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For-Profit Colleges and the Washington Post

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Last month the newspaper that in 1974 launched my teenage interest in journalism as a route to justice and truth got into a tussle with the U.S. Department of Education over some data on college graduates' earnings. That debate was expertly dissected by Ben Miller at the New America Foundation, so it does not need rehashing. Instead, I would like to point out several dubious peripheral claims made by the Post's Glenn Kessler.

In shrugging off the Washington Post Company's former ownership of the for-profit Kaplan University, Kessler asserted that with the sale of the Post to Jeff Bezos "there is no longer a potential conflict of interest." Excuse me, but the Post's ownership of Kaplan was much more than a potential conflict of interest. It was an actual, bona fide conflict. The Post stood to gain financially by dodging oversight of an explosion of predatory practices at for-profit colleges, including Post/Kaplan. Indeed, the CEO of the Washington Post Company actively lobbied to shut down the whole regulatory process (this occurred while I was at the Education Department trying to rein in the abuses). As a newspaper, the Post had an actual conflict, not a potential conflict.

Second, Kessler's shorthand description of for-profit colleges was that they "have a different business model than private universities, which generally don't pay taxes, and community colleges, which receive state subsidies." The business model is indeed different, but not in the ways Kessler implies. As reported by The Huffington Post's Chris Kirkham, the Post/Kaplan recruitment manual included pain and fear sales tactics, and students were allegedly subjected to guerrilla registration tactics to increase their debt levels to the benefit of the Washington Post Company shareholders.

Declaring "state subsidies" as a defining difference is odd since numerous analysts have pointed out that for-profit colleges are up to 90 percent subsidized by grants and loans from the federal government. Owners of for-profit colleges tap directly into the U.S. Treasury to draw down upwards of $30 billion a year. The important difference is not the source of the subsidy, it is the nature of control of the institution: for-profit colleges have investors who demand constantly increasing stock prices, leading executives to mislead and shortchange students and taxpayers.

The claim that private universities "don't pay taxes" is misleading, too. While they do not pay corporate income taxes, nonprofits are required to commit all of their net revenue to charitable purposes, overseen by trustees without a financial interest. As a result, there is nothing to tax. (Nonprofit colleges are required to pay taxes on unrelated businesses, a category that, yes, should include big-time football and basketball). For-profit colleges would pay no corporate income taxes if they, too, committed their net revenue to charitable purposes. Instead, they choose to capture the income for investors.

In other words, for-profit colleges only pay corporate taxes to the extent that they fail to spend their revenue on students. Moreover, nonprofits spend far more of their revenue on salaries that yield payroll and income taxes, at tax rates higher than the rate on investors' capital gains at for-profits. Kessler's assertion about taxes is simplistic and hollow.

In covering the issues associated with for-profit colleges, the Washington Post has fallen victim to the skewed rhetoric of its former corporate sibling, Kaplan. Because of the newspaper's historical commitment to good journalism, especially in light of the its former family ties, the Post owes the public an extra dose of scrutiny of its own assumptions and assertions.