Don’t look now, but one of the biggest corporate scandals in Washington, D.C. is about to blow.
State and federal investigators are deep into an investigation into the private sector college and university industry.
Many investigations are under way.
And settlements and maybe even criminal actions will follow.
David Halperin has been digging into the scandal for a number of years now.
He writes about it on his blog — Republic Report.
Halperin says investigations into fraud among the largest for profit colleges and universities are heating up across the country.
“There are 32 state Attorneys General, led by Kentucky’s Attorney General Jack Conway, who are pooling resources and information to investigate for profit colleges for things like fraud, for lying to students about what their degree will get them, for lying about their placement rates both to students and to the government in terms of how many of the students are getting jobs after they graduate, for lying about whether it’s a federal loan or a private loan not guaranteed by the taxpayer,” Halperin told Corporate Crime Reporter in an interview last week.
“The Securities and Exchange Commission has an investigation of four of the largest for profit colleges. The Consumer Financial Protection Bureau is investigating. They have jurisdiction over the private loans that I mentioned that are not federally guaranteed loans. The Federal Trade Commission is taking a look at this. And potentially the Justice Department also.”
“The state Attorneys General are proceeding civilly. But that doesn’t rule out the possibility that they or federal authorities could move forward with a criminal investigation. There is plenty of evidence that there is widespread fraud — not just one company lying to students. The Government Accountability Office did an investigation a few years ago. Senator Tom Harkin published a comprehensive report on this industry.”
“The GAO went around and did secret shopper tests at these schools. And almost every school engaged in misrepresentations about various aspects of admissions, programs, financial aid.”
“The fraud is broad and widespread, sanctioned by higher ups and is indeed endemic to the business model. The schools are high priced and low quality. And almost no student could benefit from most of these programs. The only way they can get students to sign up is by lying to them.”
Halperin doesn’t rule the possibility of a criminal investigation and prosecution.
“For profit colleges, due to rapid growth in the last twenty years, have 13 percent of U.S. college students,” Halperin says. “But they get 25 percent of all college financial aid and they are responsible for 47 percent of all student loan defaults.”
“So, students are much more likely to default if they attend a for profit college. And the reasons are clear — the quality of the education is low. The prices are high. Students are overpromised for what they are going to get out of the education. They end up deep in debt. Even if they get the kind of job that was promised to them, often they cannot pay back their loans.”
“And for many of them, the degree is considered worthless by the industry they are hoping to work in. And they end up back at square one — working at Wal-Mart or Office Depot or unemployed — in no position to pay back these loans, which by law are not dischargeable in bankruptcy.”
There are been some state settlements with some of the for profit colleges. But more are on the way. And sometimes, students take matters into their own hands.
Earlier this year, a young mother won a $13 million jury verdict against Vatterott College.
“The schools were driven by the industry mantra — putting asses in classes,” Halperin says. “They signed up whoever they could get. They dropped their standards, and they signed up students who had no chance of succeeding in these programs. And so the programs became more and more diluted by people who can’t be helped by the program. And eventually the quality fades. And the school becomes a place entirely focused on the bottom line.”
Halperin says that the for profit college industry “is a deeply cynical industry.”
“Most of the big players, and some of the small players, are deeply cynical and their goal is to get the money, without regard to the student, with regard to the taxpayer,” Halperin says.
“And it leads to is hundreds of thousands of people across this country who are deep in debt, have been abused and hurt by these for profit colleges, can’t pay back their loans, and are much worse off than when they started. It’s all being done on the taxpayers’ dime. And it’s one of the biggest scandals in Washington.”
“And what makes it so much worse is that after all of this abuse was pointed out, instead of saying — we are going to reform — they hired every lobbyist they could to say they were doing nothing wrong and to fight against any additional efforts to hold them accountable.”
“And because of these years of public investigations, more people are aware of the corruption and abuse in this industry. The share prices of the companies have gone way down. And some of the schools are now pledging to reform. But if the Obama administration is thwarted in its effort to put accountability rules on these schools, then it’s going to be right back to a race to the bottom, right back to abusing students because that is what the system rewards.”
Halperin says that the industry takes in $32 billion a year in federal funds.
“This industry is flush with cash — $32 billion from taxpayers every year,” Halperin says. “That goes straight into their pockets. With that taxpayer money, they hire the best, the most expensive, and also the most seemingly progressive Democrats they believe will have influence with the Obama administration.”
“As in many stories in coming out of Washington now, the cooptation has not to do just with campaign contributions to Congress — in this industry they are significant and often go to the cheerleaders for the industry in Congress — but also they co-opt other Washington institutions like think tanks, advocacy groups and media outlets.”
Halperin says that at least three public interest groups have been fronting for the industry.
“The National Urban League has taken at least a $1 million grant from Corinthian College, one of the worst actors in the field,” Halperin said. “The National Urban League has defended the pro profit colleges without explaining that they take money from the for profit colleges. Marc Morial, the head of the National Urban League, the former Mayor of New Orleans, sits on the board of Corinthian Colleges. He joined the board at the same time that Leon Panetta, the former Secretary of Defense, joined the board of Corinthian Colleges.”
“I wrote a piece and then a month later the Los Angeles Times wrote a piece saying that Panetta had no business being on the board of an organization that systematically ruined the lives of students, including servicemembers and veterans. And Panetta quit. But Morial is still on the board.”
“Americans for Democratic Action, out of nowhere, issued a statement defending the for profit colleges.”
“And then Citizens for Responsibility and Ethics in Washington (CREW) made a major effort to attack my friend and colleague Bob Schireman, the Deputy Under Secretary of Education.”
“He was responsible for many of these initiatives to hold for profit colleges accountable. And they attacked him for ethics violations — allegations that really don’t hold up. And they attacked my former organization — Campus Progress — saying we must be getting money from Wall Street short sellers in order to be engaged in a public policy debate on this issue — when in fact we had no contact with those Wall Street short sellers at all.”
“I don’t know what motivated CREW to do that. We asked them whether they were supported by interests related to for profit colleges and they haven’t responded.”
“The industry has also co-opted the media. The Chronicle of Higher Education had an event on how to avoid student loan defaults. And it was sponsored by Career Education Corporation, one of the worst for profit corporations and one of the worst for profit colleges and one that has a very high loan default rate.”
“When I questioned them on the event and how the speakers were chosen, the Chronicle admitted to me that they had allowed Career Education Corporation to pick the panelists for the event as well.”
“The Washington Post company owned Kaplan. And the most influential lobbyist for rolling back the Obama administration’s rule to hold this industry accountable was Don Graham, the chairman of the Washington Post Company.”
“They knew Graham from social settings and they knew him as a member of the media and someone who had power over them.”
“And the implied threat was — don’t cross the Washington Post Company because we also own a newspaper that can write about you.”
“The Washington Post wrote editorials saying — don’t crack down on for profit colleges. They also ran op-eds by others. They also ran a book review by Bill Gates. He gave a positive review to a book on higher education by Andrew Rosen — the CEO of the Kaplan Company.”
“A book by the head of Kaplan on higher education was like a book on energy policy by Mr. Burns from the Simpsons. He is one of the people who is doing the most harm in higher education.”
Halperin says that mainstream educational institutions have stayed on the sidelines in the government’s fight to regulate for profits.
“They don’t want to encourage an overactive federal government when it comes to regulating what colleges and cannot do,” Halperin said.
“The current head of the for profit college association — the Association of Private Sector Colleges and Universities (APSCU) — is a former Congressman Steve Gunderson,” Halperin said.
“He has made part of his strategy reaching out to the non profit and private colleges to try and build bridges — to say to them — let’s get government off our back so that we can go about our business. But responsible leaders in higher education — and there are many of them out there — have said no — what we want to see is accountability for these schools because they are abusing students.”
[For the complete transcript of the q/a format Interview with David Halperin, see 27 Corporate Crime Reporter 39(12), October 14, 2013, print edition only.]