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Amitai Etzioni Headshot

Warning: Profit-Making Colleges Are After You

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Here we go again. Corporations are making money not by producing a product and marketing it, but by loading consumers with loans they cannot pay and then sticking the taxpayers with the bill. Only this time, it's not houses and mortgages but "higher" education and student loans.

Here's how it works. Fly-by-night "educational entrepreneurs" -- people who run profit-making colleges -- buy small liberal arts colleges that are on the verge of collapse because of financial difficulties. This provides the profit-makers with coveted regional accreditation, which is needed to allow their students to take out federal loans. The profit-driven colleges then set up boiler-room style "recruitment" offices to hunt and pressure people to enroll and take out loans, promising them bright futures and successful careers. Former recruitment officers have reported that they were under intense pressure to meet quotas and enroll students, regardless of their readiness for college-level education. Enrollment counselors were told, when on the phone with prospective applicants, to "create a sense of urgency" and "push their hot button," all tricks typically used to sell penny stocks. (All of this was vividly documented by PBS's Frontline in an episode entitled "College, Inc." You can watch it here.)

The education students receive at for-profit colleges bears little resemblance to the kind they would get at a true liberal arts college. Neither does it resemble the collegial image the for-profit colleges love to project. Professors at these schools often work on short contracts. There is no tenure. The executives make staggering salaries. Most students are taught online, often by poorly qualified professors who have very limited contact with the students. A 2007 New York Times article revealed that graduates of the University of Phoenix, the largest of the for-profit schools, had bitter complaints about "instructional shortcuts" and "unqualified professors." Students in an average course at the University of Phoenix spend about half as much time with professors as students in traditional universities do. Moreover, the university was fined for falling short of the minimum scheduled time required for receiving federal aid.

The schools' stripped-down curricula and poor instruction often make for nearly worthless degrees. When students graduate from these colleges, many cannot find jobs -- or at least not the kinds they were promised -- and eventually, many of them default on their loans. The federal government has estimated that for-profit university students, who make up just 10% of all American college students, account for about 44% of all student loan defaults. When the students default, you and I pick up the tab. But note: the money does not go to the students, but to the shareholders of the for-profit colleges.

The taxpayers are putting up the money and absorbing the losses, but the shareholders are making out like bandits. Bloomberg recently reported that in fiscal year 2009, the University of Phoenix reaped nearly $3.8 billion in revenue, and 86% of it came from the U.S. Department of Education.

In response to the growing problems, the U.S. Department of Education recently proposed new rules requiring for-profit universities to justify the federal support they receive by demonstrating that their graduates are actually finding jobs. But a swarm of industry lobbyists pressured the Department of Education, which just announced that it has delayed settling on a specific definition of the new rules, regulations which might turn out to have only limited influence over profit-making colleges.

The profiteers argue that they serve a large number of poor and minority students. These individuals could be served much better by transferring the funds the executives at "College, Inc." are dedicating in large part to their shareholders, to traditional four-year colleges and community colleges. Instead the administration cut the funds originally planned for community colleges from a proposed $12 billion over 10 years to $2 billion over four years. If these funds were to be restored to the proposed levels, these students could get not just an education, but a better one.