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For Profit Education, Pigs at the Trough
For Profit Education, Pigs at the Trough
Courtesy of Russ Winter of Winter Watch at Wall Street Examiner
One of the most sickening kleptocratic rackets to come down the pike are the for-profit “educators.” It’s a scheme that is almost totally enabled by Government funding via Title IV loans. The loans fit the modern American model of getting people heavily in debt, who then have little ability to pay the loan back. This has been described as “Sub prime Goes to College”.
This scheme has been well documented by hedge fund investor and short seller Steve Eisman. His presentation can be gleaned here. Although it is superficially unfortunate that the counterpoint gauntlet has to be taken up by hedge fund managers like Eisman and Chanos, that is the reality of American discourse today. The same thing happened when short seller Chanos took on Enron. Except for a few lone wolves like Ralph Nadar, if someone isn’t talking his money book, then the unrepresented public interest has no voice. Unfortunately, highly intelligent short sellers that see the issue as it is, can and will cover their positions and thereby abandon the public interest. This has enabled the lobbyists representing these rackets to play the left against the right on the issue and ultimately get their way.
This was evidenced when progressive watchdog groups (specifically CREW and Move On) were co-opted by industry lobbyists. They did so by making Eisman’s role in the reform process the core issue, while ignoring the facts and thinking as put forth by Eisman, whose case I present using some of his charts below. These tactics are often used when facts and arguments are powerful. Not once was I able to find an effective rebuttal of any of the facts and data put forth by Eisman. Instead, it was personalized ad hominems. Blood sucking lobbyists use this to exploit left-right politics and just attack the messenger ["Why are Progressives Fighting Student Loan Reform"].
Argumentum ad hominem and ad personem
I am sure that in the minds of the good folks at CREW and Move On, these ad Hominem tactics were acceptable, as they just felt they were defending the “opportunity” of lower income youth to pursue an education using debt and at the same time were supporting the teaching profession. In the minds of ideologues from the right, they support little or no regulation, so why would they care about the facts of how the industry operates? The result is the classic kleptocratic marriage: Abuses via a trough of government money provided to a corrupt, lightly regulated, wrongly incentivized industry.
Sure enough in 2011 a watered down reform called the “gainful employment rule” finally emerged from the DOE. In a nutshell, it stated that if these rackets could show that at least 35 percent of their students were repaying loans for three of the next four years, the college could continue to participate in Title IV after 2015. Until 2015, it is” Katie, bar the doors.” What a joke, 35 percent repaying. Wow, talk about a low hurdle. It says a lot about the value of the education received, doesn’t it? Meanwhile, true to form, the Obama administration has increased Title IV lending for students by 27 percent to $104 billion in FY2012.
Although the for-profit educators represent only 10 percent of total enrollment, they account for 25 percent of Title IV lending. These companies use government funding to create one of the highest profit margin business in the world (chart 1) — far, far exceeding other major companies feeding at the government trough. Instructional costs as a percentage of revenue is 39 percent. Self-serving advertising accounts for 19 percent of spending. Their model is getting government-subsidized, lower-income students into high-cost institutions (chart 2). This government, debt-enabling gravy train has allowed these outfits to inflate tuitions higher and higher (chart 3). This year, it’s estimated to run about $14,000 a year for tuition on average. To top it off, the top executives in these firms are compensating themselves beyond any reasonable standard (chart 4).
The performance of these schools in terms of keeping students around, or even graduating them, let alone preparing them for meaningful employment is poor. The next charts shows the churn and burn nature of these schools. The goal is to get the student to the first day of class, which immediately kicks in the liability for the tuition. If he or she quits a week later it makes no never-mind to the school.
There is an accreditation process involved for these school. Eisman states however that six of the sixteen members of this board are for-profit education stooges.
The other trick of the trade is to buy small regional accredited college, completely revamp them to an online model and crank though the business. Employers looking at these graduates apparently aren’t terribly impressed with these mills.
Eisman concludes with what should be obvious to a thinking person:
“As long as the government continues to flood the for-profit education industry with loan dollars AND the risk for these loans is borne SOLELY BY students and the government…THEN the industry has every incentive to…
- Grow at all costs
- Compensate employees based on enrollment
- Influence key regulatory bodies
- Manipulate reported statistics and other regulatory measures
- ALL TO MAINTAIN ACCESS TO THE GOVERNMENT’S MONEY”
Unfortunately, like so much else in kleptocratic America, this will only be sorted out as the economy and government collapses or by real Revolution as opposed to phony change. I close with the estimated default rates trajectory from the College Board, National Education Center and industry data. Of course, this for-profit sector problem is just the worst of it. The student-debt cancer also persists at non-profit and traditional colleges as well ["Trouble Ahead for Student Loan Defaults"]. There is now $875 billion in outstanding student debt ["16 Shocking Facts About Student Debt and the American College Scam"].
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I resent that you describe this as 'education'. You aren't wrong, but this has nothing to do with education. Its more like stealing candy from babies. This is a religion.
There are solutions at work right now:
Home school families have kids that learn more, faster, and for last money than anyone in the USA.
And they are now pioneering BS degrees for ~10K (accredited).
No debt.
That's my America.
ilene, I put this snippet up at another Fin/econ blog regarding Dianne Feinstein's husband. The source is wikipedia. Note the part about ITT.
[snip] Hi chunga...
Blum's wife, Senator Dianne Feinstein, has received scrutiny due to her husband's government contracts and extensive business dealings with China and her past votes on trade issues with the country. Blum has denied any wrongdoing, however.[3] Critics have argued that business contracts with the US government awarded to a company (Perini) controlled by Blum may raise a potential conflict-of-interest issue with the voting and policy activities of his wife.[4] URS Corp, which Blum had a substantial stake in, bought EG&G, a leading provider of technical services and management to the U.S. military, from The Carlyle Group in 2002; EG&G subsequently won a $600m defense contract.[1]
In 2009 it was reported that Blum's wife Sen. Dianne Feinstein introduced legislation to provide $25 billion in taxpayer money to the Federal Deposit Insurance Corp, a government agency that had recently awarded her husband's real estate firm, CB Richard Ellis, what the Washington Times called "a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms."[5]
In 2009 the University of California Board of Regents, of which Blum is a member, voted to increase student registration fees (roughly the Univ. of California equivalent of tuition) by 32%. Shortly thereafter, Blum Capital Partners purchased additional stock in ITT Tech, a for-profit educational institution. These events suggest a conflict of interest on Blum's part.[6]
UC is Obama's #2nd largest contributor.
Another fine example that everything the government touches turns to shit.
"everything that borrowed money touches turns to sh!t." Fixed it for you...
U.S. College Students Protest: You Raise Fees, We Raise Hell!http://www.imackgroup.com/mathematics/780539-us-college-students-protest-you-raise-fees-we-raise-hell/ Note: Dr. Iris Mack who is responsible for the above Blog linked was the Woman that Larry Summers had had fired at Harvard. She also has a new series of childrens books on money and interest and another on the way regarding Energy Trading and Risk Management. http://www.imackgroup.com/ That is the way to teach young minds outside of checking out ZH.
As someone who works in for-profit education, I can say with no small amount of authority... it's a racket.
The quality of education you get at these places DOES NOT compare to what you would get at a normal university. Bear in mind that the instructors at these schools are often the very same ones that teach at the universities. There are several reasons for the decline in quality, which a thinking individual might figure out, but suffice to say that it all comes from the fact that"for-profit" is neither a public nor true private institution. We do NOT function in a normal market, thus, quality is not a requisite for selling our product. "For profit" education is the worst of both worlds.
Normal universities tend to have entry requirements. Our schools will take anyone who can fill out a form. Unsurprisingly, our students are dumb as $hit! They are lazy, undisciplined, and are treated like pampered little douchebags. Any kind of complaint on the students' part will almost always result in them getting their way. As a consequence, the instructors tend to just give up and basically do their best to fly under the radar. Thus... easy grades for lackluster performance.
Another big part of the problem with education in general is simply the culture we live in. Everybody is special and wonderful. You can study whatever you want and be whatever you want. Because you are a fucking snowflake. They come from a public school system that doesn't believe in having a losing side, where failure is nonexistent. Small wonder that these jerks rack up tons of debt to get an art degree. They have no sense of reality. Five minutes and a friggin google search will tell you that 60k for an art degree is a terrible investment.
To sum up... for profit education is stupid and it persists because America is a stupid place run by stupid leaders elected by stupid people.
"Our schools will take anyone who can fill out a form."
I've seen that happen. I knew one girl who attended New England Tech for a short time after being sold on the idea she could be a Computer Administrator. The salesman, I bet, managed to get her to believe she could run a Cray Supercomputer at the National Weather Service.
The problem was that she didn't have the scholastic background nor the study skills. She was one of those kids you knew back then who barely graduated high school. She was blue collar, naturally dumb (but not in an ugly way) and from a family that regarded reading as "work." And since similar people commune with their own kind, her friends were ignorant peasants as well. You can see how her school career was hampered from the get go.
Within 6 months of attending the new school she gave up. She just couldn't hack it even at one of these "easy" schools. The only thing she left with was a bruised ego and some nice debt to remind her of her failure.
great great post, not sure if you are back looking over this comment stream but you are dead right. the only thing more stupider is Business School!!! Honestly, the first business lesson in business school is that school gets paid first...no tears. Actually the ACCEPT you to pay, is anyone getting the stupidity here, then you pay, and you get nothing imediately, then they use their discretion to grade you.
Like the kid who turned in a business pakcage delivery systme business that was laughed out of class, now FEDEX. Please.
And the American university system is a focused and efficient use of resources?
Speaking of education,I wish more people would educate themselves and their family and friends about the Chemtrail Spraying of Chemicals in our skies by the USAMilitary,with the blessing of whitehouse other countries leaders(laugh),terrorist would be a more appropriate word.
Crew, Move On and the liberal establishment in general will always support the educational industrial complex in all its forms, because the complex creates recruits and offers other blandishments to the liberal establishment. If I had my way all college professors and administrators would be sent to farms to do manual labor. That was one good idea that Mao had.
If you had your way you probably wouldn't have to wear that football helmet everywhere you go either.
Not many rational people would brag about their Maoist fantasies, dude.
I'm not buying Mao's whole program, just pointing out what's possible.
That stunt of mao's put the country back 20 years.
Bicycle Repairman, agreed. Have a daughter that's almost 2. I can't imagine what it will look like by the time she goes, but she will be thinking for herself. If I can help it, she will not be one of the recruits you mention.
They did so by making Eisman’s role in the reform process the core issue, while ignoring the facts and thinking as put forth by Eisman, whose case I present using some of his charts below. These tactics are often used when facts and arguments are powerful. Not once was I able to find an effective rebuttal of any of the facts and data put forth by Eisman. Instead, it was personalized ad hominems.
"Progressive" Politics, in a nutshell...
As a side note, those Corinthian slicksters did make some smooth-ass leather back in the 70's. Dig it: https://www.youtube.com/watch?v=vIL3fbGbU2o
When you make a purchase from a major corporation....you make it and live with it. Has GM or BMW or Toyota ever called you at dinner, how about Dell, what about Apple...those guys are killing it...do they call you or write you letters asking for money, you know, donations because of all the really great programs currently available???
Nope. But your fucking college calls you!! Oh yeah, you gotta give! Give them money. Northestern, not even a sports bastion by a longshot is a $5B corporation that does not pay taxes into perpetuity (written into the state law) and happily takes $50 large / yr and then has the balls to ask for more. What the fuck is that all about?
All I can say is . . .
If you are fool enough to send them $50 large per year,
you deserve all the grief you get.
When your kid graduates with a degree from Northeastern, he/she
will have all the same chances of finding a well-paying job as someone
with a degree from UMass.
Meaning, close to nil.
Good luck.
Education "reform" = 100% GRIFT.
It takes alot of online training to swipe my EBT and play with my I-thingy.. Peace out!
The real pigs at the trough are the Non Profit education providers. How much tweed would be purchased if it was not possible to borrow $30,000 a year to get an education in Womyn's Studies or Renaissance Flute? The idea that the For Profit system is the problem is simply false.
Go to the root of the problem=government money. Everything the government gets involved in gets destroyed. In all the wars, that is the point, with everything else we all get screwed. Government schools are ripping off the population as bad or worse than some for-profit schools.
Mind_....totally right. There are NO consequences for running up a Trillion in cash that will not get paid back, or Zillions of debt in the Giant Pretend Account that is the US govtt. its all a silly game.
Goes to show where most of your money is going towards both profit and "non" profit colleges. Both forms of schools have lobbyists, btw (which my student debt pays for - oh the LULZ!).
The For Profits can't even guarantee employment! What a fucking joke.
PBS' Frontline did a great expose on these scam colleges:
College, Inc.
http://www.pbs.org/wgbh/pages/frontline/collegeinc/view/
"The For Profits can't even guarantee employment! "
I didn't know that the non-profits guaranteed employment. :) sarc/
What sort of job guarantee is offered the graduates of North Carolina Upstate?
Is that guarantee better than the one offered by Colgate or Cornell which charge multiples more for attendance?
PBS is engaged the entirely predictible role of bashing the competitors to a government provided and financed inefficient system.
The point I made in the last college loan post is relevant here too as for-profit colleges are likely to help push the idea that government should make college degrees a requirement in many areas http://www.zerohedge.com/news/guest-post-our-lets-pretend-economy-lets-pretend-student-loans-are-about-education#comment-2232631
Non profits are just as greedy as for profit. The college experience is the last extend and pretend coverup for the jobless economy. Once a person starts the financial aid black hole there is no incentive to control debt levels or stop since most graduates know there are only minimum wage dead end jobs available. So party on. Its better to take 5 or 6 years to graduate and then 3 years for a meaningless masters. Better yet, get your parents or someone to co-sign. Then run up the bills. You know they will never be paid the eventually the congress will allow everyone to walkaway free and clear with another subprim bailout. Its all so predicable.
Not quite. Unlike mortgage debt, federally guaranteed student loan debt does not get wiped out in personal bankruptcy and follows you beyond the grave. No throwing the keys in the mailbox and walking away with a ding on your credit history.
Agree, just because the school is chartered as a "non-profit" does not mean that it is non-profit, just like with so-called "charities." Basically it is a business model with different names for P/L and revenue, etc. Like the profit is subsumed into wage growth to administrators as well as creation of non-sense jobs like 'diversity coordnator' or other such jobs. Revenues is not "revenues" it is tuition or dotations/sponsorships. So instead of the money going back to shareholders, it is used to build up the school's capabilities,etc. in theory but could also go to other non-sense like building huge football stadiums. I suppose the "stock" certificates would be the degrees conferred as each student "invests" in them with tuition. But as with any market it will get distorted with the introduction of government subsidies. What happens? Subsidies increase supply production of certain products, in this case degreed students. But the demand side is not organic as it is "Subsidized" by access to government-backed loans and grants. Thus an oversupply this encourages an oversupply of universities and eventually degreed workers in relation to the real organic econonomy. So since each student issued bonds (got college loans) to pay for their stock certificate, they are trading on margin. But since there is an entirely predictable oversupply of stocks, the value of each is diluted some more than others based on which 'company' issued the stock. Can you say MARGIN CALL?!
It doesn't matter too much, none of the kids are going to be paying the loans, anyway. The younger consort is broke and unemployed. The debt-vultures have already burnt this turf.
Things are going to change, it's just a question of whether we try to shift the public's expectations or fall into decades of wailing and gnashing of teeth.
http://bits.blogs.nytimes.com/2009/08/19/study-finds-that-online-education-beats-the-classroom/
a lot of them (the students) choose online for time management reasons....and according to the article above don't do any worse...
i work at a traditional college and frankly its highly dependent on the kid/teacher connection. Also, with the economy in the shambles it is in, many of the students are here simply because its their last hope, just maybe someone will hire them if they get a degree (i'm highly skeptical). Frankly, i want to cry, they are just sheep being led to the slaughter....the teachers and admin are just as clueless and living in deep denial.
(Still Another) National Disgrace.
Shhhh, nobody sees it coming.
I'm sure the faggots at Goddamn Sachs have something to say about Education Racketeering Inc. They are the market.
Parents take note, I won't hire suckers that list a for-profit school. It is a cred that works AGAINST those that apply, and makes the selection process that much more streamlined. Frankly, it is worse than less education.
Locally, Klepto-Corinthian managed to turn a world-renowned automotive tech school to a complete joke. RECORD BONUSES!
And our Clueless kids go to college and even some will endure Economy 101 without learning these little secrets.
I learn't it good.
Well that's why they say 'money makes the world go round' . Problem comes in when money isnt money anymore. They avoid teaching that one at school though. Great article.