The For-Profit College Problem is a Trainwreck
Re-printed from the Huffington Post
by Ben Mangan
So, how are you feeling these days? Kind of like you are in the midst of a trainwreck? Well, you are. My last poll on a double-dip recession revealed deep cynicism among readers. Nearly 90% of respondents said we would experience a double dip. Granted, this was not a scientific poll – but it still represents a picture of the American mood on economic prospects.
As it happens, a double dip recession looks unlikely. This feels like a technicality to most people, though. The kind of economic pain Americans are feeling hurts - whether it meets the criteria to be called a recession, or in twisted irony, we call it a recovery.
Subsidizing for-profit colleges which fraudulently laden students with debt is a Trainwreck.
As I reflect back on the years of challenge we’ve faced as a nation, one particular paradigm of catastrophe has become clear – something I’m going to coin as the Trainwreck. Gladwell gave us the Tipping Point and Taleb gave us the Black Swan event. And I am now giving us the Trainwreck, really wishing I didn’t have to. Trainwrecks are painful, complex and challenging to stop. There are a few Trainwrecks unfolding before our very eyes as I write this. I want to call your attention to one in particular – taxpayer dollars enriching the owners of for-profit colleges who are ripping off students.
You may have seen the recent flurry of news on this issue. The US government is figuring out what to do about for-profit colleges that operate fraudulently – by pressuring students to enroll with false statistics about what their degree can earn them. These students are doing their best to strive toward a better future – to get better jobs to support their families and improve their prospects in life. In a nation that has built the dream of prosperity so firmly on the foundation of education, this kind of fraud is particularly egregious.
Putting my own ethical assessment aside, here’s why everyone should care about this problem: For-profit, private colleges are eligible to receive grant money and subsidized loans that their students use to pay for school. Much of this government money then gets distributed to their share holders when they profit. Share holders really like profits. They pressure these schools to enroll as many students as possible to make sure they profit. Fraud ensues – as government inspectors found when they posed as students. My colleagues on EARN’s policy team blogged about this problem recently, writing a hard hitting piece that includes some gory details that may make your blood boil.
You can also read the damning NYT op-ed piece by an instructor from one of these schools. This teacher notes that for-profit colleges have drop out rates that are double their nonprofit counterparts, while they happen to receive a hugely disproportionate share of federal largess.
Trainwrecks could be described wonkily in terms of moral hazards and perverse incentives. But there is a more visceral description that also works. Trainwrecks happen when taxpayer dollars flow through lobbyist-created loopholes to fatten profits for companies that happen to be screwing over customers who are working hard to better themselves. In this case, it is our fellow citizens striving to get a piece of the American Dream and getting snake oil instead. This is a toxic recipe that is poisoning the American Dream.
To read this article on the Huffington Post, click here.
At the university I went to, my friend was a financial aid worker and he saw kids come in and max out all of their loan money because it didn’t click with them that they would eventually have to pay it back. I think these for profit colleges are so much higher in default rates because people with low income go to those schools in higher numbers (hoping to advance themselves personally and professionally).
Yes, if these schools were not around or there were tighter regulations I think there would not be as many people defaulting on their loans, but I also think there would still be a large amount of people, low income people, defaulting.
Students are only required to go through a quick Q and A session before getting their loans- what NEEDS to be required is a certain amount of hours a person has to go through with financial aid literacy- such as IDA classes do (at least the one I intern at)- before they are able to get their loans. I see for profit colleges as the payday loans of the academic world.
Agencies (the government) that give out loans are just as responsible for the protection of these men and women who are trying to further themselves. They are giving the loans out, they are barely requiring knowledge on what happens when you get these loans and the repercussions of A) taking out more than you need B) Defaulting. It is like subprime mortgages- woops- the realtors didn’t think that those who were not financially able to pay these loans after 10 years would default? Oh no there is a huge crisis now! Come on, government, have some accountability.
Sorry for the novella of a comment- it makes my blood boil when institutions prey on those who are low income and uneducated about finance.
