01/24/2011 05:38 pm ET Updated May 25, 2011

The Fraud of For-Profit Colleges

For-profit colleges are in the news again with the Washington Post reporting that the Association of Private Sector Colleges and University is suing the federal government.

The Association has taken issue with regulations on the for-profit college industry that were passed late last year. Of the various regulations that were put into law, the lawsuit takes issue with three in particular:

One specifies minimum steps a state must take to authorize postsecondary programs that participate in federal student aid programs. Another strengthens federal authority to take action against schools that engage in deceptive marketing. A third reinforces a federal law that prohibits schools from paying recruiters based solely on how many students enroll.

I am not a lawyer, and so I am unqualified to comment on the legitimacy of their lawsuit. But one thing I have noticed in all the coverage of the for-profit college industry in various news outlets is a failure to explain what the problem with for-profit colleges actually is.

There have been a handful of articles here and there which mainly talk about the negative impact of for-profit colleges such as this one early last year in the New York Times. But to date, I have not found one that flatly explains the systematic way in which for-profit colleges are defrauding both the federal government and hopeful students.

However, after watching the informative Frontline documentary College Inc., it has become clear just how twisted many of these for-profit learning institutions are.

To save you from watching the documentary, let me explain how the fraud works.

First, a group of venture (or really, vulture) capitalists come together and either buy a small accredited college that is having financial problems, or they create their own college that they then get regional accreditation for. Next, they raise the cost of attendance through the roof, tens of thousands of dollars more per year than any informed person would ever pay for such an institution.

Then, they use telemarketers, recruitment fairs and all sorts of advertisements to bring students in, often older students with low-paying jobs that they promise the sky to. In the case of the telemarketers, they sometimes pay them based on how many people they get to sign up, creating an incentive to mislead those they recruit.

After these deceptive techniques successfully bring in students, they tell the students that they do not need any money to actually attend, not up front at least, and that because the school is accredited they can fund it all through different federal loan and grant programs. The students sign on to this deal, and then they graduate with enormous debt well above the already high national average of $24,000. It is impossible for them to pay off the debt because the school is basically a disreputable sham as it is and employers are not impressed by the degree.

Because student loan debt can almost never be wiped about by bankruptcy or other similar measures, the student is set on the course for a life of endless debt, and is basically no better off career-wise than before.

But for the for-profit college, whose only goal is making as much money as they can, all they need is someone to sign on the dotted line, and then they get paid whether it costs the student a lifetime of debt or not.

In this process, the federal government is defrauded out of money via their student grant and loan programs, and the student is defrauded out of money as they are sold a lie, and are stuck paying off unending debt for a degree that is worthless.

Once this story is understood, it is pretty clear that this industry needs regulation if not outright annihilation. I am sure that many for-profit colleges are respectful and try to provide skills at a cheap price for students trying to get into a new profession, but for those that aren't, the victims are crippled for life. I can only hope then that this suit fails and that meaningful regulations are kept in place or even strengthened.