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Will FTC Probe Of Largest For-Profit College Lead To Another Billion Dollar Taxpayer Bailout?
In late April we predicted that for-profit college closures would trigger the next multibillion dollar taxpayer-sponsored bailout in America.
At the time, Corinthian Colleges had abruptly shuttered what remained of its campuses, marking an unceremonious end to a slow motion wind down that had been in the works for quite some time.
As we noted then, delinquencies and defaults on student loans are far worse for borrowers that attend for-profit colleges. This, along with poor graduation rates and allegations of deceptive marketing practices, has led to increased government scrutiny of the for-profit sector, scrutiny which ultimately caused Corinthian to wind down operations last year amid allegations it falsified job placement rates.
The company received nearly $1.5 billion per year in financial aid funding from the government, meaning the US taxpayer was subsidizing federal loans to students who very well may have been getting a subpar education and were thus even more likely to get behind on their loans and eventually default. Corinthian was able to sell off many of its campuses in November and although the writing had been on the wall for quite sometime, the sudden closure of its remaining physical campus still came as a surprise to students and faculty.
The reason this matters is that the law allows students to apply for debt relief from the Department of Education when the school they attend is closed and found to have defrauded attendees. Here’s an excerpt from a Reuters piece that ran shortly after the closures:
More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools.
The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.
What’s critical to understand here is that, as noted last month, "these institutions rely heavily on federal student loans for their very existence [and] tuition rates at for-profit colleges are, on average, double the rates charged by large public universities, a fact which explains why nearly 90% of students at for-profit schools have taken out loans to pay for their education."
So these students are i) almost certain to have borrowed from the government, and ii) their loan balances are almost certain to be higher, on average, than loan balances for students at public universities.
When you combine this with the government’s ongoing crackdown on the for-profit sector and the fact that if the government closes a for-profit school, the students are eligible for debt relief, you have the perfect recipe for massive taxpayer-funded bailouts of heavily indebted students.
Anyone who thought we were exaggerating when we predicted a multibillion dollar hit for taxpayers got a rude awakening when, early last month, the government announced plans to write off nearly $4 billion in loans for students that attended Corinthian.
The takeaway, as we wrote way back in April, is this: The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with hundreds of billions of loans they now know can be legally discharged.
Well, sure enough, the government is now looking into University of Phoenix parent Apollo Education. Here’s Bloomberg:
Apollo Education Group Inc., owner of the University of Phoenix for-profit college chain, fell as much as 9.4 percent after U.S. regulators began investigating possible unfair advertising and marketing.
The Federal Trade Commission demanded information on enrollment, recruiting, financial aid, tuition and other business practices from 2011 to the present, Phoenix-based Apollo said in a filing with the Securities and Exchange Commission. Apollo said it will cooperate fully.
The FTC and other government agencies are examining the practices of for-profit colleges amid concerns they are recruiting students with misleading pitches about the value of their education. Downers Grove, Illinois-based DeVry Education Group Inc., another for-profit college chain, received a similar notice from the FTC last year and said it is cooperating.
From the filing:
Apollo Education Group, Inc. announced that it received yesterday a Civil Investigative Demand from the U.S. Federal Trade Commission. The Demand indicates that it relates to an investigation to determine if certain unnamed persons, partnerships, corporations, or others have engaged or are engaging in deceptive or unfair acts or practices in or affecting commerce in the advertising, marketing, or sale of secondary or postsecondary educational products or services or educational accreditation products or services. The Demand requires Apollo to produce documents and information regarding a broad spectrum of the business and practices of its wholly-owned subsidiary, University of Phoenix, Inc., including in respect of marketing, recruiting, enrollment, financial aid, tuition and fees, academic programs, academic advising, student retention, billing and debt collection, complaints, accreditation, training, military recruitment, and other compliance matters, for the time period of January 1, 2011 to the present.
We're quite sure we'll be discussing this extensively sooner rather than later, but for now we'll close with an excerpt from US News & World Report on Corinthian's bankruptcy and a screenshot from Apollo's latest 10-Q. Bearing in mind that the Corinthian closure may cost taxpayers $3.6 billion, see if you can determine why a government mandated shutdown of Apollo could present a problem.
In court documents, Corinthian listed total assets of $19.2 million and total debts of more than $143 million. At its peak during 2013, the company operated more than 100 campuses in states such as Arizona, California, Hawaii and Oregon, and enrolled more than 81,000 students, according to court documents.
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Debt that will never be repaid?
Why not, bail'em out.
It wont matter soon.
Oh, I just took a Corinthian and flushed.
Since these degrees are a sham, and won't result in higher future revenue for the student, the students should be able to declare bankruptcy and have the debts written off. Oh wait... they can't because student loan debt is the only debt in existence that can't be discharged.
The entire purpose of lending money out is to get a greater return. Then the lender adjusts interest rates based on risk. Nowadays student loans have next to nothing risk because the students are stuck with the debt for life. Then the loans are guaranteed by the government. Bankruptcy is the biggest risk for a loan, and that risk is gone! This is the mess we have today.
The lenders don't care if student loan money is spent on parties or drugs or entertainment, because the student is in bondage for life! The colleges charge outrageous tuition because they know ignorant 18 year olds and their economically illiterate parents will just sign them up for loans to pay for the ridiculous tuition. they promise these $30,000 a year jobs, which sounds like a fortune to an 18 year old who lives at home and whose only expense is cell phone bills and tattoos. With riskless loans and easy access to credit, college can charge unlimited amounts for tuition increases, and idiots will continue to put up with it.
The colleges offer ZERO marketable skills. Gender studies, racial diversity, literary critiques, mocking religion, and discussing Darwin's 19th Century theories isn't going to get you paid! These students are thousands in debt, with nothing to show for it, and banks laugh all the way to the... bank.
I gained infinitely more education from Nightengale Conant audio tapes, than I did my worthless stint at a University. My mentor earned more money in one deal he closed from skills he learned at a seminar, than I did years of working retail back in the day. Most people would croak if they heard a one week seminar cost $25,000. Yet those same folks spend the same amount of money on a YEAR of University learning about feminism, ethnic studies, literary analysis, and the outdated theory of protoplasms. The university gets you debt for life, the seminar pays for itself on the first deal.
Gee whiz, that's an easy decision!
GW Bush removed the ability to declare bankruptsy on school loans.
I guess everyone should be born with a silver spoon.
How about not borrowing $200K to get a liberal arts or gender/ethnic studies degree at a private college? I was born with a wooden spoon in my mouth but worked my way through college and let my employer pay for my graduate school. If student loans were allowed to be discharged in bankruptcy, that means the taxpayers have to make good on them. Is that fair? The best solution is to get the government out of the student loan business completely and let the market decide the rates. Rates go up while tuition goes down, because there will be more risk to the lenders. They will charge higher interest rates and refuse to lend so much money for trash degrees. Diploma mills and useless degree programs will vanish overnight.
'Corinthian'...? Holy shit I'm getting old. Looks like this latest version of 'Corinthian' has about as much authenticity as 'ole Ricardo's heap back then...
https://www.youtube.com/watch?v=vIL3fbGbU2o
KAAAAAHHHHHNNNNNN!............ KAAAAAHHHHHNNNNNN!
https://youtu.be/wRnSnfiUI54
I've said it before, and I'll say it again: Those dumb bastards could've avoided this entire mess if only they'd stuck to making rich, soft leather for Chrysler Cordobas - "An automobile so fascinating, it has captured the hearts of many."
https://www.youtube.com/watch?v=hEAX4JC7X0s
https://www.youtube.com/watch?v=m2bUe-2k0y4
https://www.youtube.com/watch?v=E_HMIN0nGl0
Meh, old Yeller can'print that before I finish typing my com...
they dont need a bailout, have a decent non-US business. (india, china, etc.)
the FTC was more reliable when it was led by Jon Stewart - funnier, too.
https://en.wikipedia.org/wiki/Jon_Stewart
https://en.wikipedia.org/wiki/Jon_Leibowitz
Obama the secret muslim sure did appoint lots of non-muslims to positions having to do with banking/finance/trade
part of his clever cover, no doubt.
Please bail out my degree. I cant afford it. Thanks.
http://www.rollingstone.com/politics/videos/jimmy-carter-u-s-is-an-oliga...
why stop at for-profit college?
College costs are ballooning out of control as each campus is in arms-race for more and bigger facilities to hold enrollment numbers. Eventually we'll pass a cliff where those numbers will start to drop because wages havent improved and it will be impossible to afford. There are only so many trust fund babies, and baby- they dont go to public school.
Then, oh shit, we have a huge loan and have already started construction on a new statium, 2 new cafeterias, 4 new dorms with swimming pools and a bunch of parking lots. who gunna pay for this shit?
Average college campus today looks like a fucking resort. All you need is a building and desks.
and public university are much better?? How about cut off all funding and see what happens. public university with professors retiring on $250k pensions is worse. At leasst with Corinthian...I didn't have to pay
They already dealt with professors in public universities. Its only adjuncts now.
Then you have to wonder where all the money is actually going, eh?
Too bad the same standards don't get applied to public schools
The groups said the Department of Treasury had the authority because Obama misrepresented the health insurance rates and defrauded taxpayers by enrolling them in high-cost, low-quality health insurance.
fify
PEOPLE/HUMAN BEINGS commit crimes, NOT buildings/institutions/facilities/etc. Any time this fucking government feels like paying off someone's bills because SOMEONE fucked them over - than that SOMEONE should go to PRISON FIRST. Convict and then maybe help someone out. NOT UNTIL YOU STUPID FUCKING GOVERNMENT BUREAUCRATS! Get your heads out of your asses and your hands out of MY pockets!
The Private Sector, for all it's virtues, is expert at feeding off of public money. In this case, the student aid loans and grants a stupid government has promoted as the prefered mode of higher education funding.
Why and how students and parents can not see through these private fly by night colleges, whose are simply there to feed off loans and grants government guarantees. Check into the provate sectors use for these degrees and college graduates, and you'de find that employeers place no stock in graduates, and simply look elsewhere. All these colleges you have never heard of, who never fail a student, but keep passing them along to earn their tution fees!
A parent should have brains enough to discount all these private Bull Shit Uinversities. Even a basic state school is far better a place to go. Like here in Minnesota. There are state schools outside the main campus in Minneapolis. At least it says UofM on the diploma.
The Fly By Day "public" colleges are absolutely no different. They have been ratcheting up tuition and fees right on schedule.
"Will FTC Probe Of Largest For-Profit College Lead To Another Billion Dollar Taxpayer Bailout?"
First, there is no such thing or person called a taxpayer; in the same way their is no such thing or person called a loot-payer in reference to a mugger. They take it, it becomes theirs, and it is no longer yours. They only utilize the word "taxpayer" to give their victims the feeling of some control over what has been stolen from them. I.e. There is no such thing as "taxpayer(s)." That is a propagandist term used to instill a since of partnership with them and their crimes against you, us, and against others.
Next, follow the bankster grift-cycle: First they print up counterfeit money, fraud, and then fence it with usury to the borrowing student--a "loan." Then, when the system of grift falters, they print up more grift, and then loan it with usury to the DC US. The DC US then is required to perpetrate even more tyranny against the American country and people to service this further fiat-debt.
Meanwhile, the usury flows, first to the banksters and streeters, and then on to Zion.
Liberty is a demand. Tyranny is submission..
Using The State to crush your competition: Priceless.
Well, fuck it. I would much rather bail out some students who took loans based on false premises and phoney promises for $4 billion, than bail out TBTF banks for $750 billion - the banksters knew what they were doing.
And don't talk to me about 'moral hazard' re an 18 to 20 year old promised a college degree and a 'good job'
vs a bankster selling liar loan/phoney appraisels then bundled by another bankster into a pile-of-shit cdo, when the banksters KNEW they were committing fraud.
And yeah, there was student loan fraud as well, but nothing even approaching the TARP bullshit. 'Cheap and easy credit' IS moral hazard.
Bail the kids out, hang the banksters. That's my motto.
I spent six years getting my degree at University Of Phoenix in Criminal Justice Dept. Its my lifetime dream to be a foresnic investigator. I had to borrow a lot of money in student loans to pay the tuition costs and to live on for me and my kids while I studied foresnic science at University Of Phoenix Criminal Justice Dept. Now I got my degree and am very proud to have accomplished this but no one will hire me because these dumb lawsuits are making my degree not worth much in todays tough job market.
Someone should foresnic science these crooks who are making my hard earned degree look cheap and no good when its not! They are ruining my dream job future! University Of Phoenix Criminal Justice Dept. is a good school!
sarc?
what?
Sorry
I hope the guy is kidding too... If the credits don't transfer, did you really go to a school or a diploma mill?
You had it right; it's sarcasm.
The fraud of these online universities extends throughout the chain. Many of the "students" use their enrollment to get student loans and (especially) government grants to live on instead of working at Wal-Mart. They aren't a bunch of naive young go-getters eager to learn marketable skills so they can join the workforce and be contributing members of society. They're streetwise gamers who know how to work the system so they can keep slidin' along without working too hard. Plus subsidized child care while they're enrolled, and they meet their parole conditions to be employed full-time or be a full-time student.
The online colleges know who their target "students" are and cater to them. They don't have very rigid academic acceptance standards (High School class ranking, grades, ACT scores). As long as you qualify for government financial aid you're considered college material.
The politicians and social advocates who promote the grants and guaranteed loans know it's a scam, but they continue to fight for more money for the programs because that's their political bread and butter.
We taxpayers end up paying for legions of unemployable goofs who spent the past six years studying "foresnic science" and "beauticology".
University of PhoneyX....
I wonder if the military would pass an FTC probe into their recruiting practices. Enticing someone to give up freedom for several years for almost no money ... let alone to serve as canon fodder for some political whim ... must take a pretty special sales pitch.
The interpretation of the commerce clause should have been simple. Does something interfere with commerce between two states that don't share a boundary which couldn't interfere if they did? If it does, it shouldn't be allowed to.
Of course education has nothing to do with commerce. But the camel was well into the tent right from the beginning. The purpose of individual states was obviated from the start by exploiting the commerce clause. It is the biggest leak in the entire constitution. And when you read it, no leak is evident at all. The bastards can misinterpret anything to obtain any powers they want.
Further, we pay taxes for infrastructure of our public education systems. People choosing not to use those facilities, but rather to use non-public facilities should not have to pay that tax. But no! You must pay taxes for government services whether you use them or not.
I guess we should really be amazed these private institutions try to compete at all. And why are these student choosing to pay to go to these private institutions when they could go to the public ones for 1/2 the cost?
If the FTC can't prove the private institutions are using extraordinary sales pitches, they are more incompetent than we already know them to be. You'd have to use an extraordinary sales pitch to beat the public supported advantage.