mind but promised additional hearings on for-profits, with the next to come in July.

"We're going to be delving into this," he said.

Thursday's witness list was stacked with critics of the for-profit sector, including a former California deputy attorney general who prosecuted cases against for-profit colleges and a student who said she was defrauded by a for-profit college.

The most critical—and most controversial—witness was Steven Eisman, a hedge-fund manager who, as a short-seller, would profit from a drop in the value of stocks of for-profit colleges. Mr. Eisman made his reputation (and a fortune) betting against subprime mortgages, and in his prepared testimony, he likened for-profit education to the real-estate market before the collapse, with easy credit driving prices ever higher and large defaults looming.

"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime mortgage industry," he said. "I was wrong. The for-profit education industry has proven equal to the task."

He accused for-profit colleges of peddling false hopes to "the most vulnerable of society," much as mortgage issuers did with low-income home buyers.

"We just loaded up one generation of Americans with mortgage debt they can't afford to pay back," he said. "Are we going to load up a new generation with student-loan debt they can never afford to pay back?"

Mr. Eisman predicted that students of for-profit colleges would default on $275-billion in student loans over the next decade, and suggested that for-profit colleges be required to bear some of the loss when their students default.

Meeting 'an Enormous Unmet Need'

The task of defending for-profits was left to Sharon Thomas Parrott, the only representative of the sector to testify at Thursday's hearing. Ms. Thomas Parrott, who is senior vice president of government and regulatory affairs and chief compliance officer for DeVry Inc., said that for-profit colleges "empower students to achieve their career goals" and serve students who have been underserved by nonprofit colleges.

"Institutions like ours grow for a reason," she said. "There is an enormous unmet need, especially among nontraditional students."

She got some tepid support from Republicans on the panel, who acknowledged problems in the sector, but cautioned against a rush to regulate.

"In combating this behavior, it is essential that we use a scalpel and not a machete," said the panel's top Republican, Sen. Michael B. Enzi of Wyoming.

Thursday's hearing comes amid increased federal scrutiny of the for-profit sector, which educates a growing share of students and is highly dependent on federal student aid. Enrollment at for-profit colleges has grown by 225 percent over the past 10 years, with most students borrowing to pay for their education. While for-profits enroll fewer than 10 percent of American college students, they accounted for 23 percent of Pell Grants and federal student loans in 2008, and for 44 percent of defaults among borrowers who entered repayment in 2007, according to a report issued by Sen. Harkin's office.

Congress, which recently provided billions of dollars in additional Pell Grant aid, wants to be sure that taxpayer dollars are being spent wisely. Last week, the education committee of the House of Representatives held a hearing to examine whether accrediting agencies are doing enough to ensure that students studying online are getting adequate instruction for the degrees they earn.

But weeding out the "bad actors" in the sector won't be easy, as lawmakers acknowledged at Thursday's hearing. Though the federal government and accreditors collect reams of data from colleges, there are still significant gaps in information about for-profit colleges' success rates.

Outcomes Unclear

"There is much that we don't know," said Mr. Harkin. "We don't know how many students graduate, how many get jobs, how schools that are not publicly traded spend their Title IV dollars, and how many for-profit students default over the long term. More broadly, we don't know exactly what risk we are taking by investing an increasing share of our federal financial-aid dollars in this sector."

When Ms. Thomas Parrott said she would be "happy to share" DeVry's data on its graduation and placement rates, Mr. Harkin expressed doubt about how the numbers are calculated.

"Statistics can be self-serving when they're produced by the entities that are getting the taxpayer dollars," he said.

During the first half of the Senate hearing, lawmakers heard from Kathleen S. Tighe, inspector general of the Education Department, who said that 70 percent of her agency's postsecondary investigations center on for-profit colleges. She described cases in which colleges have falsified students' eligibility for aid, exploited loopholes in a ban on compensating recruiters based on enrollments, and failed to return federal aid money when students withdrew.

She praised the Education Department's proposed new rules on for-profits, which would tighten the ban on incentive compensation, among other things, and called for stricter rules on distance education. She also suggested that the government track student-loan borrowers all the way through repayment, to get a better measure of how many students default. The government now tracks loans through only two years, though it will soon switch to three.

Later Thursday, Harris N. Miller, president of the Career College Association, expressed frustration with the hearing, saying it failed to provide a big-picture look at the issues facing higher education.

"Rather than being insightful and providing information," Mr. Harris said in a conference call with reporters, the hearing "led to a certain amount of confusion. There was no attempt to offer any context or balance."

For more coverage of the hearing, see The Chronicle's live tweets.

Comments

1. breppe - June 24, 2010 at 11:47 pm

If we simply limit students' borrowing to direct cost only for part time and online students, this will dramatically reduce student debt, financial distress and taxpayer funded defaults and write downs. The Post 9/11 GiBill does not pay a living allowance for online students because the student is not sacrificing anything other than time to enroll online. The same should apply with title IV.

Since Title IV currently allows borrowing far in excess of direct cost, as much as 2 and a half times the cost in the case a part time MBA student for example, students take advantage of this easy money to live on, even though it is not in their long term interest and should not be necessary if they are working full time (if they are not working full time, why are they not attending full time, as longer enrollment equals more debt and classes are offered online at multiple sites?).

Living expenses should only be provided to students who sacrifice working full time to attend full time on site, not online, part time and night students who are by and large full time working adults and which comprise a large portion of the for-profit demographic.

2. jwperry - June 25, 2010 at 07:45 am

Here are possible reasons why there is a market for these excessively expensive places in the first place:

1. The standards are lower and thus it's not as difficult to achieve a degree.
2. There is no room in existing public or private campuses.
3. The classes are delivered in a more convenient manner.

We can't do anything about #1 if it's true, #2 can be solved by a public reinvestment in higher education (in WI public support of the UW System has gone from about 60% to less than 40%), and faculty can rethink the traditional way they teach courses to answer #3. #3 is by far rhe easiest solution, but requires a change in thinking by faculty. And that's not so easy either.

3. 22040003 - June 25, 2010 at 08:16 am

"There is much that we don't know," said Mr. Harkin. "We don't know how many students graduate, how many get jobs, how schools that are not publicly traded spend their Title IV dollars, and how many for-profit students default over the long term."

What planet does this man live on? Accrediting bodies for these schools (including the regionals, because it is part of the school's mission) focus on all these issues. Plus, employment rates are a selling point for many of these schools. If they rise above a certain default rate, they can no longer get financial aid.

What is most interesting about all this is the angry discussion. Instead of blaming for-profit as a sector, we should be weeding out the bad apples and focusing on the problems in the non-profits.

A lot of people like to focus on the fact that it is our tax dollars. keep in mind that the only tax dollars that go to the for profits go to the students, who certainly could choose a community college, where many more tax dollars are spent on very low graduation rates , high default rates and no attention paid to students' success after they graduate.

As I said in another post, the publicly traded issue is a HUGE but separate problem.

4. handley - June 25, 2010 at 08:46 am

I am astonished that Senator Harkin is giving a short-seller a national stage from which to feather his own nest. If profit is such a bad thing, why are we awarding potentially billions of dollars of profit to one man? His testimony is an insult to the thousands of people who do good work on behalf of students in the private sector schools. This is a terribly cynical farce.

Post number 3 is right on.

Post number 2 lost me when s/he referred to excessively expensive schools as if this is a problem only in the for-profit sector. Please note that without exception the most expensive colleges and universities are non-profit.

5. mheffleychron - June 25, 2010 at 09:10 am

Anyone who reads the Chronicle regularly knows that the non-profit sector has much the same problems as the for-profit: open or low-bar admissions that make for a wide range of skill levels in students, little-to-no job placement consciousness, too many graduates and not enough jobs, loan-shark lenders to the typical American (ie., broke, desperate, stuck in a capitalist shark pool of a society), as many bad actors as good in admin and faculty...as usual, the milk sours, the cream rises, butter gets made...

6. chaussures1 - June 25, 2010 at 09:40 am

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7. joncrispin - June 25, 2010 at 10:31 am

How in all that is good does this person get to be the chairman of the Senate Education committee when he makes a statement like, "There is much that we don't know," said Mr. Harkin. "We don't know how many students graduate, how many get jobs, how schools that are not publicly traded spend their Title IV dollars, and how many for-profit students default over the long term."

I think he must have gotten confused and thought he was talking about the traditional higher education arena. Every for profit that is accredited by a recognized agency has very stringent outcomes and tons of data on these very things. Don't make the cutoffs, lose your accreditation. The same can't be said for the traditional institutions.

8. director19 - June 25, 2010 at 11:07 am

What a bunch of B.S. Remember, everyone has an agenda! You're seeing it here, in living color.

9. ianderso - June 25, 2010 at 11:26 am

From the article:

"He accused for-profit colleges of peddling false hopes to "the most vulnerable of society," much as mortgage issuers did with low-income home buyers."

And boy, is he right. I worked for a large, for-profit chain of schools for two years while in graduate school. What I witnessed was appalling on many levels. The "Assistant Directors of Admissions" would cold-call prospective students out of the blue, seemingly paying special attention to those from extremely rural areas and the inner city. The same salespeople (who do operate under quota requirements) then provided tours to large groups of prospectives. It was painfully obvious (even our students noticed and were rather offended) that tour groups were divided up demographically: the white prospectives received a different tour from the black prospectives. The latter group received a "look at all of our fancy toys - this is where you'll become a famous producer" tour, while the former received a more traditional "these are our facilities, this is one of our faculty, please ask questions" tour. It was painfully obvious, and beyond despicable. The end result is that faculty (particularly in my department) ended up with boatloads of students who were extremely ill-prepared for college (some of whom, frankly, had no business attending in the first place), struggling through their first two years on student loans before flunking out. And I really don't believe that anywhere along the line was it clearly explained to these students that, regardless of whether or not they graduate, they'll have to pay back their $20,000 per year of student loans. And at the current 6.5% interest rate...

This experience opened my eyes to the horrifically predatory recruiting (and lending) practices of these schools. If I can help it, I'll never work for a for-profit again.

And I won't even get started on how the for-profits treat their faculty.

10. intered - June 25, 2010 at 12:26 pm

The leadership of this committee is so pitifully ignorant, or duplicitous, that is is difficult to know where to begin.

When, since the McCarthy era, has such a committee committed an act so clearly and egregiously wrong -- on moral and logical grounds -- as to invite a short-seller to serve as a hatchet witness to an industry that he has decided to trash for financial gain. My god, are we disturbed at all by this kind of corruption anymore? Where is the outcry? If I were in Harkin's state, I would investigate the potential for impeachment proceedings. Then, there is Harkin's admitted ignorance of NCES or any of the many other sources of statistics that are only a click or two away. Who is this man!

I hope that we will overwhelm this committee with public outcry demanding that the GAO audit to be expanded to publics and independents as well. We will learn a great deal from such an audit and well-intended professionals can put the findings to work. http://www.intered.com/higheredbriefing/2010/6/22/broader-gao-study-is-needed.html

All of higher education's houses are doing good and all houses are in need of reform, the for-profits no more nor less than the others.

11. jeriley - June 25, 2010 at 02:00 pm

"All of higher education's houses are doing good and all houses are in need of reform, the for-profits no more nor less than the others."

Could you be any more bland? Obviously, there are people invested in the for-profits commenting on this story. The criticism of Sen. Harkin is ludicrous: he is leading the investigation an industry that we all know has serious problems. I'd rather have my senator looking at this issue than debating whther college football needs a playoff system.

The testimony of Eisman is no doubt an embarrassment to the for-profits, and deliciously ironic. One greedy gouging capitalist helping to bring down a cohort of fellow greed-monsters.

The comments of ianderso are enlightening here.

12. intered - June 25, 2010 at 02:47 pm

@jeriley,

"Obviously, there are people invested in the for-profits commenting on this story."

Indeed, obviously there are people invested in each institutional type commenting on this story. That obvious fact makes their comments neither more not less relevant and valid. These matters are determined by other means.

You, on the other hand, comment on diversity in professional discourse as if it were a criticism. Why is that and why would the biases of one sector exceed those of another. Are you so arrogant as to believe that only your perspective lives in the center of the reasoned universe?

My bias professional lies with productivity, empirically sound evidence of outcomes and impact, and return on investment. I have devoted 30 years of my professional life to the principles surrounding these constructs. Perhaps you can address the shortcomings in the public institutions identified here. http://www.intered.com/higheredbriefing/2010/1/26/an-alternative-to-begging-how-our-state-universities-can-do.html Then, tell us why they should not also be investigated. Do you believe the public's instantiation of 'quality' to be apodictic?

13. prof_truthteller - June 25, 2010 at 03:07 pm

@intered, (10) you need to take a chill pill. You are throwing out some pretty serious charges against these senators, and your comparison to the McCarthy era is way overblown. Can you define "ad hominem?"

We all know that these hearing are the public theatrical displays, and that the real decision making will be hammered out privately. But for good theater, you need drama, and Eisman certainly provided that. I thought he made an excellent Cassandra.

On the other hand, to trot out DeVry, one of the better players in this field, implied to me two things: one, none of the other big players were willing to stand up as spokesmodel; two, they weren't willing because the do have something to hide or are so callous as to not care.

Sure, expand the GAO-requested study to include publics. Bring it on.

14. prof_truthteller - June 25, 2010 at 03:30 pm

@jwperry, (2) there's another reason: jobs. Most if not all for profit colleges market themselves as being able to prepare you for a job or career. Few if any use the common rhetoric of public, general education-oriented colleges, of preparing you for life by providing a well rounded education.

So, the way I see it, they are basically marketing *training* and not *education* and I think that clarifying that upfront would actually be helpful to both sectors. The goals and roles are different. There is plenty of research to show the benefit of learning history, science, logic, public speaking, literature, art, etc., as provided by a standard bachelor's degree based on a solid GE core. There is also plenty of research to show the benefit of specific job or career training that prepares students for specific jobs.

However, in the case of the witness Ms. Issa, and others as described by the Ms. Reiter from the CA AG's office, in too many cases, the marketing is aggressive, misleading, and does not in fact prepare students for the job. Those students should be able to get some recompense for their loss and for the misleading advertising used to gull them into incurring all that debt. There should be legal and economic consequences for this kind of corruption and abuse.

15. arrive2__net - June 25, 2010 at 04:23 pm

If the legislation was intended to just give the money away, then it is likely that the money would be distributed and spent very differently than the way it is distributed and spent now. If the money really is meant as a loan, then clearly the legislation ought to be written in a way that the money is likely to be paid back, so I think the investigation is worthwhile.

There is a great deal of variation in the performance and success of the various schools that make up the for-profit sector. The country would be best served if the schools are ultimately treated in a consistent manner that rewards performance, but does not reward failure.

There are existing standards for default rates in the federal student loan program. Those standards were recently tightened. If a school does not satisfy the existing federal standards it loses eligibility for the student loan program. So the Senate seems to be investigating the need to tighten standards for default rates. Based on the new story this tightening does appear to be justified.

Bernard Schuster
Arrive2.net

16. ellenhunt - June 25, 2010 at 05:24 pm

It most certainly does appear that major tightening of standards is in order, the posts from shills for the likes of University of Phoenix not withstanding. Go away fake people.

Wayne State has shown that a university can take underprivileged students from all walks of life and teach them successfully. These money machines ripping off the federal governmetn are not involved with teaching, they exist to collect payments. That's it.

I hope Harkin takes UoP and its ilk out and sees to it that family that started that rip-off system are stripped of their billions defrauded from the federal government.

17. cragie - June 25, 2010 at 08:22 pm

22040003:
"A lot of people like to focus on the fact that it is our tax dollars. keep in mind that the only tax dollars that go to the for profits go to the students, who certainly could choose a community college, where many more tax dollars are spent on very low graduation rates , high default rates and no attention paid to students' success after they graduate."

This is the oldest of disproven arguments, that the for-profits get 90% of their revenues from student loan and Pell funds, but all of that money is spent on the education of the student. Read the report --
"on average, [for profits] spend 50.2 percent of costs on expenses classified as education, 31 percent on recruiting and marketing and 15.7 percent on undefined administrative costs. One school reduced spending on education from 48 percent of costs in 2004 to 40 percent in 2009. A second school reduced spending on education from 37 percent of costs in 2006 to 32 percent in 2009. At least one school spent more on marketing and recruiting than on education and another spent just one percent more on education than marketing and recruiting.
http://harkin.senate.gov/documents/pdf/4c23515814dca.pdf And the community colleges have much lower default rates for what you say is the the same educational programs offered to the same socioeconomic strata. What is missing then?

joncrispin:
"how many for-profit students default over the long term"
No, sorry, there is no way your school could know that, no matter how much was invested in follow-up and private investigator firms. Even if you followed all the loans actually disbursed through your individual school, how would you know about the defaults on consolidation loans obtained by your former students? Those count as your school's "defaults over the long term," as well.

18. arrive2__net - June 26, 2010 at 12:09 am

In light of the ad hominem attack by "ellenhunt", I wanted to note that MY comment was the first that stated that "Based on the new story this tightening does appear to be justified." I also commented that "... the legislation ought to be written in a way that the money is likely to be paid back, so I think the investigation is worthwhile." That, and the associated discussion I provided, were my own original comments. Although they may be just plain-spoken and direct comments, they are mine, and should not be thought to be creditable to anyone who came along later and tried to co-opt what I said while insulting me.

Bernard Schuster
Arrive2.net

19. dabarlow - June 26, 2010 at 08:39 am

You can't leave the non-profits out of this discussion. All colleges are in some sense "peddling false hopes to the most vulnerable of society,"

All colleges are driven by federal or state funding and should have to show that their product is worth the time, work and money involved.

20. reformhigheredu - June 26, 2010 at 11:35 am

There are also many non-profit institutions that provide poor quality education and have fraudulently used federal money. Accreditors such as Middle States need to be scrutinized and investigated. When site visitors visited the institution where I work, after they passed the university with flying colors, two of the site visitors expressed their desire to apply for work at the university (one may have actually applied). Also, another site visitor from another accreditation agency openly discussed his desire to work at the university during a summation of their visit on that same day. This type of behavior is absolutely unacceptable and should be illegal. It reeks of corruption. Site visitors are supposed to be non-biased and should not be allowed to make such comments during site visits. The university operates as a for-profit, where 99% of students (who are extremely deficient in oral and written communication) pass with all A's and have a 4.0 GPA. Many underachieving students accumulate a high debt but continue to get a second or third degree (borrowing more loans to pay for luxury items such as cars, jewelry, etc. rather than a quality education)at the same institution in order to avoid paying off their loans. Higher education, both for-profit and non-profit needs to be reformed.
In terms of comment #9, the non-profit where I work uses unethical recruitment practices as well. Many of the ill-prepared students will never be able to pay of their outrageously high loans. At many of these types of colleges/universities, both the school and the students are to blame (the school for engaging in unethical practices and the students for wanting to "game the system").

21. prof_truthteller - June 26, 2010 at 04:58 pm

24/7 Wall St. lists Apollo Group among top fifty least trustworthy companies in America: http://bit.ly/bh7qM1

22. ellenhunt - June 26, 2010 at 05:55 pm

"All colleges are driven by federal or state funding and should have to show that their product is worth the time, work and money involved." - I agree.

My proposal is that ALL higher education institutions should be required to report:
- 7 year graduation rate
- GRE scores of all students who graduate, and that taking the GRE should be a requirement for all students prior to receiving their diploma. This GRE score would have no bearing on receiving a degree.
- A random sample of students graduating each year would be selected to habe an oral examination and written examination in thier field by a 3 member committee from faculty outside of the institution.
- That this data would be collated and each year a committee must publish it along with next year's choices for ranges to stay in one of three categories.

Categories
A. Pass - Allowed to receive federal funds.
B. Probationary - Allowed to receive federal funds, but also required to make changes to raise evaluations.
C. Fail - No federal funds of any kind may be received.

23. breppe - June 27, 2010 at 02:19 pm

Some good ideas ellehunt. I've always wondered why you test to get in, but never test upon graduation to see if there has been any improvement. I think the cost of the test should be part of your admissions fee and tuition however, as it should be considered part of any program of study.

24. sourcerist - June 27, 2010 at 03:41 pm

Everybody who has actually worked within both N-P and F-P universities please raise your hands. Now, those with experience in both settings please identify a glaring difference...me, me, me! Yes, Billy do you have a difference? How about college sports? How much money, time, facilities, faculty(seen a Big 10 coaches' salary lately compared to the President of a F-P university?)is spent on fielding college/university sports teams by N-Ps? How much corruption/violations continue to occur where students are enrolled, promoted, exploited, injured and graduated for their physical agilities and collateral academic inabilities? AND, have you ever observed the universities best and brightest students who populate the "grand" stands at these events? Is this not the marketing ploy used by many N-P colleges/universities to attract alumni influence peddling, recruit questionable students, and sell sports "products" to the major networks??? Maybe the University of Phoenix will field their team-The U of P Phantoms (a virtual sports program) playing in the Internet Western Conference.....

25. longwags - June 28, 2010 at 04:55 am

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26. jsalmons - June 28, 2010 at 09:08 am

Chronicle readers interested in this topic may want to see the Transparency by Design initiative-- brainchild of Capella University interim president Mike Offerman. See: http://www.wcet.info/2.0/index.php?q=TransparencybyDesign

Perhaps initiatives of this kind can provide the visibility needed for the institutions offering high-quality versus questionable degree programs.

Having worked at and as a consultant for all kinds of schools, I agree with the statement: "All colleges are driven by federal or state funding and should have to show that their product is worth the time, work and money involved."

27. bstevens - June 28, 2010 at 10:24 am

A thought about testing: A GRE might be a wonderful analysis of a person's readiness for graduate study, but that is not the same as a test of a person's readiness for graduation with a bachelor's degree. The accreditation requirement for assessment means (among other things) that each institution and each program must assess its students' learning based on the stated requirements of the program.

28. gplm2000 - June 28, 2010 at 10:49 am

As a faculty member of several for-profit schools most of Harkin's criticism is true. Essentially it is a sham being sold to those looking for the easy way to get a degree. Yes, online is convenient but that is no reason to destroy the value of a college education. The #1 way to get a good college education is to live on campus fulltime and take a full load of courses, period.

For the most part, for-profits prey on black students who could never be admitted at a regular four-year university. Most students do not have the background and skills to be successful at the average state university. Only the easy courses, limited homeworkd and relaxed standards guarantee advancement. Many ignore their degree for hiring and advancement.

What we need is to be directing many ill-prepared students to the trades. The US is in dire need of plumbers, electricians, etc. Guess what, most of these people can earn more money than those graduating from for-profit colleges.

29. heckmannle - June 28, 2010 at 10:54 am

Does anyone remember SPRE? That was a federally legislated attempt in the 90s to address the issue of financial aid abuse in all sectors of higher education, but was rescinded before the program was fully implemented in every state in the nation. One wonders what the outcome might have been had states been given the opportunity to actually implement the program. Where would we be now?

30. cragie - June 29, 2010 at 12:52 am

The states strongly resisted SPRE, as did the colleges. It was a signal that the relationship between the state and federal governments in the Higher Educ. Act, as understood during the 1960s and 1970s, had changed significantly. The states had shifted from serving as an equal partner -- bearing both the burdens and benefits fo involvement in need-based financial aid -- to becoming a mere passive recipient of federal largesse.

State had a dual role in the program integrity system: they licensed institutions and, under the State Postsecondary Review Program, they would conduct reviews of institutions that meet specific statutory review criteria. With the repeal of SPRE, the second part was gone, and state licensure, while continuing, along with accredidation. to be a condition for colleges' participation in the federal students programs, has continued to be a weak link, as states have been reluctant to take actions that would remove a college's bread-and-butter.

The concept that states should bear partial responsibility for student loan defaults that relate to colleges and students within their boundaries was a good one. States decided, however, they wanted their colleges to continue to be beneficiaries of federal student aid but did not want to work for it, did not want to participate in oversight, did not want to be the bad guys.

31. feudi - June 29, 2010 at 09:28 am

For profits have a basic conflict in their mission. Because of their financial structure, their first responsibility is to their shareholders or equity partners. The problem is that the primary mission of any educational institution is, or should be, the successful education of its students. Anyone disputing the existence of this conflict need only compare the income package of for profit executives to that of any not for profit college President or CEO. The differences are startling!

We see the same financial disparities when comparing top executive compensation in the for profit healthcare sector. There is also the huge problem of "gaming" the system among for profits. This "gaming" aka fraud cost the Medicare program tens of billions in the case of Tenet Healthcare in 2002 where the CEO left with a cool stock option package worth nearly $200 Million!

32. intered - June 29, 2010 at 03:33 pm

@feudi,

A few considerations in response to your assertion that for-profits have a basic conflict in mission. You did not mention whether you believe the conflict to be contingent or otherwise. I'll assume the former.

- The majority of the for-profits are small, very small, organizations whose "equity partners" are a few individuals who mortgaged their houses to start a school. Most often, the driving force is passion for a profession (broadcasting, physical fitness, etc.) If you have every created and run a business of this kind, you know, without asking, that serving students well and succeeding as an organization are logically distinguishable but practically inseparable concepts. Most of these organizations do very well for themselves and their students. You never hear about them even though logic would dictate that you should.

- I have started and managed such organizations, both as not-for-profits and for-profits. Having done both, I prefer the for-profit structure. Why? It has nothing to do with how money much someone makes. You can make just as much (or little) money under either structure. It has to do with what I call the "crispness" of the organization; i.e., the daily clarity with which it pursues its mission (no, the mission is not raw profit; that is the image promulgated by the children who run Hollywood). I accept the fact that some individuals who have no such experiences will find a way to trivialize what I say but others will understand.

- I disagree that. "(T)he primary mission of any educational institution is, or should be, the successful education of its students." This begs several questions. A primary mission might be the "efficient education of its students to agreed upon goals and standards." If a service entity is delivering a good, it is a qualitative failure if that good is unnecessarily restricted due to avoidable inefficiencies resulting in not being able to deliver that 'good' to as many people as might desire it. I recall bogus 'quality' arguments when I led a state's human services. Therapists argues passionately that they could only see one patient a day because they did such 'quality' work. BS! Such therapists turned away a dozen needy individuals because while they were doing this 'quality' work with one individual. That is a failure.

- I agree that executive compensation in for-profit higher education, as well as executive compensation in a variety of fields, is out of whack. The University of Phoenix was once led by education visionaries. Today, it is led by Credit Suisse execs who bailed just before the crash and are busily wreaking their havoc on Apollo Group. Likewise, it is shameful that Carly Fiorina can nearly tank HP and walk away with hundreds of millions (Lucent isn't doing all that well either). All of this said, I'm not certain that these facts accrue to your primary argument. Can you explain?

This Senate hearing should be an embarrassment to anyone interested in rational discourse and impartial solutions. We serve ourselves poorly when we cheer bad actors just because they happen to align with our thinking. Watch out. They will be coming around to the other side soon enough.

Robert W Tucker


33. jonelm - July 04, 2010 at 06:49 pm

I worked for a non-profit that turned for-profit--online only. Tuition is approx. $1500 for each 5-week course. The target market is primarily military who are active duty; thus, tax dollars are fully in play. I see by their web site that other students can receive Federal and California tax-funded dollars. I previously worked for another for-profit, leaving when standards became so abyssmal, and seeing them prey on students who should not be there, and who were going into 'mega debt' for the degree. I too found that standards are variable, many students expect and get all A's (thus leading one to question the faculty, although the schools seemed to weed out those faculty after-the-fact), students have a great deal of power relative to faculty because the institution is "tuition-driven," there is certainly a culture of 'customer satisfaction' (with the student as customer, rather than society or employers. . .) and an institutional predisposition to bend rules and standards to attract and retain students. I have long thought that this sector of the economy deserves some scrutiny as most students who are the market, or might be ill-informed, don't really know how to assess quality of education--and many do not care! They are just as happy to buy a degree! Not all, but some. . . RE: the last comment that most for-profits are small, small schools, I disagree heartily.

34. intered - July 04, 2010 at 10:03 pm

@jonelm,

"RE: the last comment that most for-profits are small, small schools, I disagree heartily."

According to NCES, of the 4,200 degree-granting colleges http://nces.ed.gov/programs/digest/d07/tables/dt07_255.asp), for-profits number:

2-Year for-profit: 533
4-Year for-profit: 453

Thus you see that there are almost 1,000 degree granting for-profits (quite a few more if you include those that are diploma and certificate granting institutions). Perhaps only 5% of the for-profits are large enough for it to be possible for them to be publicly traded and only a subset of them are actually publicly traded. As I said, the other 95% are small institutions, many family owned, that educate from a few dozen to several hundred students.

In contrast, virtually all of the public attention on for-profits is focused on a half-dozen or so very large publicly traded institutions(UOP, DeVry, Argosy, Capella, etc,).

We are all entitled to our opinions but they are qualified by the degree to which our factual claims are correct.

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