Some teeth are showing by the government for the for-profit colleges

"Will your degree get you a good job? US proposes test for for-profit colleges."

The proposed 'gainful employment' regulations would take away a program's eligibility for federal student aid if too many of its students defaulted on student loans or had debts too high relative to earnings.

by

Stacy Teicher Khadaroo

March 14th, 2014

The Christian Science Monitor

The Obama administration took new steps Friday to hold for-profit colleges and other career-training programs accountable for producing graduates who can earn enough money to pay back student loans.

The proposed “gainful employment” regulations would take away a program’s eligibility for federal student aid if too many of its students defaulted on student loans or had debts too high relative to earnings.

“For too long, some of these programs have measured success by how many students they enroll – and that needs to change,” Secretary of Education Arne Duncan said in a statement. “Success in career education should be measured by how many students graduate prepared for a good job with sufficient earnings.”

Students at for-profit colleges represent about 13 percent of those enrolled in higher education programs but account for about 31 percent of student loans and nearly half of loan defaults, the Department of Education reports. About 22 percent of borrowers who attend for-profits default within 3 years, compared with 13 percent at public institutions and about 8 percent at private non-profits.

The administration estimates that about 1 million students attend schools that would either fail to meet the proposed “gainful employment” standards or fall into a “zone of improvement,” which starts the clock ticking for losing aid if they don’t do better.

The for-profit education industry has fought such regulations for years, and its representatives criticized the administration Friday for unfairly targeting their institutions.

“Millions of prospective students, particularly working adults, minorities, and people with scarce financial resources, will see their access to higher education and prospects for better employment dramatically reduced” if these regulations are implemented, said Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities (APSCU) in Washington, in a call with reporters.

If such regulations are needed to protect students, why are they not applied across the board to nonprofit and public four-year institutions where students earning a bachelor’s degree in journalism, for instance, may struggle to pay back loans as well, Mr. Gunderson said.

Other critics say the regulations don’t go far enough to protect against programs they consider predatory.

More than 50 student and consumer advocacy organizations sent a letter to the administration requesting that schools that fail the gainful employment test be required to reimburse students for loans that get them nowhere, says Pauline Abernathy, vice president of the Institute for College Access & Success in Oakland, Calif. And online schools that are only accredited to prepare students for professional credentials in one state should not be allowed to enroll students who are hoping to get the same job but live across the country, she said.

A previous gainful employment proposal was blocked in 2012 by a federal judge who said a required minimum loan repayment rate was arbitrary. That has now been replaced by the loan default rate, a much more established measure, Inside Higher Ed reports.

The regulations would remove aid eligibility if programs fail to keep default rates below 30 percent for three consecutive years. Programs would also fail if graduates had to spend more than 12 percent of annual earnings or more than 30 percent of their discretionary income on student debt, for any two out of three years.

The new rules are subject to potential changes following a 60-day public comment period.

Secretary Duncan estimated that 16 percent of all programs covered by the new regulations and 20 percent of for-profit programs would fail under the proposed gainful employment metrics, Inside Higher Ed reports.

The burden falls more heavily on for-profit colleges partly because they tend to have more students borrowing. At for-profits, 85 percent of undergraduates in 2012 had taken out loans, both federal and private, compared with 37 percent at community colleges, says Judith Scott-Clayton, an economics professor and a researcher at the Community College Research Center at Columbia University’s Teachers College in New York.

Programs can appeal failing the default rate measure if the portion of students taking out loans is low. The Department estimates that a very small number of community college programs would fail under the new regulations. But the burden of appealing could prompt some community colleges to close programs or decline federal aid, Ms. Abernathy says.

The new rules require career-training programs to meet accreditation standards or state or federal licensure standards. And they create more transparency, requiring programs to report key outcomes such as average debt levels, earnings, and loan repayment rates.

With such information in hand, the hope is students might make choices that lead to a better return on their investment. A recent study by the Community College Research Center found that students who transferred from community colleges to for-profit colleges had significantly lower earnings gains over time than students who transferred to public or non-profit institutions. Over the course of 10 years (including their time in college), the net earnings gain among for-profit students was $5,400; at publics the net gain was $12,300, and at non-profit privates it was $26,700.

For-profit colleges in the spotlight again

"The Reform of For-Profit Colleges: Can They Give Up Their Predatory Ways?"

by

Chadwick Matlin

September 20th, 2012

The Atlantic

On the first day of the Association of Private Sector Colleges and Universities annual convention, a storm worked its way towards the convention center. More than a thousand people milled inside Rosen Shingle Creek, one of the golf resort/convention centers that are endemic to central Florida. The attendees had come for the annual congress of for-profit colleges, hosted by the sector’s trade association and central lobbyist. Its theme: “Opportunity for all.”

That night, a self-described “futurist and demographer” took the stage to deliver the keynote address. Kenneth Gronbach is a big man with a bigger voice, going after laughs more than longitudinal studies. Gronbach calls himself a “generational marketing expert,” and has written a book called The Age Curve. Subtitle: “How to Profit from the Coming Demographic Storm.”

Gronbach’s presentation began with a joke: “How many people are really excited to listen to a demographer for an hour?” A little manic, Gronbach paced the stage, taking audible sniffs as he caught his breath and delivered the next slide. “We’re going to concentrate not on money and stuff, but on people,” he said. But for Gronbach people are opportunity, and opportunity is money.

Gronbach spoke for nearly an hour, touching on everything from Honda motorcycles to how Generation Y requires “transparency, integrity, sense of green, humanitarian, fairness, cyber, and empathy” in the workplace. At one point he said, “I don’t think we could invent a better immigrant than a Latino.”

APSCU had brought Gronbach to the convention to try and help its member schools — all for-profit colleges that cater to 13 percent of American higher education students — better understand their target audience. Who were these students that needed vocational certificates and degrees? How best to get them to enroll, and how best to get them to graduate? As Gronbach promised, “Generation Y is going to change everything. They are going to change your lives.”

For the people in charge of for-profit schools, they already have. They’ve made them very rich. Between 1998 and 2008, for-profit enrollment increased 225 percent by one count, nearly eight times the rate of the rest of higher education. During the bleakest days of the Great Recession, stock prices soared as students went back to school in a bad job market. In 2009, publicly traded for-profits were $3.2 billion in the black, before taxes. But now for various reasons — a rebounding economy, harsh media coverage of the sector’s abuses, and tighter federal regulation — enrollment is down across the sector. A talk like Gronbach’s was meant to pep up morale.

“The antiquated college system is a rotary phone,” Gronbach said before lauding the private sector schools for being more nimble than traditional schools. That’s where their advantage lay, he said. “If you do it right, you’ll be wearing diamonds as big as radishes.”

Soon, a loud hiss started to drown him out, working its way across the room. It was the rain, moving across the thin roof, pounding, hissing, pleading to be let in. The storm had come.

Feeding Off the Government

If you care about understanding the country’s student loan situation, the best place to start is with for-profit colleges. For the past ten years there has been no sector that’s relied on student loans more than for-profit schools, and no sector that’s used them more to its advantage.

For-profits include brands you’ve heard of — University of Phoenix, Kaplan, DeVry — and small mom-and-pop outfits you haven’t — Fountainhead College of Technology, National Tractor Trailer School, and Spartan College of Aeronautics and Technology. Overall, it’s estimated over 4 million students attend for-profits annually.

In a more innocent time we called these schools career colleges; their express purpose is to prepare people to take on a job they wouldn’t have been able to get otherwise. They offer certificates, associate’s, bachelor’s and grad degrees, like any other school, just with more of a focus on the outcome than the process. It is all about school equating to a job. In that sense for-profits are the rare party in higher education that acknowledge what college has become: a commodity.

Take, for instance, Corinthian Colleges, Inc., a network of over 100 for-profit schools across the country. Founded in 1995 and IPO’d in 1999, Corinthian has grown by purchasing other schools and creating its own campuses where it sees demand. Unlike many for-profits, Corinthian focuses on campus-based learning, with three main brands spread across the country: WyoTech, Heald, and Everest, each with its own specialties. WyoTech has a host of automotive repair courses. Heald offers associate’s degrees in business administration. Everest’s medical assistant certificates are very popular, at around $16,000 a pop. About 90,000 students attend one of the Corinthian schools.

The people signing up for the courses are, by and large, the ones for whom a traditional college setting isn’t ideal. They’re usually older, poorer, busier, or some combination of the three. And yet they’re spending more money on college. By some counts, 96 percent of for-profit students take out loans, and nearly all of them are drawing from federal financial aid. In comparison, only 13 percent of students going to community college take out loans, because community colleges are a fraction of the cost.

So why go to for-profits? Because they offer the luxuries of convenience and efficiency. Matthew Mastrogiovanni, a 44-year-old logistics administrator went to an Everest campus in South Plainfield, New Jersey to change his career and get certified in its 9-month electrician program. Mastrogiovanni’s whole family had been to Everest — his wife completed the Medical Insurance Billing and Coding program, and she only went because she was so impressed with the sales pitch when she brought their son in to register for a pharmacy technician program. For Mastrogiovanni, who works night shifts but wanted a career change, it was their testimonial plus Everest’s “very flexible schedule,” that appealed. He said Everest had told him the electrician field was booming with jobs — “and it is booming if you’re 18 and you’re living at home with mom and dad,” he said. He faults Everest for not specifying that the jobs wouldn’t pay him what he needed as a middle-aged guy with a family. Since graduating almost a year ago, he’s had only one job interview, and he found it on his own. He still works in logistics for a stock room company. His electrician program cost more than $19,000. He’s had to put his loans in deferral as he pays off the Everest loans for the rest of his family.

The schools justify their extra cost by offering accelerated programs and more robust distance-learning options that can accommodate a more demanding lifestyle. This, they’ve determined, is what the rest of higher education isn’t offering — and it’s what’s worth at least an extra $10,000.

This is all made possible because the federal government has made it possible with its financial aid program. For-profits long ago realized that the most sustainable business model is the one that feeds off of the government’s largesse. Going up against community colleges is a lot easier than going up against Harvard, especially when the federal government can foot a large part of the bill. The market has confirmed their suspicions. By one count, the sector burned through $32 billion of federal funds in 2009-2010, a quarter of the DOE’s student aid allotment. In 2010, the federal government spent $509.3 million in Pell grants just for Corinthian’s 113,818 students. But Pell grants don’t have to be paid back; the sector’s $32 billion is comprised largely of loans. Ultimately, it’s students who are on the hook.

The readily available funding from student grants and loans has created an entire industry — and one that many now consider a predator against the very population that the loans were meant to empower. It’s an unintended consequence of legislation: our ideals demanded we provide loans so people can afford to go to school before they can actually afford to go to school, but the market’s demands created an opportunity to profit.

Without federal financing, the for-profit sector would be a fraction of the size and its students would be much less in debt. But far fewer Americans would have diplomas. It’s a trade-off: If we as a country want to ensure there’s a path to upward mobility, we have to help finance the way. But financing comes with risk, and some students are going to be left behind rather than thrust ahead.

This is what makes the political debate over for-profits’ role in higher education so warped. Here’s a sector that should be a liberal cause. It serves America’s neediest population, and uses tens of billions in public funds to do it. But its emphasis on the private over the public sector and its unabashed interest in pursuing profit aligns it with Republican orthodoxy. In a different Washington this would lead to bipartisanship. In our Washington it leads to scorched earth campaigns.

As a case study, take Senator Tom Harkin’s crusade against for-profit colleges. For two years he and his staff worked on a report on for-profit colleges’ questionable practices and heavily indebted students. It is the most comprehensive third-party report available on the sector, and much of the preceding data comes out of their work.

Harkin’s team found that for-profit students carry a lot of debt, and aren’t good at paying it off. An executive summary:

    “Independent students,” the report says, “leave for-profit schools with a median debt of $32,700, but leave public colleges with median debt of $20,000, and private non-profit colleges with a median debt of $24,600.”

    The “Department [of Education] estimates that 46.3 percent of all dollars lent to for-profit students who entered repayment in 2008 will default. The comparable number for 2-year public and non-profit colleges is 31.1 percent.”
 
    To cap it off, the report found that somewhere between 50 and 70 percent of students left school without getting a diploma. Going into debt but not getting a degree is probably the worst outcome for any college student — the student assumes much of the cost without attaining most of the benefit.

Since 2012, that Harkin report has been a scarlet letter for the industry, which is why for-profits treat it like it’s Nathaniel Hawthorne’s Scarlet Letter and think it ought to be banned. Steve Gunderson, APSCU’s chief executive and thus the industry’s chief promoter, described it as “ideology drives reality.”

Gunderson and others I spoke with think Harkin and his team are opposed to the very idea of for-profit higher education, and so trying to change their minds is futile. They think Harkin’s report manipulates data, composes an incomplete snapshot, and uses select cases of malfeasance to build an overly-broad narrative about the industry. Chief among the criticisms is that opponents don’t take into account that for-profits are serving students far more likely to drop out of school or have trouble repaying debts, because they come from disadvantaged backgrounds. It is difficult for high schools to educate the students society has left behind, so why should it be any different for for-profit colleges?

Before wading through education statistics — and there’s a swamp of them — it’s best to pack a machete.

For-profits make easy targets. They’re more expensive than community colleges, less established than storied elites, and less glamorous than mid-tier schools with gleaming athletic facilities. They’re also some of the few schools that still explicitly traffic in an increasingly outdated American Dream: come from adversity, go to school, get a job, become financially stable. And then of course there’s that emphasis on profit, something that’s anathema to the platonic ideal of American education, if not the modern reality.

For-profits, in other words, are weeds amidst the ivy, thriving in the cracks and growing faster than they can be cut down. They keep growing for a reason — they’ve adapted to modern higher education better, and sooner, than nearly any other bloc of schools. They may not be pretty, but they’re here to stay.

But poor results and abuses throughout the sector have forced the Obama administration to try and regulate the colleges. For the past few years the Department of Education has tried to ensure for-profits don’t manipulate students into enrolling, and then leave them unable to make their loan payments after graduation.

The regulations have already changed for-profits, and even they admit it’s largely been for the better. But now there’s a new debate taking place, and it’s one that demonstrates just how hard it is to force colleges to be accountable for how much debt their students have after they leave. The rise and regulation of for-profits can help explain how, for some, college went from being a gateway to the middle class to being an obstacle along the way; and what we can, or should, do about it.

The Hot Breath of Federal Regulators

Inside the exhibitor hall of the APSCU convention in Florida, it was initially difficult to see an industry chastened. As the attendees slurped their ceviche shooters, the exhibitors hawked their wares. A company called Tribeca Marketing Group had someone in full, spray-painted Statue of Liberty regalia, like a street performer who had mistaken suburban Orlando for Times Square. Pyramid Financial Solutions claimed they were expert at “Turning Tuition into Profit.” Gragg Advertising — “Memorable Creative, Measurable Results” — had a virtual golf course.

But this was not the exhibitor halls of years past. As Goldie Blumenstyk at the Chronicle of Higher Education noted, gone were the mermaids of 2012 and the live cattle of 2011. As Blumenstyk writes, “Mr. Gunderson said the group had asked vendors to exhibit with ‘conduct appropriate for the higher-education sector.’”

Left behind were a bunch of companies hyping their morality. It was especially apparent in “lead generators” — a class of companies unique to for-profits that help the schools find potential students. Lead generators have largely gained a reputation as unscrupulous vultures, willfully leading students who don’t know any better to a college even if it isn’t a good fit. Traditional colleges buy leads, as well (the College Board sells its massive address book of kids who take the SATs). It’s just that for-profit lead generators are recruiting some of the most at-risk high school graduates in America.

But these days, ethics are in. One of the convention’s sponsors, Beelineweb.com, took out an ad on the back of the program that read, “We’ve been doing organic since last century.” When I asked another lead generator, Education Dynamics, which runs sites like GradSchools.com and EducationConnection.com, what was special about their leads, a woman named Anya Bierzynski corrected me: “They aren’t leads to us. They’re highly vetted student inquiries.” Behind her, Shannen Doherty starred in a commercial for one of Education Dynamics’ sites.

And then there was Andy Beedle. Armed with a philosophy PhD from UConn, he taught at Trinity and Grand Valley State Universities before decamping for the world of admissions marketing. Beedle now works for Norton/Norris, an admissions consultant that offers an “EnrollMatch” program that helps colleges “stay compliant yet with enough flexibility to connect with today’s students in the most ethical and effective ways!”

“What’s been great is having this industry get thrown under the bus has made the people who were engaging in unethical practices, the light’s being shown on them now in pretty good ways. Our business model has to be about producing graduates. And those graduates have to get jobs,” he told me.

The new mood was also apparent outside the exhibitor hall. There was a “Compliance/Financial Aid” track of breakaway panels that included: “Detecting Potential Default Scenarios,” “Transparency and the Prospective Student: Effectively Using Disclosures to Achieve Positive Outcomes and Mitigate Future Disputes,” and “Adventures in Veterans’ Compliance: How to Stay Compliant in a Changing Environment.”

This is what happens when an industry feels the hot, bureaucratic breath of federal regulators on its neck. It wises up.

For-profits have long been regulated by the feds. In 1992, Congress imposed restrictions on for-profits, two of which still resonate. The first required that at least 15 percent of for-profits’ revenue came from non-federal dollars. The sector could not exist entirely off the welfare state. That’s since been relaxed to only be 10 percent of a college’s revenue (what’s commonly called the 90/10 rule). These days the average for-profit bases more than 80 percent of its revenue on federal grants and loans, and that’s without factoring in various loopholes. Without federal grants and loans making it easy for poor students to go to school, the bottom would undoubtedly fall out of vast numbers of for-profit colleges.

The second restriction limited the sector’s most pernicious recruiting tactic: paying its recruiters based on how many students they could enroll. By rewarding recruiters on quantity rather than quality, the universities were able to make a quick buck, but students were left paying for something they couldn’t use to their advantage. It was salesmanship, not education, and it was the kind of thing that gave for-profits such a bad name.

By 2002, the industry had convinced George W. Bush’s Department of Education to add 12 loopholes into the law, essentially reversing the recruiter regulations that had already taken effect. Recruiter salaries could be adjusted as long as they weren’t 100 percent based on whether or not the recruiter had netted a good haul. “Incentive compensation,” as the industry calls it, proliferated again.

By 2009, as the Obama administration began to make student debt an issue, there was another effort to stop for-profits from rewarding indiscriminate promises. But the industry was too occupied elsewhere to worry about incentive compensation. And so it was outlawed.

Now, everyone — including the industry itself — praises it. “I think incentive compensation for enrollment is a bad thing. I think incentive compensation for graduation makes all the sense in the world and we oughta be fighting for it,” Steve Gunderson, APSCU president, says. In a fractious corner of education, the one thing everyone can agree on is that there shouldn’t be any reenactments of Glengarry Glen Ross.

What everyone can’t agree on is whether colleges — any college — should be accountable for how indebted their students are. The federal government, spurred by the for-profit sector’s myriad abuses, thinks for-profits should be. The for-profits cried double standard, noting it’s absurd to even imagine the federal government going after private non-profit colleges for this. Too many liberal arts majors coming out of Brown with $60,000 in debt and no immediate job prospects? Sanction a college that’s been around since 1764! (For statutory reasons, the Department of Education doesn’t have the power to regulate schools specializing in liberal arts.)

All of that spurred action, and what followed was a remarkable glimpse into the country’s student loan problem, and why it’s so damn hard to fix it. The Department said it had the power to make a vocational college prove that it could “prepare students for gainful employment in a recognized occupation,” based on the Higher Education Act of 1965. That “gainful employment” bit is the key here — and all the regulations that followed would come to be known by that moniker. If a college couldn’t prove it was helping its students with gainful employment, its students, and thus its coffers, weren’t entitled to federal aid.

The question became what, exactly, gainful employment is, or should be. To put it another way: What qualifies as gainful employment? Does the student have to make more money after college than she would have before? Does it matter how much debt she went into to earn a degree?

Detailing regulatory twists and turns is as thrilling as offering play-by-play of a gently sloped walk, so we’ll gloss over what came next. Ultimately, in 2011 the administration defined gainful employment as the following three thresholds:

    On average, graduates shouldn’t be spending more than 12 percent of their annual income on loan repayments.
    35 percent of a college’s graduates and drop-outs need to be repaying their federal loans after they stop taking courses.
    Students shouldn’t be spending more than 30 percent of their discretionary income on paying back loans.

Only after a college failed all three thresholds for three consecutive years would they lose access to federal funds. Analysts estimated that the regulations would have made 5 percent of for-profits ineligible for federal funds, effectively dooming them.

To recap: the worst actors in the industry would be put out of business, the ones left behind would be able to boast that they’re DOE-approved, and the industry could begin to shake the impression that it’s overpriced, underwatched, and interested more in students’ money than their post-graduation livelihoods.

But to for-profits, gainful employment was a pox on their campuses, a discriminatory middle finger from an administration hostile to all things profit. They sued.

They won. A federal district court judge struck down the gainful employment regulations, citing the DOE’s arbitrary choice of 35 percent as the repayment threshold. The Department had a right to hold for-profits accountable for its repayment rates, but not without some basis of what the threshold should be.

Nevertheless, the regulations, or the threat of them, have had a major effect on the for-profit sector. Enrollment was down 2.8 percent in 2011, compared to a .2 percent drop in higher education overall. Apollo Group, which runs the University of Phoenix, noted a 14 percent drop in enrollment between summers 2011 and 2012, and its stock is down 80 percent from its 2009 high. Industry watchers attribute this partly to a rebounding economy, but also to new orientation programs in various schools that let students take classes tuition-free for a trial period, so that if they drop out they won’t incur debt and hurt the college’s default rates. That type of screening has led to lower enrollment.

Not to be denied, this September the Department of Education restarted negotiations around gainful employment. For-profits have resumed their fierce opposition to it. As the for-profits fight for their livelihood, they’re fighting against the very thing that could help legitimize them.

"How Do You Balance Outcomes Versus Access?"

Steve Gunderson still shakes hands like a congressman. Double clasp, eye contact, big smile on his elfin face. Gunderson, the president of APSCU, was a Republican congressman from Wisconsin until 1997, three years after being outed as gay on the floor of the House. Now he’s the figurehead of for-profit higher ed, taking the APSCU CEO job in 2012. He’s the guy who has to make the case against the Department of Education’s vision of gainful employment.

I first met Gunderson in late June, before he was scheduled to give the commencement address to hundreds of DeVry graduates in Crystal City, Virginia. Good with small talk, he has a hushed speaking voice when he’s not at a lectern, and has a habit of tucking his fingers against one another as he leans forward in his seat. Gunderson, who hates waiting in line, filed into the room along with the graduates. “Pomp and Circumstance” played. Families craned their iPads to get a good picture. Aside from the large number of minority faces in the crowd and under the mortarboards, it was like any other college’s graduation.

When it was Gunderson’s turn at the dais, he name-dropped Thomas Friedman, David McCullough, Ralph Waldo Emerson, and President Obama. He also tried to assure the graduates that their degree was money well spent. He said associate’s degree recipients could expect an extra $423,000 in lifetime earnings. Bachelor’s degrees: $900,000. The subtext was clear: your student loans are nothing compared to what you’re about to reap.

“Today, entrance into the American middle class requires a combination of hard work, education and career skills,” Gunderson said, “You have been given that gift. The question now is how you will use it.” But for nearly all of these students, the gifts were paid for with an installment plan.

Two days later I went to Gunderson’s office, a nice corner unit nine floors above Connecticut Avenue in D.C., to have a chat. On the agenda: gainful employment, the sector’s struggle for legitimacy, and how to ensure a college is actually doing its job. His book, The New Middle Class: Creating Wages, Wealth, and Opportunity in the 21st Century, sat on a coffee table, and we settled in for a two-hour interview.

“We’re not against gainful employment. That’s the misunderstanding of this sector,” Gunderson told me. APSCU, it turns out, doesn’t want an absence of accountability; it would just like accountability that (it thinks) makes sense. Its main complaint is that you can’t ask a sector that caters to low-income students to ensure a certain number of those students pay back their loans within a certain period of time. “Under that standard, two things would have happened. Schools in the inner city and schools in rural America would’ve been forced to close,” Gunderson said. “You automatically sentence that demographic to being excluded from the opportunity.”

Opportunity. This is Gunderson’s favorite safeword, a tug of the heartstrings and an allusion to a nostalgic American Dream in which anyone, given a chance, can make something happen. APSCU’s convention was titled “Opportunity for all,” remember, and his book’s subtitle is “Creating wealth, wages, and opportunity in the 21st century.” It’s potent stuff, and it’s hard to refute: if someone wants to go to school and better themselves, why should the government stop them? How is it in a government’s interest to deny its citizens that, ahem, opportunity?

But how do we judge what an opportunity should cost? Is it our responsibility — as a society, as a government, as a democracy — to do that calculation for consumers? Or is it only Elizabeth Warren’s?

Gunderson says he considers college to be an investment. But then he also thinks that colleges shouldn’t be held responsible for its students’ financial decisions. Gainful employment, he says, doesn’t make sense because it punishes schools for choices students make after they’re out of school. “It’s like blaming my brother [who’s a car dealer] for people who default on their car loans. Like, what was I supposed to do, you know?”

But college is not a car. One isn’t supposed to be more likely to pay off car payments after buying a car than she was before. Colleges — and especially for-profit colleges — predicate their entire purpose on that very idea. Higher education is supposed to transform the student, whether it be her mind, her resume, or both.

But is it fair to expect the same results from for-profits as from traditional schools, given their students’ demographic differences? Are they handicapped from the start?

Gunderson told me that the industry needed more “risk-adjusted metrics,” meaning more data that took the for-profits’ high-risk students into account. The little research that has tried to control for the difference in students has been inconclusive.

Even if the data is mixed, are we really to blame for-profits for exploring America’s neglected corners? Reflecting on the industry’s struggles, Gunderson said, “I think it’s a cheap shot to criticize our sector for serving students who are low-income and eligible for financial aid. I don’t see anybody else trying to serve them and I think there’s real evidence that the traditional elites are not reaching out and serving that constituency.” It would be easier to refute Gunderson’s point if states hadn’t just spent a half-decade defunding community colleges.

This is what happens when we are unwilling to adequately fund public higher education, but still claim it as an imperative for a new American economy. We end up outsourcing the Americans who need the most help to the private sector. That sector, despite being more accountable to its shareholders than its customers, customizes its programs for a demographic that, through a quirk of welfare, can pay. As the government decides how best to fix the problem, millions of students are caught in between.

Which brings us back to gainful employment, and what, to APSCU, is fair. Its ideal is simple: Apply the same standards to for-profit schools as to the rest of higher education. As of now gainful employment only applies to vocational schools because of arcane legislative reasons. The sector would prefer that changed.

This, of course, also buys for-profits time, as a legislative change like that requires Congress to pass a new Higher Education Act. That is unlikely anytime soon, which is why the DOE has been so aggressive with gainful employment in the first place.

Gunderson said he understands why there’s such a focus on accountability right now, with student debt rates as high as they are. But he thinks that something is lost if we turn away students at the door. There’s one central question he asked that could apply to all of American higher education: “How do you balance outcomes versus access?”

Change Is Coming (Maybe)

On the final day of the APSCU convention, as attendees recovered from the Kool & the Gang concert, I ducked into a panel called “Managing Risk in the Current Regulatory and Legal Environment.” There, five men (lawyers and college officials) gave a presentation about how not to run a company into the ground. General advice: don’t be egregiously predatory, and don’t work with anyone who is.

When the conversation turned to lawsuits — there have been many against for-profits — one panelist was particularly active. William Calhoun, the Vice President and Deputy General Counsel at Corinthian Colleges, has dealt with enough lawsuits to have tips about best practices. He noted that the company doesn’t pay nuisance settlement fees just to make a case go away. Calhoun, warning he was going to be politically incorrect, said that if it did it would allow the plaintiffs to “sidle up to the trough as often as they can to get money out of you.”

Intrigued by Calhoun’s equating students to swine, I went up to talk with him. Calhoun said he knew better than to speak on the record. Kent Jenkins is the man who does that.

I emailed Jenkins on June 10. That same day there were reports that the SEC had begun an investigation into Corinthian’s practices. As Corinthian itself wrote in its SEC filing: “Corinthian is also under investigation by the Consumer Financial Protection Bureau and several state attorneys general.”

Among opponents of for-profits, Corinthian is seen as one of the sector’s worst offenders. David Halperin, an anti-for-profit activist, has a particularly comprehensive chronicle on his website,RepublicReport.org. Some highlights:

    If gainful employment regulations had gone into place immediately, 43 of Corinthian’s 143 schools would have failed all three tests.
    In order to comply with the requirement that more than 10 percent of its income come from non-federal sources Corinthian raised tuition, forcing its students into deeper debt.
    Corinthian admitted on an investor call that it expected 55 percent of its private loan recipients will default.

Amidst all this, it should come as no surprise that Corinthian’s stock is down 89 percent from its 2009 high.

Jenkins, a verbose guy from North Carolina who has done stints as both a reporter and a public relations officer, has made a career pushing back against government intervention. His LinkedIn page boasts that he’s helped stopped a “water-system takeover by Chattanooga city government,” and “defeat organ transplant policies proposed by U.S. Department of Health and Human Services.” His entry for Corinthian boasts, “Crisis communications strategy to counter year-long series of congressional hearings on private-sector education.”

“I’m not going to sit here and tell you that our sector has not had problems,” Jenkins told me. But look at “any type of organization in the U.S. that is trying to offer career education that leads folks directly to a better job opportunity. Who’s doing it better than us? Who gets comparable or better results?”

He has a point. Federal job training programs are underfunded, stigmatized, and ineffective. And then there are community colleges, which are overburdened and offer a traditional course structure. Indeed, community colleges have a much lower completion rate on 2-year associate programs than for-profits — 21.9 percent compared to 62.7 percent in 2008, according to DOE data. In certificate programs, the numbers are more equal, with community colleges slightly better.

Wanting to see a for-profit campus in person, I asked Jenkins to meet me at Corinthian’s Everest Institute in South Plainfield, New Jersey. South Plainfield is part of the larger Everest chain that specializes in medical assistantship, accounting, and electrician training. In 2010, something like 19.7 percent of students who had attended South Plainfield defaulted on their loans. (Numbers aren’t exact because South Plainfield is grouped with several other schools in its default report.) Average loan debt is around $11,000, which Everest discloses to all students, as federal law now requires.

This is where Matthew Mastrogiovanni, the logistics administrator who wanted to be an electrician, took his courses. And it’s also where Denice Addy, a 29-year-old from nearby Irvington, graduated with a dental assistant certificate in August. Addy had been to a few other schools, but their structure put her off. Everest’s single-track curriculum appealed, as did its commercials. “I thought they were funny. I’m sorry to say that, but I thought they were a joke, so I went down to the school to check it out. To see if the school was a joke. But once I got there it was actually a decent school.”

South Plainfield’s campus is right off the highway, in a rundown industrial lot. I found Jenkins with South Plainfield’s president, Bob Butterworth. Butterworth came to Corinthian from a background in business, working at Marriott, PepsiCo, and Wendy’s International. He and his sleepy blue eyes had no education experience before this job. Neither did Jenkins and his salt and pepper mustache.

The tour began, and seemed to be engineered to rebut every one of the industry’s critiques. Poor customer service? Let me introduce you to our receptionists, whom we call Directors of First Impression. Kids that get lost in the shuffle? Here’s our bulletin board with all the current students’ faces — nearly all people of color — under a label that reads, “Our New Future Graduates.” Sketchy admissions employees? Let’s take a walk to the admissions pod, where everything’s out in the open, so anyone can overhear anything at any moment. Everyone who worked for Everest was wearing nametags, like they were in a commercial.

Coming through the vents I detected that familiar, clammy breath of the federal regulator. I hadn’t felt it since Orlando.

The campus itself had the feel of the interior of a very new high school — gleaming floors, classrooms that doubled as lab spaces, and kitschy street signs, one of which read “New Start Boulevard.” In one hall there was a piece of paper stuck to the wall that boasted about a 53.36 percent hiring ratio for nursing students out on externships.

Students were in class and wandering the halls, the same as students anywhere else — some goofing off, some paying attention. We walked into a physical therapy class as test subjects’ legs were high in the air. These students, and the ones in front of the dental mannequins, and the ones in a makeshift house with loose electrical wiring, and the ones prodding old Dell computers in an IT workshop had come to Everest to try and change something. They wanted something more from their lives, and for various reasons had chosen to spend more to get it.

Denice Addy, the South Plainfield grad with the dental assistant diploma, has a job now. But Everest didn’t help her get it. She found it herself, at her kids’ dentist’s office. First the office brought her on as an intern, and then hired her outright. “My school actually didn’t help. Of course they’re going to take that and say that I did. But in all actuality I found it myself,” she said.

I asked if she felt like she needed the Everest certificate to get that job. “They’ve hired people that have no experience and they’ve hired from other schools. So, yeah, if I wouldn’t have gone to Everest I probably would have gotten there anyway.” Her program cost upwards of $16,000. But she doesn’t regret going. “I wanted a career, you know?” she told me, reflecting on why being in dentistry is better than her last job, in security. “Because I don’t think security — you don’t need to actually go to school for that.” There is a ladder to climb in healthcare that there wasn’t in security. Going to college was a step towards socioeconomic mobility.

Nevertheless, the loans put Addy, Mastrogiovanni, and the rest of for-profit students in a precarious position, just like student loans can do for students who go to more traditional colleges. All of them limited their immediate financial scope in order to hopefully expand it in the future. But for-profit students are the ones less equipped for that adjustment than any other, largely because the society that’s trying to save them now didn’t provide for them somewhere else.

Now that the sector’s combative stance towards government in the early part of the decade has passed, what everyone seems to agree on is that change is coming. With a stalled Congress, for-profits remain one of our only immediate chances to experiment with how we hold colleges accountable for student debt. For obvious reasons, they find that onerous; but nearly everyone else should find that exciting. This is the frontier.

When the tour came to a close, I walked by the gong that students ring when they enroll, through the lobby with the children’s play set in the corner, and out into a parking lot noisy with the sound of the highway. As I got into Jenkins’ car for a ride to the train station I noticed something in the adjacent lot. It was empty and neglected, having been forgotten years ago. But there was something growing amidst the emptiness. A field of weeds had shot through the asphalt, yearning for the sun.

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For-profit colleges...blood suckers

"For-Profit Colleges Only a Con Man Could Love"

Barbarians in the Ivory Tower

by

Chris Parker

August 1st, 2012

The Village Voice

Bobby Ruffin Jr. was only 14 when a recruiter from Ashford University called. The Birmingham, Michigan, boy thought he'd clicked on a link promising help finding money for college. It was actually just a lead generator for the for-profit, online school's sales staff.

At the time, Bobby was an A student. Hoping that homeschooling would deliver something better for their son, his parents had pulled him from the troubled Detroit schools. He told the recruiter that he wanted to be a doctor. She assured him that Ashford could be a stepping-stone to that dream.

Never mind that he was only in the eighth grade. "She said, 'You'll be working toward a degree as a medical doctor, so when you do graduate high school, you're almost there,'" Bobby says today. "I'm like: 'This is great. I'm going to talk to my mom.' And she's like: 'No, I wouldn't tell your parents because that would take away from the shock when it happens. If I were you, I'd complete the program, and when graduation comes around, let them know. Mom and Dad will be super excited.'"

Admission to Ashford requires a high school diploma or equivalency. So when it came time to fill out the financial-aid forms, the recruiter told Bobby to claim that he'd already graduated. He objected, but she insisted "the loan-processing company will go back and correct everything." Still, he left the graduation date blank. Someone filled it in, because Ashford was soon receiving federal-student-loan money on his behalf.

Of course, it's illegal for kids Bobby's age to receive financial aid. But for-profit colleges haven't always been scrupulous when it comes to raiding the federal treasury. Between student-aid and GI Bill programs, most schools receive 90 percent of their revenue from the American taxpayer. And the recruiters—often little more than salesmen paid largely by how many people they enroll—are driven mercilessly to keep those cash registers ringing.

Students don't get much in return. Although tuition rates can run as high as those at America's most esteemed universities, the education is generally substandard. In the end, most kids wind up walking away with a questionable degree bought at top dollar—and a mountain of debt to accompany it.

Bobby took online classes for almost a year. But when he wouldn't endorse Ashford's lying on his financial-aid forms, administrators miraculously discovered that he was under 18. Since this left him ineligible for federal aid, Ashford was forced to return his loan money to the feds.

The school wouldn't be eating those costs. Bobby would. Ashford, which declined interview requests for this story, sent him a bill for $13,000.

Last fall, Bobby was finally able to enroll at a real university, Eastern Michigan, where he was named a national collegiate scholar. Yet he still owes Ashford. Because that's a private debt, he isn't eligible for deferments while he's in school, and any future wages could be garnished.

Unfortunately, this isn't a scam that only targets the young and naive. The for-profit industry is so rife with deceit, it has been billed as the second coming of the mortgage-loan debacle. And the same people are behind it. Three-quarters of all for-profit students are enrolled at schools owned by Wall Street banks and private-equity firms.

All told, they soak $30 billion a year from American taxpayers. But even in the age of slash-and-burn government, Congress has shown no interest in stopping it.

"The problem with the subprime [housing] scam was that it got so big, it almost brought down the entire world's economy," says Barmak Nassirian, a former official with the American Association of Collegiate Registrars and Admissions Officers. "This one's wisely limited to $30 billion a year, which is highly sustainable. In the context of a multitrillion federal budget, that's not even a rounding error."

Consumer Fraud As a Business Model

You might not know it, but you're sitting on $117,000. That's basically how much every American is potentially worth in government student aid. Want to attend grad school? Throw in another $114,000.

And as for-profit colleges have discovered, an 18-year-old with 100 large makes for a very easy mark.

In order to get in on the gravy train, a school only needs accreditation from some supposedly neutral body. But Congress neglected to say who should do that accrediting, resulting in a system loaded with charlatans. Some agencies have built sturdy reputations over decades. Others are little more than rubber-stamp factories, more geared toward gobbling up members' dues than safeguarding kids.

"It never occurred to [Congress] that as billions of dollars get attached to the recognition process, the process would get corrupted," Nassirian says. "When you say yes, you gain membership dues. After all, you're living off these dues."

Yet even bargain-bin accreditation takes several years. So the titans of Wall Street found a way around this by purchasing small, failing schools to snatch up preowned accreditation.

Take Bridgepoint Education. Its majority stockholder is Warburg Pincus, a New York private-equity firm. When it needed accreditation for Ashford University, it bought the 87-year-old Franciscan University of the Prairies, a struggling, 300-student religious college in Clinton, Iowa. Overnight, it was transformed into the online powerhouse Ashford.

Bridgepoint, which also owns the University of the Rockies, grew from just 12,623 students in 2007 to 77,892 in 2010. Its profits also exploded, going from just $4 million to more than $216 million annually. About 85 percent of its revenue comes directly from the federal treasury.

But if Bridgeport and Warburg Pincus are billing top dollar, they're unrepentant misers when it comes to educating kids. In 2009, Bridgepoint spent less than $700 per student on actual instruction. By comparison, the nearby University of Iowa spends 17 times that figure.

What Bridgeport doesn't short is its marketing, spending $2,714 per student to keep the turnstiles spinning. Overall, the 15 largest for-profit colleges spend nearly $13 billion a year on recruiting and marketing.

Needless to say, it's a terrific business if you don't have to worry about educating kids. Nearly 80 percent of students won't complete their program within six years—almost double the failure rate at traditional schools.

The tactics have become so brazen that even accreditors are taking notice. Last month, Ashford conceded that the Western Association of Schools & Colleges had denied its accreditation renewal, noting that the school had just 50 full-time faculty members to teach 90,000 online students. Within a week, Bridgepoint's stock price had plunged 50 percent.

"It's basically consumer fraud rendered to a business model," Nassirian says. "Overadvertise, oversell, overcharge, and underdeliver. They found a system where the pitch goes to one guy and the bill to someone else."

We’ve Got Your Money. Now Beat It

Earning a master's in psychology from the College of William & Mary in Virginia, Mary had been a good student all her life. When the military transferred her husband to Tampa, she chose Argosy University, the only area school offering a psychology doctorate geared toward clinicians rather than researchers.

Mary, who doesn't want her real named disclosed, figured it was legit. Argosy was accredited by the American Psychological Association. She aced her studies with a 3.7 GPA. All she needed was an internship to graduate. That's where her problems began.

Argosy University, with 19 campuses, is owned by Education Management Corporation (EDMC), whose investors include Goldman Sachs and Providence Equity Partners, a Rhode Island private-equity firm. To wring out more profit, Argosy began taking on more students than it could handle, says Mary's lawyer, Florida state representative Rick Kriseman.

But Argosy didn't have the professional connections to supply enough internships. So like air-traffic controllers, it decided to place students into holding patterns.

Mary was asked to accept a practicum instead. It's like a lesser form of internship that wouldn't bring her any closer to her doctorate.

She was upset but went along and spent the next eight months volunteering at a mental-health facility. But by the time she was finished, Argosy still didn't have enough internships. Her instructors ordered her to take a second practicum.

She didn't have much choice. Mary had already invested four years and more than $100,000. She spent another five months volunteering. By then, her instructors had begun to question her intellectual rigor.

They not only flunked her out of the program, but also refused to let her defend her work before a board of teachers and peers, then denied her a chance to address administrators before they rejected her appeal. (EDMC refused repeated requests for comment.)

Mary was shocked. "I was an A student," she says. "It was baffling to me how this could happen at the last minute. You have to understand the shame of going to school and being an A student and becoming a flunked-out person. It's so foreign and confusing."

Yet Kriseman would discover a pattern at play when he found three more students who'd suffered a fate similar to Mary's. "When the school did not have those [internship] slots, they found reasons to either dismiss the students or to make it so uncomfortable for them that they left on their own accord," he says.

Argosy's problems seemed to be nationwide. Across the country, in the psychology program at Argosy Seattle, the school had assured its doctoral candidates that accreditation was moments away—because without certification, their degrees would be all but worthless. It wouldn't be till later that administrators confessed that their application had failed—and they were closing the entire program.

Failure At a Luxury Price

For-profit colleges like to place their alarming failure rates in charitable terms. They claim to disproportionately serve low-income students who struggle in school.

But if they're serving people of lesser means, why are they charging so much money?

On average, a four-year degree from a for-profit runs twice what in-state tuition costs at a public school. When it comes to two-year programs, the disparity widens: For-profits charge three to four times the rates of their public counterparts. Yet they've still managed to lull the political class into believing their competition is driving down tuition.

During the Republican primary, Mitt Romney praised a major donor and co-chairman of his Florida fundraising team—Bill Heavener, owner of Full Sail University—for helping to "hold down the cost of education." What Romney failed to mention is that a 21-month degree in video-game art at Full Sail costs more than $80,000. And that's not unusual.

A four-year bachelor's degree in business from Indiana-based ITT Tech costs almost $89,000. That's more than twice the in-state tuition at the more venerated Indiana University.

Worse, subprime degrees from places like ITT and Full Sail are typically held in such low regard that it's difficult for grads to find jobs that pay enough to cover their loans. Nearly one in four for-profit students default on their loans within three years of leaving school, more than double the rate of public-school students.

But there's nothing like advertising to paper over your shortcomings. So for-profits carpet bomb the airwaves to make earning a degree seem as easy as downloading an app. Who hasn't seen those late-night TV ads for "college in your PJ's," or the Education Connection commercial featuring that rapping, dancing waitress? These ads drive viewers to websites that generate leads for schools' sales staffs, prompting an unending stream of solicitations. And when those leads are exhausted, schools buy lists from companies like QuinStreet, which made its name providing leads to subprime-mortgage brokers.

Last month, QuinStreet reached a settlement with attorneys general from 20 states, who'd accused it of fraud for operating gibill.com. The website was made to look as if it were run by the government to help veterans but was actually just a lead generator for for-profit colleges.

"The thing that made those lists valuable was the foreknowledge that these were people in dire straits, who were in over their heads and financially desperate, and therefore much more susceptible to a pitch out of the blue," Nassirian says.

The idea is to prey on people's hopes and desires, offering that yellow brick road to the American dream: an education and a better job. Workers are trained to identify emotional weaknesses and exploit them. That's undoubtedly what made Suzanne Lawrence an attractive hire at EDMC. She had a master's in psychology when she went to work for Argosy's online division in Pittsburgh.

"It was really funny because they used a lot of the same skills I was trained to use in grad school as therapeutic skills—like empathy and reflective listening—on the sales floor," Lawrence says. "It was evil and slimy. Your big job was to create trust, make them think you were their friend. The main goal in your first conversation was to find something they called 'the confirmed need,' which was the hot button you were going to push if that person tried to back out on you. Like, 'My dad wasn't really proud of me,' and that's what you write down. You keep that on your file, so when you call them, and they say 'I don't want to go,' you say: 'What about your dad? Don't you care about what he thinks anymore?'"

Lawrence worked with more than 2,000 others in a sea of cubicles and an auto dialer making 500 calls a day. The leads were generally so stale most calls were no-answers, hang-ups, or people screaming, "Stop fucking calling me!" Dry-erase scoreboards kept track of everyone's application numbers, horse-race style. Those who sold were loved. Those who didn't were berated, cajoled, and threatened, Lawrence says. Managers monitored calls and circled the cubicle bays encouraging workers to "always be closing."

The harsh, boiler-room atmosphere prompted her to make references to Glengarry Glen Ross. No one got it. They were too preoccupied with keeping their jobs.

The pressure prompted all sorts of illicit shenanigans, including falsifying documents, Lawrence says. Salespeople were coached to evade questions about cost and repeat the lie that "99 percent of our students don't pay anything out of pocket to go to school."

She was even instructed to sell online courses to people who didn't own computers. "Tell them to go to the library," her managers would say.

Military Disservice

Iraq-war veteran Chris Pantzke was discharged from the Army in 2006 after his convoy was hit by an IED. He suffered from a traumatic brain injury, along with post-traumatic stress disorder. The injuries left the former sergeant moody and anxious in closed spaces. Being in a classroom was out of the question.

But a saleswoman for the Art Institute of Pittsburgh, also owned by EDMC, convinced him that her school's online photography program was perfect for his situation.

He immediately struggled, getting migraines from staring at his computer. "There would be several days I'd get up at roughly 8 a.m. and wouldn't go to bed until 4 a.m.," Pantzke says. "That's how bad it was, because I was falling so far behind." He punched a hole in the wall next to his laptop and "dishes took flight."

In one online class, the teacher didn't have Internet access for more than a third of the course. Only after pestering three different advisers was he finally put in touch with the school's disability-services office. But despite the recruiters' original promise of specialized help, the Art Institute balked at his request for additional tutoring.

Then Pantzke appeared on PBS's Frontline for a story about for-profit colleges. Shortly before the Frontline piece aired, a vice president contacted Pantzke and asked him to sign a release saying "that I was doing fine and things were going great."

He refused but soon noticed a miraculous lift in his academic fortunes. Despite turning in one slapdash assignment he knew wasn't any good, he received an A. "Once I started making waves, I started passing my classes with A's and B's," he says. "I don't know if my grades were true, and it made me doubt my photography ability."

His tenure at the Art Institute came to an end on Easter when he was hurt in a serious car accident. Unable to type for six months, Pantzke decided he'd instead study photography on his own. In just 18 months at the Art Institute, he'd run up $26,000 in debt and burned through an additional $65,000 of his GI Bill benefits—with almost nothing to show for it.

Yet if Pantzke got away, there were plenty of other servicemen where he came from. A story by Bloomberg News caught a recruiter from Ashford University visiting a wounded-warrior barracks at Camp Lejeune in North Carolina. It seems that injured veterans—notably those with head injuries—are particularly receptive to the for-profit sales pitch. The story's opening line said it all: "U.S. Marine corporal James Long knows he's enrolled at Ashford University. He just can't remember what course he's taking."

Federal data shows that for-profits are increasingly targeting veterans. In 2009, they took in almost as much military money as public colleges—though they were educating just one-third of veteran students. Last year, eight of the top 10 educational institutions collecting GI Bill benefits were for-profit, taking in a stunning $626 million.

"I think sometimes the emphasis is on signing up the student as opposed to whether or not the student is really ready to be successful at that school," says Holly Petraeus, an official with the Consumer Financial Protection Bureau and wife of General David Petraeus. "The top 10 recipients of GI Bill aid, eight are for-profit schools, and they are very heavily engaged in marketing to the military—quite successfully, frankly."

It’s All About the Benjamins

The University of Phoenix will never be confused with Yale. According to one 2010 report, 90 percent of its students fail to graduate within six years.

Still, by pure monetary standards, former CEO Todd S. Nelson was a success. During his tenure, he tripled revenue for the school's parent company, the Apollo Group. Enrollment surged to more than 300,000.

Unfortunately, he accomplished this the old-fashioned way—by cheating. Since 1992, it has been illegal to pay recruiters based on how many students they bring through the door. Phoenix did it anyway until two recruiters blew the whistle, initiating a suit that would ultimately cost the school $88.3 million in settlements and fines.

Under pressure, Nelson was forced out in 2006, walking away with a generous $18 million severance. Founder John Sperling put a polite spin on the exit and said only that Nelson was "preoccupied" with the stock price to the detriment of the school's long-term health.

Yet if Nelson's profit motives were too lusty for Phoenix, they were a match made in corporate heaven for Goldman Sachs. The Wall Street bank had partnered with two private-equity firms to buy EDMC. Nelson was hired as the company's new CEO. Former Maine governor John McKernan Jr.—the husband of U.S. senator Olympia Snowe—was named chairman of the board. Over the next five years, the company's revenue would nearly triple, to $2.8 billion.

Last year, Nelson took home $13.1 million in salary and stock. By the standards of for-profit executive pay, he was working on the cheap.

Gregory Cappelli, his replacement at the University of Phoenix, received $25 million last year. CEO Robert Silberman of Strayer Education raked in an astounding $41.9 million in 2009. Yet even this pales next to Jonathan Grayer, the former CEO of Kaplan University, who walked away with a $76 million severance package, courtesy of Kaplan's parent company, The Washington Post.

By comparison, Harvard president Drew Faust collected a meager $875,331 in 2010.

Nelson's bad-boy practices have predictably caught up with him. Last year, the Justice Department and attorneys general from five states charged EDMC with fraud for paying recruiters based on the money they generated. Six more states have joined the suit.

EDMC claims its sales pay is not just based on bodies enrolled, but such things as business ethics, professionalism, and job knowledge. Kathleen Bittel would beg to differ. She was an EDMC recruiter when Nelson arrived and will readily attest to the change in atmosphere.

Over the next three years, the sales staff increased from 950 people to more than 2,600. "Once Goldman Sachs took over and they brought in [Nelson], everything changed," she says. "Everything became much more cutthroat. It was just more oppressive and very high pressure. . . . They were watching you constantly. We used to joke it was like being on the cotton plantation, and they were the overlords coming by on their horses. The only thing they were missing were the whips—but they had the whips verbally."

Like Lawrence, Bittel had studied psychology and proved adept at forging bonds. She'd gone back to school in her forties to support her family of four after her husband got cancer. She understood the difficulties of raising kids, working full-time, and going to college. She admits to "drinking the Kool-Aid" at first, believing Argosy's online program could help people like her.

But after six months on the job, she was allowed to take Argosy courses for free. That's when she discovered she'd aided a bait and switch. Many of the features she heralded to students were barely functional or didn't exist. The Worldwide Professionals Network, where students could find graduate mentors in their field, was nothing more than a bulletin board.

Worse, the classes themselves had less content than a political soundbite. "When I saw what they were passing off as college, I was appalled and mortified," Bittel says. "I'm a fabulous salesman if I believe in my product. But I was blown out of the water. I couldn't sell it anymore."

On the sales floor, she would soon go from golden child to problem student. Managers threatened to fire her. She protested that she'd excelled at EDMC's other barometers, like leadership, calls made, and conversations engaged. None of that mattered, they told her.

"Those are just put in there because the law says we're not allowed to pay you directly," she recalls her boss saying.

Bittel wasn't the only worker feeling the pressure. A man she carpooled with would cry on the way home.

"If you weren't unscrupulous, you struggled," she says. "Half the people I worked with, their previous job was in the mortgage industry. They targeted people in that industry. . . . They were the ones that did the best because they were so unscrupulous."

She eventually transferred to EDMC's career-placement department, where the same deceit wore a different outfit.

She was supposed to help Art Institute grads find jobs. But the school was churning out students with abysmal portfolios—if they had one at all.

She was also supposed to generate stats on how many of them found employment in their fields. The numbers were used not only to sell future students, but also by accreditors in maintaining a program's standing. So EDMC, she says, was prepared to rig these stats by any means necessary.

Bittel's boss liked to say that "every student is placeable. It's all a matter of technique." This "technique," she says, involved persuading people to sign affidavits saying they were employed in their field. She witnessed cases where someone with a degree in video-game design was counted as working in his field because he sold video games at Toys "R" Us.

Once, Bittel saw a co-worker lying on a form about a graduate's salary. The same employee showed her how to doctor e-mails so that students' replies favored the Art Institute. Both times she reported the scams to her boss. But instead of being fired, the co-worker soon received EDMC's North Star Award for exceptional performance.

EDMC is hardly alone in its transgressions. Two years ago, the feds conducted a sting on for-profit colleges, with investigators masquerading as prospective students. They tested the sales practices of 15 schools. Four encouraged outright fraud. They were all found to be deceptive.

Congress Sees No Evil

In the age of austerity, you'd think Congress would be anxious to root out waste, especially after allowing mortgage fraud to decimate the economy. But money talks loud enough to make any congressman hard of hearing. So despite a 20-year history of fraud and failure, for-profit colleges appear as bulletproof as ever.

Washington has been aware of the racket since U.S. Senator Sam Nunn (D-Georgia) held high-profile hearings in 1992, demonstrating how for-profits were recruiting students from welfare offices, housing projects, and homeless shelters. They were subsequently barred from paying salespeople based on enrollment.

It would take just a decade for Washington to eviscerate these protections. In 2002, President George W. Bush created a series of loopholes and announced that violators would no longer be punished.

Then Bush and Congressman John Boehner (R-Ohio) opened the door even wider in working to repeal a rule that required schools to educate at least 50 percent of their students on campus. It gave birth to an online gold rush, with for-profits flooding the Internet. Last year, 6 million students enrolled.

The industry had discovered the value of paying protection money to Congress. It spent $16 million on lobbying last year alone, buying a dream team of former officials that includes former House Majority Leader Dick Gephardt (D-Missouri) and no less than 14 former congressmen.

"I didn't know when I got into the issue of for-profit schools that it was the best way for me to have a reunion with every member of Congress as they parade through the door, all representing these schools," says U.S. Senator Dick Durbin (D-Illinois), who has held hearings investigating for-profits. "There is so much money on the table they can afford to hire everybody."

Needless to say, Durbin hasn't gotten far with his probe. He has found some support among fellow Democrats, but not a single Republican bothered to attend his hearings.

"I don't want to hear their sermons from the mount about wasting federal money when they won't even take a look at these obscenely subsidized for-profit schools," he says. "If they were talking about food stamps, they would cut people off in a second for this level of fraud. This is a wasteful expenditure of hard-earned consumer dollars to some of the wealthiest people in America, and that has to come to an end."

Congress's shrillest voices on waste refuse to even look at the industry. Despite sitting on the Senate committee examining for-profit fraud, Rand Paul (R-Kentucky) has expressed no curiosity about this money pit. Nor have fellow committee members Lamar Alexander (R-Tennessee) or deficit hawk John McCain (R-Arizona). Not one responded to repeated interview requests for this story.

President Obama has stepped into the breach, though with customary timidity. In July, the Department of Education made it once again unequivocally illegal to base salespeople's pay on enrollment. But other reforms were so watered down they were meaningless. Taxpayers should probably be thankful Obama did anything at all. At hearings last year, Senator Tom Harkin (D-Iowa) called it the most intense lobbying campaign he'd seen in his 32 years in Washington.

To truly appreciate how weak the final regulations were, consider this: The day they were revealed, for-profit stocks soared. The stock prices of EDMC and ITT Tech increased by 20 percent. In one day.

The government ignores the problem at the country's peril. Total student-loan debt, now more than $1 trillion, has surpassed credit card debt. These burdens will limit students' ability to contribute to our consumer economy for years to come. Worse, unlike an underwater mortgage, Congress has made it illegal for people to walk away from student loans they can't pay. The debt will follow them the rest of their lives.

"This is basically a parasitic industry that is preying upon not just some of the most vulnerable members of our society, but the best of these most vulnerable members, people who listen to the rhetoric we feed them and who are actually attempting to better themselves," Nassirian says. "This is an industry that takes people's hopes and dreams and cashes them out."

And these people won't stop until they've emptied the till.