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Weeds Amidst the Ivy: Can For-Profit Colleges Give Up Their Predatory Pasts?

Chadwick Matlin

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 CurveSubtitle: “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.”

As president of the industry's trade group, former Republican Steve Gunderson congressman is the face of the for-profit college industry. (Reuters)

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.

This story originally appeared on Reuters.com, an Atlantic partner site.

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