June 1, 2016

Trump University: A Scam, But a Familiar One


Four hundred pages of documents released on Tuesday by a federal judge in San Diego add detail to the tawdry story of Donald Trump’s unaccredited Trump University. The operation appears to have relied on high-pressure recruiting pitches, buoyed by deceptive claims, and it had an extensive playbook focused not on teaching students the art of the real estate deal but instead on teaching company recruiters how to separate enrollees from more and more of their money.

The playbook directed Trump University recruiters to push students into paying higher prices for escalating levels of involvement, with the most expensive “Gold Elite” package, priced at $34,995, the ultimate target: “If they can afford the gold elite don’t allow them to think about doing anything besides the gold elite.”

Trump University told its recruiters to play on shame, exploit aspirations, and overcome customer objections, by telling prospective students: “do you like living paycheck to paycheck? … Do you enjoy seeing everyone else but yourself in their dream houses and driving their dreams cars with huge checking accounts? Those people saw an opportunity, and didn’t make excuses, like what you’re doing now.”

The playbook urged recruiters to play to emotions: “Don’t ask people what they THINK about something you’ve said. Instead, always ask them how they FEEL about it. People buy emotionally and justify it logically…. The risk isn’t spending 35K – it’s entering into the world of REAL ESTATE without specialized knowledge, guidance and trained professionals in the field holding your hand. WE are the safe decision. Fear is preventing you from investing in yourself.”

In a written declaration, a former Trump University sales manager, Ronald Schnackenberg, said he was reprimanded for failing to get one couple to buy the $34,995 package, which he feared they could not afford; then he watched another salesman close the deal. He wrote: “I believe that Trump University was a fraudulent scheme, and that it preyed upon the elderly and uneducated to separate them from their money.”

Donald Trump owned 93 percent of the business, yet while prospective students were promised that they would learn from the master, and that all the instructors were “hand-picked” by Trump, he actually met almost none of the instructors, and the closest that students got to Trump was a photo with a cardboard cutout of him. Many of the instructors, in fact, had little experience in real estate.

The abuses at Trump University have led not only to class action lawsuits by former students but also a $40 million suit alleging fraud that New York Attorney General Eric Schneiderman is pursuing against Trump. Schneiderman on Tuesday called Trump University a “three-card monte game.”

Deceptive, high-pressure recruiting, efforts to exploit pain and shamebait-and-switch tactics, escalating high prices, low quality.  Where have we heard this scam before?

Sadly, predatory for-profit education is a scam that works so well that Donald Trump is far from the only celebrity, or politician, to invest in it. While some for-profit college operators are honest and do a good job training students for careers, many of the biggest operators, the ones that have drawn the highest-profile partners, have engaged in behavior quite similar to what is alleged to have occurred at Trump University.

And, indeed, the previous Republican nominee, Mitt Romney, is financially connected to similar deceptive for-profit education practices.

As the 2012 GOP nomination contest neared the critical Iowa caucuses, Romney was asked by the Ames Tribune‘s editorial board what he planned to do about higher education. Romney’s response was crystal-clear: He liked for-profit colleges, including the University of Phoenix, and especially a Florida school called Full Sail University, which, he said, knew how to “hold down the cost of their education.”

In fact, Full Sail only knew how to hold down the cost of education for its owners; for students, it was the third most expensive college in America.

It also turned out that Full Sail’s owners, the principals of a private equity firm called TA Associates, were among Romney’s top donors.  In praising Full Sail, Romney never mentioned that TA executives had contributed heavily to his campaign effort.

Nor did Romney disclose that he was actually in business with them.  Romney’s son Tagg and 2012 campaign finance director Spencer Zwick had launched the private equity fund Solamere Capital in 2008 with a $10 million investment from Mitt Romney. In June 2012, the Romney campaign held a retreat in Park City, Utah, for about 200 wealthy donors. Remarkably, right outside the retreat, Solamere Capital held its own investor lunch meeting. In March 2013, following his defeat in the presidential election, Romney took on a more formal role at Solamere, becoming chairman of the executive committee.

Solamere describes itself as a “fund of funds” that allows its privileged investors to buy into high-end private equity firms. TA Associates is one of the firms that Solamere Capital has offered to its clients for investment, according to a prospectus sent to potential investors and obtained by the Boston Globe in 2011.

Another for-profit college owned by TA Associates is Vatterott College, acquired in 2009.

In 2014, a Missouri appeals court upheld a jury verdict against Vatterott for deceiving a single mom, Jennifer Kerr. A jury in Jackson County, MO, had awarded Kerr $27,676 in actual damages and $13 million in punitive damages; the trial judge cut the punitive award to about $2 million because state law caps these awards.

Kerr, from Lee’s Summit, Missouri, saw Vatterott’s TV ads and visited the campus in 2009 to pursue her dream of becoming a nurse.  A Vatterott recruiter told Kerr that the school didn’t have a nursing program, but it did offer a medical assistant’s degree. With that credential, the recruiter said, Kerr could make $15 to $17 an hour, and her Vatterott credits would transfer to a nursing program and put her on the “fast track” to being a nurse.

But after signing for more than $27,000 in loans and being in the program for over a year, Kerr discovered that her program wasn’t a medical assistant program at all — it was a medical office assistant program. You might not need college for that. Vatterott staff then told her that a medical assistant’s degree would require more classes and another $10,000.

Jennifer Kerr was not the first student to be deceived by Vatterott College.

The 2010-2012 comprehensive investigation of the for-profit college industry by then-Senator Tom Harkin (D-IA) obtained internal training documents from Vatterott that seemed to instruct recruiters  to use exploitative tactics: “We deal with people that live in the moment and for the moment. Their decision to start, stay in school or quit school is based more on emotion than logic. Pain is the greater motivator in the short term.”  Another Vatterott document described the target market for recruiters: “We serve the UN-DER world, Unemployed, Underpaid, Unsatisfied, Unskilled, Unprepared, Unsupported, Unmotivated, Unhappy, Underserved!”

After Michael Brown was shot to death by a police officer in Ferguson, Missouri, it was often reported that the young man was on the verge of attending college.  Less well known was the name and type of school that had signed him up and was ready to cash his federal financial aid checks: It was for-profit Vatterott.

Vatterott’s recruiting abuses have led to bad outcomes for enrolled students. The percentage of Vatterott students who default on their student loans within three years of dropping out or graduating has been a very-high 26.6 percent. In 2012, eight of Vatterott’s 39 programs failed all three initial tests of the Obama administration’s “gainful employment” rule, which established bare minimum standards to penalize schools that consistently leave their students with insurmountable debt.  Student bulletin boards are full of complaints about the quality of a Vatterott education.

In 2009 and 2010, three top Vatterott executives pleaded guilty to a criminal conspiracy to fraudulently obtain federal student grants and loans for ineligible students in 2005-06 by providing false general equivalency diplomas (GEDs) and doctoring financial aid forms.

The temptation of the easy-money predatory education business has lured Democrats as well as Republicans.

President Obama’s first Deputy Secretary of Education, Tony Miller, is about to become, through a private equity takeover, the chairman of the Apollo Education Group, which operates the biggest for-profit college, the University of Phoenix.  That institution, which has been taking as much as $4 billion in federal taxpayer dollars, is now under investigation by the Federal Trade Commission for deceptive business practices; it’s also being investigated by the Securities and Exchange Commission. It has a 4 percent graduation rate for first-time, full-time students in its online division. Last year the Defense Department temporarily suspended the school from enrolling U.S. troops with Pentagon benefits because of what it called “disconcerting” violations of recruiting rules. Paul Rieckhoff, founder and CEO of Iraq and Afghanistan Veterans of America, has said that the University of Phoenix has been the “worst by far“ for-profit college in terms of taking advantage of the vets who are members of his organization. A 2012 Senate investigation found that the University of Phoenix spent $892 per student on instruction in 2009, compared to $2,225 per student on marketing, and $2,535 per student on profit — one of the lowest amounts spent on instruction of any of the for-profit colleges the Senate investigators examined.

The man who succeeded Tony Miller as Deputy Education Secretary, James Shelton, later joined the board of Graham Holdings, which owns Kaplan University. Kaplan has a troubling record and in recent years has been under investigation or sued by the U.S. Department of Justice, U.S. Department of Education, and the attorneys general of Delaware, Florida, Illinois, Massachusetts, and North Carolina.

Others who have invested in, or taken money to endorse or defend, predatory for-profit colleges include former governors John McKernan (R-ME), Thomas Kean (R-NJ), and Ed Rendell (D-PA), former Senators Trent Lott (R-MS), John Breaux (D-LA), and Bob Kerrey (D-NE), former Representative Richard Gephardt (D-MO), former Secretary of State Colin Powell, publisher Steve Forbes, and personal finance adviser Suze Orman.

A brand-new study published by the National Bureau of Economic Research concludes that for-profit college students, graduates and dropouts combined, earn less after leaving school than they did before they enrolled.

Trump University had one major difference with all these other for-profit colleges. Because it was unlicensed and unaccredited, it was not eligible for federal student grants and loans. The for-profit college industry has been taking as much as $32 billion a year in this funding.  So while the cost of Trump University’s abuses came down only on its students, the other colleges have spread this misery among students, many of them lower-income than the typical Trump enrollee, but also on taxpayers. Both approaches have done serious harm, and the operators of such scams need to answer for their abuses.

This article also appears on Huffington Post