For Profit Education Contd (Updated)

Following up on Mola’s post on for-profit education, I found the following to be pretty interesting.  Embedded in the link is a power point presentation summarizing a market analysis of for-profit education companies.  The author’s general theme is that for-profit education is the next obvious market bubble because business growth relies on unreasonable government largesse, combined with lobbying to drastically reduce government oversight and a rigged “accreditation” process that permits any for-profit institution to become an accredited institution.

Under the current regulatory regime, for-profit colleges print money.  Tuition is largely funded by federal loans and grants.  Thus, risk of default is borne by the federal government and the student.  With loan caps at $18,000 a year, minimal fixed costs, essentially limitless class sizes due to internet based teaching method,  and minimal land footprint, for-profit education is one of the most profitable sectors in the country. 

And the more students they sign up, the more federal funding they can draw.  Thus, the main goal of the institution is enrolling as many students as possible.

Update:

Apparently this guy saw what was coming down the pipeline.  Since his lecture, the Department of Education has proposed significant new regulations that tie to the suggestions in this powerpoint.  The result has been huge drops in the stock price of publicly traded for-profit colleges and a restructuring of the way they do business.  And for good measure, they’re using a lot of their federally funded profits to lobby against any restrictions of further federally funded profitsMore here.  I can’t take it, I just, just give me one second here, I’ve just got to dunk my head in this water and…..

Alright, that feels better.

Most regulations are set to go into effect in July of next year, but there’s been a serious backlash against the most “controversial” part of the Department’s plans, 34 CFR 668.7, the gainful employment regulations.  This proposal is controversial in the same way that mandatory prison sentences for serial killers are controversial.  There are certainly two interest groups who strongly disagree on the issue.  Passionate Argument:  Eating brains of unwilling victims just isn’t ok, and we’re going to punish you for doing it.  Passionate Counter Argument:  Brains are delicious!  Here, the conflict is between (1) people who think that billions of dollars of subsidized student loans should probably only pay for tuition if there is a reasonable chance that the loan will improve the lives of the students who get them, and also pay for the type of training that will give the student a chance of paying back the loan; and (2) for-profit colleges that, ummm, well, really like risk free profits.  And brains. 

Anyway, the goal is to make colleges establish that students are being trained for a career that will give them a reasonable chance of paying off their debt.   The regulations propose two sets of criteria that a college can use to establish that they’re serving their students best interest. 

Option #1Loan Repayment

Establish that more than 45% of your students are actually paying off their government loans and you…Pass???  Just 45%?  Really.  Since the government is taking all the risk and the for-profit college is reaping all the profit, a 45% non-default rate seems, well, generous.  And you only lose accreditation if you’re below 35% repayment.  This seems perfectly reasonable.

But, suppose the Bernie Madoff School of Business provides nothing but the finest business education to its students, only to find that 80% of the student body is made up of deadbeats who refuse to pay off their loans?  Not to fear!!! 

Option #2:  Debt-to-Income Analysis

 The regulations provide a second safe harbor, based on former student’s debt-to-income ratio.  If the average graduate’s monthly loan payment is less than 8% of their salary or less than 20% of discretionary income, it doesn’t matter if they pay off their loans.  The college retains accreditation because they could have paid the loan.  That actually seems pretty fair.

So you’ve got to ask yourself, why on earth are for-profits lobbying against this.  And they are.  Hard.  Could this be the reason:

                                      Institutional-Level Repayment Rates
—————————————————————————————————————-
                                                                     Number of                                  35 < % <
  Sector                                                        institutions       % > 45%              45%         % < 35%
—————————————————————————————————————-
Private for-profit 2-year…………………..             565           32.92                 23.19           43.89
Private for-profit 4-year or above…………..       218           25.23                32.57           42.20
Private for-profit less-than-2-year………….      946           40.70                  22.09           37.21
Private nonprofit 2-year……………………             156           76.28                   9.62           14.10
Private nonprofit 4-year or above……………     1434           78.31                 10.53           11.16
Private nonprofit less-than-2-year…………..        45           64.44                  11.11           24.44
Public 2-year……………………………..                       860           43.14                 29.53           27.33
Public 4-year or above……………………..             590            74.24                   14.92           10.85
Public less-than-2-year…………………….             148           74.32                    19.59            6.08
                                                 —————————————————————
    Grand Total……………………………                    4962           56.75                   19.21           24.04
——————————————————————————————-

Pretty incredible.  For more than 60% of the for-profit colleges in the US, less than 45% of their students are able to pay off the college loans they take out to pay for the college.  Obviously, the rest of the chart leads to some interesting questions as well.  But for now, take a moment and peruse the proposed regulations if you’re so inclined as well as the reasoning behind them.  Then get depressed thinking about the lobbying that’s being done to neuter this work.  Ugh.

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About Connie Stinson

Connie Stinson is a lawyer/talk show host who dabbles in the arts of strained analogies, forced humor, and poor spelling. In his spare time Mr. Stinson enjoys charcoal BBQ, as well as any and all things related to humor. He is currently working on his second book, "Look at You, You're a Mountain: A Retrospective On Hogs and the Men Who Love Them."
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2 Responses to For Profit Education Contd (Updated)

  1. Pingback: Tweets that mention For Profit Education Contd (Updated) | The Boca Breeze -- Topsy.com

  2. Mola Ram says:

    Wow I just noticed your extensive additions to this post. The Requiem clip is perfect. It all really comes down to that damning table. I just don’t understand how this is happening. Are the For-Profit lobbyists basically just saying, “Pleeeeease just give us a few more years; we PROMISE we’ll get better! Education is an inexact science; these numbers can be interpreted in many ways, which we’d be glad to explain to you after we’ve consulted with gifted statisticians.”? Sickening.

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