Too Many For-Profit Colleges Defraud Students And Taxpayers Alike

06/07/2017 04:51 pm ET Updated Jun 07, 2017

Trump University, it transpires, is more than a heartless joke. It is the canary in a multibillion-dollar coal mine of greed and deceit.

Obviously, not all for-profit colleges shortchange students. But far too many do. The result? According to a 2016 research project by economists from the Treasury Department and George Washington University, most students at for-profit colleges would have fared better had they attended a community college — or skipped college altogether.

The causes? Start with near-worthless degrees. Another study in 2011-12 found that most graduates of for-profit colleges earn no more than graduates from high school and that, compared with students at nonprofit institutions, earn less and are more likely to be unemployed. Yet another study showed that these disparities are lasting.

Then there’s misdirected spending. Half of for-profit tuition is spent on nonacademic matters like marketing and recruiting, instead of improving curriculum or instruction. In particular, compared to faculty at nonprofit schools, teachers at for-profits are ill-paid, frequently part-time and, on the whole, less qualified.

Yet surveys show that tuition at for-profit schools is consistently higher than at their public or even private nonprofit counterparts. No surprise — lacking other sources of money, they charge more tuition so that investors can profit.

Given their dubious benefits and excessive cost, for-profits prey on the vulnerable and underqualified. This spawns deceptive recruiting practices, including misrepresentations about costs, potential earnings, and the ability to transfer credits to other schools. In some cases, recruiters have urged students to provide false information on applications for financial aid.

Who provides this aid? Overwhelmingly, the GI Bill or Pell Grants designed to benefit the economically disadvantaged. In 2010, for-profit students represented 12 percent of all college students but received 25 percent of all federal Pell Grants and loans. Similarly, in 2012-13, 31 percent of funding from the GI Bill went to for-profit colleges — $1.7 billion in all. According to a two-year Senate investigation headed by Tom Harkin, for-profit schools depend on federal student aid programs — ultimately, on taxpayers — for 80 percent of their revenues

Thus for-profit schools target students based on their eligibility for federal funding and, as a corollary, have lax admissions standards. This leads to over-crowded classes filled with veterans and low-income adults whose access to financing exceeds their capacity for academics. Too often, for-profits pressure these struggling students to stay in school whatever their hardships, profiting at their expense.

Inevitably, this produces markedly lower graduation rates. Whereas 70 percent of students at four-year public or private nonprofits complete their degrees, the graduation rate at for-profit schools is under 50 percent.

This perfect storm of educational dysfunction implodes our student debt crisis. According to a 2012 report in The New York Times, 96 percent of students at for-profit colleges took out loans, compared with 13 percent of students at community colleges and 48 percent at four-year public universities. Unsurprisingly, while for-profit students constituted 13 percent of America’s college enrollment, they accounted for 47 percent of student loan defaults. Overall, the debt owed by such students grew from $39 billion, in 2000, to $229 billion in 2014.

An Atlantic story encapsulates the worst. A middle-aged mother incurred $57,000 in loans to attend a for-profit college. When her son died by suicide, the school discouraged her from taking leave, promising that she could retake, for free, any classes she failed. Instead, it charged her for repeating course work before shutting down, leaving her without a degree and near her federal borrowing limit.

The overall picture amounts to a massive consumer fraud. As Senator Harkin described, his committee’s exhaustive report contains “overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation. These practices are not the exception — they are the norm.”

In response, the Obama administration established an office to help protect students at for-profit colleges. But the industry has influential investors, like Wells Fargo and Goldman Sachs, and an army of lobbyists bent on squelching government oversight. And now they have two very powerful friends — Donald Trump and Betsy DeVos.

For Trump and DeVos, for-profit colleges are yet another engine of free enterprise that’s harried by overregulation. Thus DeVos’s education department is curbing measures like the gainful employment rule, which links for-profits’ access to federal funds with their record on job placement and earnings. It is no doubt incidental that DeVos invested in a major for-profit college, as well as a company that pursues student loans in default.

America awaits the next Trump University.

Richard North Patterson’s column appears regularly in the Boston Globe. His latest book is “Fever Swamp.” Follow him on Twitter @RicPatterson.

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