March 12, 2015

What Law Students — and Everyone — Should Know About For-Profit Colleges


This article originally appeared in the Harvard Law Record, a student-run publication. It also appears on Huffington Post

I’m a Washington DC lawyer and policy advocate, and I spend a couple days a week trying to expose and end the abuses of a particularly bad industry: predatory for-profit colleges. I am regularly contacted by industry employees who no longer can live with being part of an immoral enterprise:

• The marketer at a Utah “lead generation” company who is assigned to placing fake ads for non-existent jobs on the Internet, aimed at luring unemployed people to provide their contact information.
• The telephone rep at a Florida call center, who grabs the leads that were generated, and tries to deceive these people – low-income single parents, veterans, and others struggling to get ahead – into buying high-priced, low-quality career training programs, many conducted entirely online.
• The California college librarian, heartbroken because her school has admitted to its $80,000 criminal justice a program a mentally challenged man who reads on a third grade level and believes he is training to become a police officer.

These employees talk to me about feeling ashamed, degraded, disgusted with what they’re doing.

Yet their ultimate bosses, the CEOs of the big predatory for-profit colleges, seem to have no such shame. Nor do the many power brokers and celebrities, from Suze Orman to Colin Powell, Trent Lott to Dick Gephardt, Marc Morial to Mitt Romney, who have been hired, one way or another, to endorse and defend bad actors in this industry. Nor do the many graduates of Harvard Law and other premier institutions who get rich as executives and advisers with predatory for-profit colleges.

When graduates leave law school, they have a world of opportunity. The question posed for you by the story of for-profit colleges is whether you want to be paid to shield the privileged even when they engage in blatant abuses, or whether you want to use your talents and creativity to help build a stronger, more just, more innovative, and more productive society that benefits everyone.

A for-profit college is a college that’s owned by a profit-making business, as opposed to the more traditional model of a college operated by a state or as a non-profit. Most for-profit colleges focus on training students for careers, in fields from information technology to health care to auto repair. There’s a strong need for such training programs, and there’s nothing wrong in theory with the idea of having businesses run them, but in practice it has created a big problem for students and taxpayers.

Many for-profit colleges get about 90 percent of their revenue from federal government grants and loans provided to help students get an education. These businesses hire lobbyists to loosen the government’s rules for getting such aid. They also spend heavily on campaign contributions that have helped buy the allegiance of almost all the Republicans in Congress, and many of the Democrats as well.

As a result, the rules are very weak, and for-profit colleges can maximize their profits by ripping off students – using deceptive advertising and coercive recruiting, charging very high prices, and spending far too little on teaching and helping students build careers. The victims of these abuses have seen their financial futures ruined by overwhelming student loan debts reaching over $100,000 in some cases.

Some for-profit colleges are honest and do a good job educating students, and there are good teachers and students at even some of the worst schools. But overall, the industry is hurting people and our economy, while making a small group of owners rich enough to buy their own yachts, private planes, and mega-mansions. For-profit colleges have obtained as much as $32 billion a year from federal aid, and their lobbyists work every day to keep that money flowing.

For-profit colleges, like other kinds of colleges, are eligible to receive federal student grants and direct loans — if they receive approval from organizations called accreditors. Many accreditors apply fairly low standards. Some for-profit colleges, such as some local strip-mall beauty schools or the infamous Donald Trump University, still don’t bother to get accredited, and thus students are not eligible for federal aid. Most for-profit colleges do get federal aid, but many of their students need more aid than that to pay the high tuition costs. So for-profit colleges steer many students into non-federal private loans that come with very high interest rates that can reach 15 percent or more, as compared with 3.8 percent for federal loans.

For-profit colleges tend to have graduation and job placement rates at the low end of the scale, especially given their high prices. Here is one key statistic that shows the poor performance overall of for-profits: According to the U.S. Department of Education, for-profit colleges now have about 13 percent of all US college students, but they account for nearly half of all defaults on student loans. The Department also found that 72 percent of the for-profit colleges it surveyed produced graduates who on average earned less than high school dropouts.

There are real challenges in figuring out how to provide quality career education to people at affordable prices. But instead of focusing on that important work, Washington education policy advocates and lawyers are caught up in a debate defined by the for-profit college industry using pressure to keep billions in federal dollars flowing with no accountability whatsoever. Because their wealth comes almost entirely from taxpayers, the for-profit college industry is a monster that Washington has created. It’s difficult to stop this monster.

But in recent years federal and state law enforcement agencies have launched extensive investigations of for-profit colleges for defrauding students and taxpayers. Many of the biggest for profit colleges – including University of Phoenix, EDMC, ITT Tech, Corinthian, Kaplan, Career Education Corp., and DeVry – are under investigation by federal agencies and / or state attorneys general. Some for-profit colleges – including ATI Technical Institute and FastTrain College — have been shut down for their frauds, and some for-profit college executives have been sent to prison.

These law enforcement probes, coupled with an increasing volume of media exposes, have finally helped get the message to potential students that they might do better at a community or state college. But the for-profits continue to run deceptive ads endlessly on TV and the Internet; before he was killed in Ferguson, MO, Michael Brown had enrolled at for-profit Vatterott College, a school that has been punished in court for deceiving its students and leaving them worse than they started and whose executives received criminal convictions for defrauding the government.

President Obama is well aware of the scam. His Administration has sought to implement a new rule (called “gainful employment”) to channel aid toward programs that were actually helping students and away from programs that consistently leave students with overwhelming debt. But an army of industry lobbyists and lawyers have managed to water down the rule and then have it struck down in court, on the ground that the Department had failed to articulate a clear rationale for one component of the regulation.

Right now, APSCU, a trade association dominated by predatory for-profit colleges, is back in court trying to block a new version of this rule. I work with a coalition of student, veterans, labor, consumer, and civil rights groups urging the court to decide that the government has the right to demand at least minimal performance standards, that predatory companies do not have a permanent entitlement to take billions in taxpayer dollars without regard for the consequences for students and our economy. (This litigation, and many other aspects of this issue, are ripe for further exploration through your law school papers and law journal articles.)

When you consider a debate like this, think about your future as an attorney. Which side will you be on?

  • James Anonymous

    Great article. People don’t see why a university (and one could argue hospital, insurance company, etc) driven by profits is motivated to short-change the student. For-profit schools make the shareholders and managers wealthy. Non-profit schools should (in theory anyway) put profits back into the student in the form of lower tuition, better resources, etc.

  • Balanced Approach

    You would think “not for profit” institutions would better invest in students, but this is not always the case. As with any issue, the problem of college cost and return on investment is a complex one. How many Universities are gleefully admitting students to programs with abysmal returns on investment and poor employment rates? I’m all for gainful employment rules, but how would other Universities stack up under the same scrutiny? What happens to the students that don’t get accepted, work for a while, maybe go to community college, but can’t go to a traditional University because they have jobs and kids? DeVry, for one, invests a surprising amount of time and energy in their students. The profit motive alone is not the problem; schools of every stripe know how to move money around to create value for their clients, and donors often get hefty contracts that look close enough to profit sharing as makes no difference. Education policy needs a balance of regulation and quality definitions of student outcomes across every type of higher education. Would YOU recommend a degree in History or Philosophy to a student fresh out of college? It would be the rare individual suited to that path of study in today’s day and age.

    • D. Hoffman

      I work for a technical school in the placement department and we have huge standards to live up to. We have to show 70% placement of grads and because of that we know every single person that has graduated from our school and we work with them and get their resumes out constantly until they are placed in their fields of study. We have a 3rd party that calls and confirms every placement we put into the system. Our schools charge more for their programs because they don’t get money from the government to keep the doors open. It costs a lot of money to run a school. Most of our students would not make it in traditional colleges. At our school if a student misses more than one day in a row the instructors are giving them a call to make sure everything is alright. That just doesn’t happen in traditional colleges. Many of our students come from very difficult backgrounds and bring quite a bit of baggage with them. We work very closely with them to help them through even when life is throwing things in their way. All you have to do is attend just one of our graduation ceremonys to know how important the education is to the grads and what a difference it has made in their lives. I don’t think I’ve ever been to a graduation that I didn’t cry seeing how proud they are and how proud their families are of them. Many of our students didn’t graduate from high school but got their GED so walking in our graduation ceremonies are really special to them. I have read all the bad things said about our type of school and I can’t tell you how frustrating it is. Because of all the bad publicity we just learned that our campus is going to be closing. We are in the process of teaching out our programs. I know there is good and bad in everything but I haven’t read anything good about technical schools and because of it future students won’t have the chance to make a difference in their lives. One more school down. I guess everyone will give a big cheer now.