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The Diploma Mill Profiteers

Student loans are a big business. In fact, student debt now exceeds $895 billion which is more than the total Americans owe on their credit cards. And, most of these loans are underwritten by the US government, which means that the taxpayer is on the hook when students can’t repay the debt. This is a big problem, because many of the people taking out loans are not really qualified for college, so they end up dropping out of school and defaulting on their loans putting themselves in long-term debt while passing the bill along to Uncle Sam. But not everyone loses on the deal. In fact, the institutions that help unqualified applicants get loans, do quite well. After all, they’re paid in full by the government. If this sounds like it might be a scam; it’s because it is. All the recruiters need to do is find a credulous subject, bamboozle him into signing on the dotted line, and hold his hand for the first few weeks of the new semester. That’s all it takes to net a big government payout. Here’s a rundown of how it works from an article by Chris Kirkham at the Huffington Post:

“The goal, employees say, is getting “starts”: students who fill out the paperwork for student loans and make it through at least four weeks of their first five-week course. That is the point at which the university is able to keep the student’s federal aid money, regardless of whether they continue their studies. After that, according to the Ashford employees, any form of counseling drastically drops off.

“There were numerous times when I enrolled students and thought, ‘All I’ve got to do is babysit them for four weeks,'” said a former leader in the admissions department, who spoke on the condition that he not be identified because he is still employed at another for-profit university. “I’d be thinking, ‘Come on, this person is clearly not ready to go to school.’ But I’d call you, pump you up, keep you confident for four weeks, and once I knew you completed, you were forgotten. It’s easy when I’m counting the money.” …

According to the Ashford employees, the pressure drives recruiters to enroll students who they know have little chance of success: people who openly say they have no regular access to a computer or the Internet, despite the exclusively online course offerings, and even those who acknowledge they have difficulty reading.

Bridgepoint has among the highest withdrawal rates of any publicly traded school in the industry, according to a Senate report last year. Based on a pool of students examined between 2008 and 2009, more than 80 percent of those in an associate’s degree program had exited within two years of enrollment, and nearly 65 percent of bachelor’s degree students had left the company’s schools in the same timeframe.

Last year, Bridgepoint posted its best year ever: netting income of more than $127 million, almost triple the year before. The company spends about 37 percent of operating costs related to education; the rest goes to marketing, corporate compensation and overhead.” (“Buying Legitimacy: How A Group Of California Executives Built An Online College Empire”, Chris Kirkham, Huffington Post)

Nice, eh? Just sign them up, dupe them into believing you care about their future, and then fleece ’em til they bleed. Cha-ching; in rolls the money from Uncle Sugar. But aren’t we blaming the wrong people? Shouldn’t the young people who took out the loans be responsible for their own actions? After all, no one put a gun to their head and forced them to sign, right?

It’s a persuasive argument–and one that’s been used many times by industry lobbyists and their lackeys in congress–but it’s easy to disprove once we take a look at the victims in this swindle.

So, who are the victims? Well, as it turns out, quite a few of them are hard-luck cases and ex-military personnel who were hoodwinked by smooth-talking recruiters into signing their lives away. For example, here’s a clip from an article that appeared in Bloomberg in 2010:

“Benson Rollins wants a college degree. The unemployed high school dropout who attends Alcoholics Anonymous and has been homeless for 10 months is being courted by the University of Phoenix. Two of its recruiters got themselves invited to a Cleveland shelter last October and pitched the advantages of going to the country’s largest for-profit college to 70 destitute men.

Their visit spurred the 23-year-old Rollins to fill out an online form expressing interest. Phoenix salespeople then barraged him with phone calls and e-mails, urging a tour of its Cleveland campus. “If higher education is important to you for professional growth, and to achieve your academic goals, why wait any longer? Classes start soon and space is limited,” one Phoenix employee e-mailed him on April 15. “I’ll be happy to walk you through the entire application process.”

Rollins’s experience is increasingly common. The boom in for-profit education, driven by a political consensus that all Americans need more than a high school diploma, has intensified efforts to recruit the homeless, Bloomberg Businessweek magazine reports in its May 3 issue. Such disadvantaged students are desirable because they qualify for federal grants and loans, which are largely responsible for the prosperity of for-profit colleges….

Other schools see nothing wrong with reaching out to the disadvantaged. “We don’t exclusively target the homeless,” says Ziad Fadel, chief executive of Drake, which also sends recruiters to welfare and employment agencies…

While many caseworkers for the homeless are gratified by the attention, some see only exploitation. The companies “are preying upon people who are already vulnerable and can’t make it through a university,” says Sara Cohen, a case manager at Shelter Now in Meriden, Conn. “It’s evil.” (“Homeless High School Dropouts Lured by For-Profit Colleges”, Bloomberg)

So, is this a legitimate business that’s adding educated people to the workforce or just a scam that targets vulnerable young people in order to bilk the government out of billions of dollars?

Keep in mind, the Bloomberg story is not exceptional at all; there are loads of similar stories on the Internet. Here’s an excerpt from an article by Peter Fenn who fills in some of the important details:

“In just a few years, however, enrollment (in for-profit colleges) went from 365,000 to 1.8 million students. Marketing madness resembled March Madness for these schools, and many more new ones were established. Slick TV ads and thousands of marketers were hired. Returning vets were targeted, even at hospitals.

The key: Bring in millions from Pell grants and student loans. Taxpayer money.

By 2009, these for-profit schools were raking it in—$4 billion in Pell grants and $20 billion in student loans provided by the Department of Education. Over 80 percent of the revenue for the for-profits came from federal loans and grants.

In many cases, these were shell games. No campuses, few classrooms, and little interaction with teachers, but make no mistake about it, they were not cheap. Students were told they could get loans and grants and just send in the checks.

So, how was all this working? Graduation rates for private colleges are about 65 percent, for state schools about 55 percent, and for the for-profit colleges? Twenty-two percent.

Houston, we have a problem.” (“Congress Should Put a Stop to For-Profit College Rip Offs”, Peter Fenn, US News)

Huh? So, for-profit colleges are netting $24 billion from the government and only graduating 22% of their students? It’s mindbogglingly. Fenn continues:

“The top executives for the top 15 for-profit colleges pulled in $2 billion last year. Two billion dollars, practically all taxpayer money.

And that student loan money?—the default rate at these for-profits is 43 percent!

So, only 22 percent graduate and 43 percent default on the loans, leaving us holding the bag because students have been sold a bill of goods by slick marketers.” (“Congress Should Put a Stop to For-Profit College Rip Offs”, Peter Fenn, US News)

Can you believe it: “43 percent default on their loans”? That’s got to be some kind of record. Good grief, at the peak of the subprime fiasco the loans were only blowing up at a 6 percent rate. This is 7-times bigger than subprime. And we’re not talking chump-change either. There’s hundreds of billions involved in this Ponzi-scam. And on top of that, the Fed has been using the distorted numbers from this flimflam to show that a credit expansion is underway. Here’s what they said in the recently released Credit Report: :

“The new U.S. consumer credit numbers reflect an economy that is reaccelerating, and that is very bullish for growth — as well as inflation. All in all, U.S. household credit surged by $7.62 billion in February, ramping up faster than at any other time since June 2008.” (Hat tip to The Big Picture)

What a joke. The taxpayer is getting reamed and the Fed is boasting about a “recovery”. Go figure? The only area of credit that’s budging at all (apart from subprime auto loans) is student loans, which are experiencing a veritable goldrush as every scoundrel, scalawag and miscreant flocks to get a piece of the action. These chiselers know that these kids will never be able to repay their loans. In fact, they make more money when they’re delinquent. They just jack up the interest rate and grab what they can before crying “Default” and gouge the government for the balance of the loan. What a swindle.

The GOP-led congress is up to their eyeballs in this crookery. They’ve been using every trick in the book to protect their fatcat buddies by blocking the implementation of regulations that would prevent gullible students from being plucked-clean by cheesebag recruiters. The Republicans would rather defend the “inalienable right” of shifty recruiters to rip off students then save the taxpayer hundreds of billions of dollars.

Boy, these guys really stink.

MIKE WHITNEY lives in Washington state and  can be reached at fergiewhitney@msn.com

 

 

 

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MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

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