Corporate Education: What Did You Expect?

IN A DARK ALLEY, somewhere, a recruiter from a for-profit college bends over the prostrate form of a homeless man. “Hey, want to earn a college diploma?” he says, nudging the sleepy form with his shoe. “It won’t cost much. And you’ll end up with a high-paying job!”

If that sounds absurd, you underestimate the level to which for-profit colleges have sunk in recent years.

It wasn’t supposed to be this way. There was a time when leading voices in school reform assured us bringing “business methods” to education could only lead to good.

How, in theory, would learning be enhanced once corporations seized control? Corporations would bring “business efficiency” to operations. They would break teachers’ unions in grades K-12, which reformers insisted stymied their “great plans” to fix the schools. (Reformers never admit the problem might not be unions. It might be stupid plans.) Corporate schools would “chart data,” and use this invaluable info to prove what works in schools and what doesn’t and what doesn’t would be ruthlessly stamped out. Businesses cared only about a “better product.” The chance to profit by supplying the demands for knowledge of happy consumers would drive “innovation” in education.

It was going to be….so….great! We only had to place the fate of imaginative kindergartners, excited elementary kids, questing teens, and dreaming college students in kindly money-making hands.

Only, it turned out that in the world of corporate education one word stood in the way of success for the children.

And that word was “Mammon.”

If you don’t realize what happened once corporations got their foot in the classroom door, the implosion of Corinthian Colleges (or the recent demise of Trump University) provides a clear view of grim reality.

FOUNDED IN 1995, Corinthian enjoyed phenomenal growth for the next fifteen years, as the for-profit model came into vogue. (I mean: what could go wrong with hedge fund managers starting up schools—and five top executives of K-12, Inc. dividing up $34 million in pay and bonuses in just two years?) Between 2001 and 2010, enrollment at schools like Corinthian, Kaplan, and the University of Phoenix ballooned. There were 550,000 students enrolled in 2001. By the end of the decade there were 1.8 million. Best of all, for those who ran for-profits, revenue multiplied like five loaves and two fishes. 

Only Jesus wasn’t around to make them share the food.

The schools were soon raking in $32 billion annually, most of that pile of cash coming from the 86% of undergraduates who had to borrow to pay tuition, often signing up for usurious high-interest loans.

Corinthian alone could boast $1.76 billion in revenue in 2010; $1.46 billion of that total paid for by federal loans.

Who gained in the process?

Stock prices for Corinthian (COCO) rose steadily between 1999 and 2004, hitting a high of $61.04 a share in May 2004.The stock then split; but a year later began to slide. A number of court judgments soon tarnished the Corinthian brand, with students claiming they were victims of fraud.

Still, business, as they say, was good. As late as 2010, Corinthian could boast a profit of $241 million.

That year, the U.S. Senate Health, Education, Labor and Pensions Committee opened an investigation into company practices, also looking at fourteen other leading for-profit institutions. The committee found that salaries for Corinthian executives were generous indeed:

WITH THE SENATE TURNING OVER an assortment of large fiscal stones, and enrollment going into decline as a result, it soon seemed clear Corinthian’s recruiting practices (including targeting the homeless), false claims of job placement success, false assertions regarding graduates’ earnings, and other shady dealings, might not withstand scrutiny. In 2011, one financial adviser was already warning that Corinthian stock might fall to zero. It did indeed plunge: to 22¢ in July 2014, to a penny by spring 2015.

By then, top executives had cashed out and carted away wheelbarrows overflowing with money. Even as the march to bankruptcy accelerated, five executives continued to pocket the dough. In July 2014, The New York Times could report that in 2011, 2012 and 2013, they divvied up $12.5 million in salary and bonuses between them.

In the end, it turned out Corinthian was led not by educators but pirates whose commitment to learning involved dropping the “l,” and focusing on the remainder.

What went wrong at schools like Corinthian? 

And why is anyone surprised?

First, the for-profits employed high-pressure tactics to recruit students, often sucking in single mothers anxious to provide better lives for children, duping the down and out, pedaling a dream to the uneducated, of easy access to a college education and a high-paying job to follow. Corinthian didn’t mess around. The school employed 2,811 full-time recruiters, whose only job was to lure spiders into a web.

On average, the Senate found, the fifteen publicly traded for-profit colleges devoted almost one out of every four dollars in revenue to marketing and recruiting, what other kinds of businesses might call pimping. Corinthian methods were more or less typical, with “$3,969 per student [spent] on instruction in 2009, compared to $2,465 on marketing and $998 on profit.”

What made the situation worse was the fact many students were woefully unprepared for college— and the reality that for-profits weren’t all that worried about helping when they fell behind. So long as they paid their bills, usually taking out loans at obscene interest rates, the corporate folks were content.  

Of course, paying executives millions and hiring all those recruiters isn’t cheap. So, Corinthian charged exorbitant fees. According to Senate investigators, Heald College, a Corinthian branch in Fresno, California, billed for $22,275 if a student enrolled in a program to earn a diploma as a “medical assistant.” 

Fresno City College, a public institution nearby, enrolled students in a similar program for $1,650.

Corinthian even shafted veterans. From 2009 to 2011, “Corinthian collected an average of $12,885 per veteran, compared to an average of $4,642 per veteran trained at a public college in the same period.”

Fortunately, state and federal investigators began pulling on loose threads and the whole tapestry unraveled. The State of California reached a court settlement in 2007 with Corinthian, “after establishing evidence that the company deliberately and persistently misled prospective students about the schools’ placement rates.”

EVERY SINGLE PROGRAM EXAMINED by officials uncovered inflated placement numbers, some by “as much as 37 percent. For most programs, only a third to a half of students [who graduated] obtained employment.”

(And only about a third graduated to begin.)

The situation at Everest College campuses in Texas might have been absurd, had the results not been tragic. The Health, Education, Labor and Pensions Committee report explained:

[Administrators]…falsified the employment records of 288 graduates over four years. Of those graduates, 176 allegedly worked for a business that had been created by a friend of the school’s career services director; this business did not have any actual employees. The other 119 graduates were said to be working for a company that only employed a total of seven Everest College students.

(In the same way, a report in the Prescott, Arizona Daily Courier, in April 2015, noted that Corinthian administrators reported a student had found gainful employment in her chosen field of accounting, even though they knew she was still working at Taco Bell.)

With mounting evidence of fraud and abuse, the U. S. Department of Education began to crack down on for-profits. The percentage of funding that might come from federal sources was capped, for example. So the buccaneers of for-profit learning had to do some serious tap-dancing.

Corinthian created a “Genesis loan program” and put $65 million worth of its profits to work, charging new students “an average interest rate of 14.8 percent, with some…paying as much as 18 percent.”

A second loan plan called for an additional $450 million to be lent to students and carried interest rates between 11.9 and 17.9 percent.

All the while, students were dropping out at phenomenal rates, and defaulting on loans. But these loans, almost all backed by the federal government, could not be wiped out even if students filed for bankruptcy.

KNOWING A GOVERNMENT CRACKDOWN was increasingly likely, Corinthian began hiring more people. But these new employees weren’t career counselors or professors. Their job was to contact students behind in their payments, but not yet in default. Thirty workers went door to door, contacting former students. One internal document, revealed during the Senate investigation, found that students in “late stages of delinquency” could be contacted up to 110 times per month.

One might to call it “for-profit harassment.”

Why were so many students defaulting? Part of the problem stemmed from the for-profit penchant for enrolling students unprepared to do college-level work. In 2014, an Everest College librarian abruptly resigned after she found herself trying to help a 37-year-old student, with big dreams of completing a program and going on to a career in law enforcement. The librarian, Laurie McConnell, could see no way he’d ever qualify for such a post.

He read at the third grade level.

A second problem, and a glaring one, was that so many courses Corinthian and others offered, in particular online classes, were of dubious quality from the start. According to a 2011 report released by the Government Accountability Office, standards at Corinthian and other for-profits were ridiculously weak. First, investigators posing as students found that twelve of fifteen commercial colleges, including the five biggest, accepted fake high school diplomas without bothering to check. These included diplomas from high schools that had long since ceased to exist.  

The for-profits claimed their model allowed students to enroll in online classes and proceed at their own pace. GAO agents discovered that the commercial colleges were indeed highly accommodating when measuring pace and assessing work. Sometimes, the faux students purposely did the wrong assignments.

They passed with flying colors.

Let’s try turning in plagiarized material and see what happens, the GAO said. Hey, the agents got A’s. One investigator even included a link to the plagiarized article he used in his assignment.

The instructor didn’t seem to notice. Or, perhaps they didn’t care.

Well, then, GAO investigators wondered, what would happen if we don’t turn in anything and don’t bother to log in and actually take the class? In a for-profit world the paying customer still received A’s. 

Maybe the for-profit educators were hoping to spur creativity! One “student” in a class called Learning Strategies and Techniques, required for an associate degree in business (too ironic to require comment), turned in pictures of political figures and celebrities in response to essay questions and ignored online chats that were part of the class. The creative scholar passed regardless. 

At another college a student got an “A” on an assignment he never turned in (apparently he was taking a class called “Profit Magic 101”).  

In another egregious case a “professor” copied and pasted the same comments for multiple students submitting multiple assignments. And that feedback read:

Remember that you must response to entire of the main question as well as two responses to other people’s posts. As we learn from each other responses to the course material. Please let me know if there is any assistance I can provide to assist you in succeeding in the course next discussion.

Yeah, good stuff, professor.

IT WASN’T JUST CORINTHIAN, though, and the for-profit chickens began coming home to roost. In 2005 six Oregon students sued for-profit Business Computer Training Institute (BCTI).

According to The Oregonian, “The lawsuits accused BCTI of fraud and unfair business practices, saying it lured students with inflated job-placement claims but failed to provide the education it promised.”

The case dragged on until 2009, with plaintiffs finally winning a $3.2 million judgment against the school.

But this wasn’t BCTI’s only trip to court. In 2007, after the school collapsed in the face of regulatory pressure, “insurers agreed to pay $13.25 million to settle claims of fraud by students in Washington State, where BCTI was based and operated five campuses. More than 1,300 former students received $8,000 [each] as part of that settlement…though that amount did not cover all outstanding loans.” 

Of course it didn’t. 

Still, what could defrauded students do? The bandits had absconded with the cash. So, people like Christy Jarvis, 28, were stuck with high-interest loans and worthless diplomas.

Or no diplomas at all. 

“I still owe more than $7,000 to [the] U.S. Department of Education,” Jarvis told a reporter at the time. “I’ve been paying for eight years.”

Across the nation, signs of trouble were multiplying. In 2008 a court settlement required the University of Phoenix, owned by the Apollo Group, to pay stockholders $280 million after misleading investors about its own high-pressure recruiting practices—paying counselors solely on the basis of students recruited, not students who succeeded in class.

Investigators charged that University of Phoenix had “created a boiler-room atmosphere, in which hitting an enrollment quota was highest priority. Recruiters who failed to bring in enough students were put through disciplinary processes and sometimes terminated.” The company was forced to pay a $67.5 million judgment and $11 million in legal fees to settle a whistleblower suit, but profits still piled high.

This profitability probably had something to do with the fact the University of Phoenix devoted a mere $892 to instruction per pupil, per year—vs. $3,300 to $11,100 at comparable public institutions.

IT MIGHT BE TRUE THAT THE QUALITY of education provided was suspect, but salaries of Apollo Group executives met the very highest standards of avarice. Vice Chairman Peter Sperling collected $574.3 million in salary, bonuses, and stock during a seven-year period. John G. Sperling, the company founder, received $263.5 million during that same time.

Leaders of other profits weren’t exactly hurting. Robert B. Knutson, the head of Education Management Corporation (EDMC), banked a cool $132.4 million.

Defenders of this education model might have insisted that such compensation was good, because (for a time) stockholders did well. Yet, in their wake the for-profits stranded hundreds of thousands of students, left them without degrees, or holding worthless diplomas, stuck with huge loans.

Typically:

Jolene Daly, who lives in Turlock, California, borrowed $54,000 to pay for her bachelor’s degree from the University of Phoenix. She now works as a barista at a Starbucks Corp. coffee shop, making $8.94 an hour. Apollo should spend less on its executives and more on its instructors, who were poorly qualified and unprepared for courses, she said.

“It’s nice to know that that’s what I was paying for, because it certainly wasn’t the courses,” Daly said in a telephone interview. “It’s kind of infuriating.”

There were thousands of stories like these—each a tragedy in itself for some young man or woman. One victim was Brittany Prock, a Texas girl, who long dreamed of becoming a detective and saw the chance when she signed up for online classes at Everest College. When Prock graduated in 2010 she had one job offer, from a janitorial service, no support whatsoever from the school in her job hunt, and $83,542 in federal loans.

Another victim was Hannah Benbow, a young woman saddled with $120,000 in high-interest tuition loans for classes at the Art Institute of Washington, in Arlington, Virginia, a branch of EDMC.

(EDMC is today the target of a whistleblower lawsuit filed by former school officers, who claim the company schemed to use “deceptive recruiting practices to target students who qualified for aid under the GI Bill.”)

At times it was like playing Whack-a-Mole with corrupt “educators.” Eventually, the U.S. Department of Education slapped Everest with $30 million in fines. The Consumer Financial Protection Bureau opened an investigation into predatory loan practices at several for-profit institutions. Attorney generals from thirty-two states began considering legal actions of various kinds. But Daly’s and Prock’s and Benbow’s hopes of achieving the American Dream had been dashed.

AT THE OPPOSITE END OF THE PIPELINE the money still flowed. In 2010, Jonathan Grayer, CEO of Kaplan, another major player in the field, resigned after seventeen years at the helm. “It has been a wonderful journey with great people,” he assured all who listened. A wonderful journey, indeed. 

Grayer was departing with a compensation package worth $76 million.  

Sadly, the journey for tens of thousands of students ended, not with a bang of bucks, but a whimper. Investigators found that 68% of students enrolled in Kaplan’s bachelor’s programs (combing two figures below) withdrew without a degree within two years of enrollment.

 The story was much like the one at Corinthian—except that Kaplan, today, remains solvent.  Kaplan-affiliated schools, too, charged students far more than they would have paid at non-profit institutions.

Yet, when Grayer stepped down, and Andrew S. Rosen took his place, Grayer could still insist: “I have no doubt he will continue to focus Kaplan’s culture on what matters most—successful futures for our students.”

But Kaplan didn’t focus on students. None of the for-profits did. They were corporations first, corporations second, corporations last.

Profit was their game.

Meanwhile, Bill Gates, who believes he knows exactly what must be done to fix American education—starting with kindergarten and working his way up to the last level of PhD. programs—offered a glowing portrait of the work Kaplan College was doing under Rosen’s charge.

AND SO IT WENT. So it continues today. Only the worst abuses have been curbed under pressure from state and federal regulators and in the face of a well-earned onslaught of court filings.

The sorry saga has sad chapters yet to come, greed being timeless. In 2012, for example, Florida sued Keiser University (20,000 students across five campuses), forcing the school to offer free retraining to students who earned degrees from the school but found no useful employment opportunities.

Once the crackdown began, Keiser decided to flee the for-profit world, and—presto!—transform itself into a non-profit institution. Keiser was sold to Everglades College, a “now you see it, now you don’t” transaction. What made this cool was that the Keiser family, which founded the university, founded Everglades, too. what do you know: Dr. Arthur Keiser, as president of a brand new institution, would earn a whopping $856,000 annually, more than the president of Harvard ever saw in one year.

This configuration offered fresh money-making possibilities. (Also: a chance to skirt new federal and state regulations!) Carl B. Barney trod the same path, selling several for-profits, including College California, to a Denver non-profit, Center for Excellence in Higher Education.

Cool name!

According to court documents the Center had a staff of one: Chairman Carl B. Barney. Barney, too, worked out a sweet deal: loaning out $431 million, collecting $5.1 million in rent from the new school in 2013 alone.

After the State of Colorado sued, Barney responded like Dr. Seuss: “You cannot profit from a nonprofit,” he claimed.

The investigations and court battles continued, but students still ended up holding empty bags. In 2013 Career Education Corporation paid a $10 million fine to the State of New York related to false claims, including counting graduates as employed “if they were involved for a day at a community health fair.” 

The following year, ITT Educational Services, with 55,000 students online and on campuses in dozens of states missed a deadline to file documents with the U.S. Department of Education. The Consumer Financial Protection Bureau sued ITT, alleging the school pressured students into taking out high-interest, high-risk loans. 

In November 2014, the Government Accountability Office labeled Corinthian “one of fifteen for-profit colleges where recruiters encouraged students to commit fraud on financial aid applications.”

In 2014, Mr. Rosen, who ran Kaplan, one of those schools, earned $4.9 million for his services.

Recently, the U. S. Court of Appeals for the Eight Circuit Court issued a ruling allowing a False Claims Act lawsuit lodged against Heritage College, which operates campuses across the country, to go forward. According to whistleblowers, the school had defrauded the U.S. government of $32.8 million between 2009 and 2012.

CURRENTLY, FORTY MILLION YOUNG AMERICANS carry student loans totaling $1.2 trillion, that total having doubled in ten years. Many, who attended schools like the University of Phoenix and Heritage have nothing to show for their investment but heartache; and you could argue that they’d have been better off if muggers had assaulted them in dark alleys and run off with their wallets.

Corporate education: What did you expect?

Students: The New Cash Crop.


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