For-Profit Colleges: Valuing Profits Before Student Achievement

Style Magazine Newswire | 9/15/2016, 5:05 p.m.
Higher education is supposed to be about opening doors to a promising future. Fortified by training, skills and credentials, a ...
Charlene Crowell

By Charlene Crowell

September 15, 2016

Higher education is supposed to be about opening doors to a promising future. Fortified by training, skills and credentials, a personal pathway to the middle class is the presumed goal.

But in recent days, some higher education doors are closing, while others are writing checks for fines and refunds imposed by regulators. It’s almost enough for some consumers to wonder, ‘What is really going on?’

If a for-profit college is involved, the answer is money. From a consumer perspective, dollars are dedicated and debts created in the name of higher education. Multiple for-profit institutions all too often relegate education and matriculation to advertising and recruitment geared towards selling private loans.

In recent years, the Consumer Financial Protection Bureau (CFPB) has sued and levied large fines against a few of these large institutions. Although specific violations varied, the bottom line was that student borrowers were getting short shrift from the institutions that promised far more.

The latest unfortunate example came on September 12. CFPB charged the San Diego-based Bridgepoint Education, Inc., the parent institution for Ashford University and the University of the Rockies with engaging in “unfair, deceptive or abusive acts and practices”. As a result, Bridgeport will forgive and refund more than $23.5 million to students, including principal and interest and additionally pay an $8 million fine to the Bureau. According to its 2015 annual report, Bridgepoint enrolled a total of 49,159 students last year.

As early as 2009, Bridgepoint Education’s students were told they would pay only $25 a month for the institution’s private loans. By telling students the wrong monthly payment, Bridgepoint deceived its students and falsely advertised costs.

Another recent for-profit college development led to ITT Technical Institute having its accreditation reviewed, to a loss of new federal financial aid and then finally the September 6 closure of its 130 campuses across 38 states. The closure placed an estimated 40,000 students in disarray, along with more than 8,000 employees.

Under investigation by multiple jurisdictions, ITT Tech was overly dependent upon taxpayer dollars to keep its cash flowing. In 2015 alone, 68 percent of its students used federal grants and loans. To place that percentage in dollars and sense – yes, s-e-n-s-e -- we’re talking about $580 million of ITT Tech’s reported revenues of $850 million, came courtesy of taxpayers. In effect, taxpayers were underwriting ITT Tech’s profits.

ITT Tech was at risk of having its academic accreditation revoked, so the Department of Education required the college to post a higher bond to be used in the event of campus closings. The funds would be used to reimburse Education for liabilities related to investigations such as student refunds, student loan cancellations and other expenses. Additionally, Education banned ITT Tech from making any unusual expenditures without federal approval, and was forbidden from allocating paying raises, bonuses or severance packages to its executives.

In other words, the for-profit was sinking and no golden parachutes were allowed. From a strictly business perspective, complete closure might have seemed to be the only financial recourse.