Screw U: A Random Walk Through The Diploma Mill “This is an industry that is ripe for, begging for, regulation.” -Senator Tom Harkin, Chairman of the Senate Committee on Health, Education, Labor and Pensions (HELP) As of last year, the for-profit education sector accounted for 13 percent of postsecondary students; however, they account for about 50 percent of all student loan defaults.1 One of the main causes of this disproportion is because the majority of students who attend for-profit schools never graduate; at the University of Phoenix, the flagship university of this sector, only about 9% of students graduate within six years (Only 5% graduate in their online program, which houses 175,200 students as of 2008).2 To exacerbate this problem, schools like University of Phoenix charge about four times the tuition of a typical non-profit institution.3 These schools prey on the vulnerable and disadvantaged, for they have the best access to federal aid and zero clue of what they are signing up for. In the past, we have seen multiple industries operate in the manner; notably the banking sector with sub-prime borrowers. In that case and in this one, employees are deluding the uneducated, and selling them the American Dream on borrowed money. As we know now, defaulted loans will dry up credit; with default rates growing exponentially, the federal credit line is about to stop. 1 U.S. Department of Education, IPEDS 12-month enrollment for 2011-12 and FY 2010 three-year CDRs. 2 The Education Trust, Subprime Opportunity: The unfulfilled promise of for-profit colleges and universities, November 2010. 3 For-Profit Higher Education: The failure to Safeguard the Federal Investment and Ensure Student Success, United States Senate Health, Education, Labor and Pensions (HELP) Committee. Downloaded from www.hvst.com by IP address 192.168.160.10 on 10/01/2021 Predatory Lending Predatory lending is legally described as any type of unscrupulous lending practice where a lender takes advantage of a borrower; if this sounds familiar, it’s because it is. This illegal practice is what led to the greatest financial crisis since the great depression: The Sub-Prime Mortgage Collapse. Akin to this crisis, for-profit institutions rely on predatory lending to entice ‘sub- prime’ students into their programs. Like the mortgage brokers of the last decade, recruiters from these institutions target the most vulnerable class of Americans: the bottom quintile of earners, also known as the lower class. For these institutions, lower class citizens made the ideal students: 1) They did not understand the education system, and 2) They had the highest probability of obtaining a government loan. Knowing this, it’s not surprising that approximately ninety percent of revenues in this industry stem from the federal government. 4 The fundamental concept behind this fraudulent behavior in regards to for-profit universities pertains to the manipulative and deceptive recruitment techniques imposed by the industry.5 According to a Senate report in 20126, recruiting materials indicate that at some for- profit colleges, admission representatives were trained to locate and push on the pain in students’ lives. They were also trained to “overcome objections” of prospective students in order to secure enrollments. Additionally, companies trained recruiters to create a false sense of urgency to enroll and inflate the prestige of the college. (Appendix 1) 4 The Future of Children, Journal Issue: Postsecondary Education in the United States Volume 23 Number 1 Spring 2013, For Profit Colleges, David J. Deming, Claudia Goldin, and Lawrence F. KatZ 5 National Association for College Admission Counseling, Federal Student Aid Program Integrity. 6 For-Profit Higher Education: The failure to Safeguard the Federal Investment and Ensure Student Success, United States Senate Health, Education, Labor and Pension (HELP) Committee. Downloaded from www.hvst.com by IP address 192.168.160.10 on 10/01/2021 The picture below was taken from a training manual from the Apollo Education Group, the parent company of the infamous University of Phoenix, the largest for- profit college in the country.7 As you can see, these accusations are not unfounded; recruiters deliberately delude prospective students and use aggressive ‘boiler room’ like tactics to pressure the uneducated and gullible. The low-income demographic is not the only one being taken advantage of by these tactics; military veterans have also been heavily targeted. In a study from the HELP committee, about 41 percent of the entire GI Bill ($1.7 billion) went to for- profit colleges. The epitome of “unscrupulous marketing”, as noted in the legal definition for predatory lending, can be found in the case of QuinnStreet, an internet marketing company. The company was forced to pay the government $2.5 million after they 7 For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success, United States Senate Health, Education, Labor and Pension (HELP) Committee. Downloaded from www.hvst.com by IP address 192.168.160.10 on 10/01/2021 registered gIBill.com and used the apparently official website to generate leads for for-profit colleges. 8 Legal action is not new to this industry, according to court records, the University of Phoenix agreed to pay the United States $67.5 million to resolve allegation that its student recruitment policies violated the False Claims act. The Phoenix-based University also agreed to pay an additional $9.8 million on similar charges without admitting any wrongdoing.9 Education The underlying problem with for-profit education is the current disconnect between tuition prices and education quality; unlike most things in life, you simply do not get what you pay for in this industry. As evidenced in SEC filings from all major players in this space, relatively small amount revenue goes towards instruction.10 According to a study by federal investigators, the University of Phoenix received close to 90 percent of revenues from the government; of that revenue, only about 17 percent went to actually educating the students. The majority of revenues from corporations like the University of Phoenix go towards marketing and recruiting efforts.11 On average, the cost to recruit the average new student at a large national chain is around $4,000, or about 25 percent of the average annual tuition.12 Unfortunately, only one-in-three of those students recruited will actually graduate. As for the 32 percent of students who actually graduate, they are now facing a grim outlook on future employment. Over the past several years, a negative stigma has attached itself to for-profit college degrees. As evidenced by employers past with for-profit college graduates, students in these institutions are simply not learning what they should be. 8 United States Securities And Exchange Commission, Form 10-Q, QuinStreet, Inc., Commission File No. 001-34628 9 United States of America ex rel. Mary Hendow and Julie Albertson v. University of Phoenix, case number 03-cv-00457, in the U.S. District Court for the Easter District of California. 10 For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success, United States Senate Health, Education, Labor and Pension (HELP) Committee. 11 U.S. government Accountability Office, For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices. 12 See ‘10’. Downloaded from www.hvst.com by IP address 192.168.160.10 on 10/01/2021 Here is an excerpt from a professor of NTI, a subsidiary of Universal Technical Institute Corporation: “Every day that I come to work, I hear students tell me that they have encountered employers that point blank tell them that they do not hire NTI students because of consistent poor performance… [W]e at NTI are being told to pass students who should fail because we are ‘training every level technician who paid for their certificates like everybody else’… We have been reduced to merely ‘selling’ diplomas for $30,000”13 In 2005, an economist by the name of Raghuram Rajan of the International Monetary Fund presented his paper in Jackson Hole, Wyoming at annual gathering of high-powered economist. His paper, “Has Financial Development Made The World Riskier?” found that everyone in the mortgage industry had an incentive to bring in more loans because the risk would be transferred out. Come to find out, he was absolutely right. This same philosophy is ingrained in the for-profit college model, everyone from the recruiters to the CEOs have incentive to increase enrollment, because the risk is then transferred to the taxpayers. This theory explains the sub-par instruction in this industry; the teachers are part-time employees, not tenure professors like they are in traditional schools. With this, the only job that instructors are held accountable for is passing students. In an investigation by the gAO, a Career Point teacher told an undercover agent this after failing a few assignments: Those assignments you did not pass, I’ve opened them up so you can retake them. They are open book so there should not be any failure. All answers are right in the back of the book and there is no time limit. In addition to the lack of education, studies have also found that instructors do not hold students accountable for academic honesty and rarely check for plagiarism. In the same gAO investigation, an undercover deliberately submitted plagiariZed work and received this response from the teacher: It appears that you copied and pasted from the website. By doing so you put a lot of extra information that I didn’t need. Next time I would prefer if you would read the information and only include what is needed.