Public Education, Inc.

23 Nov

“The American Public University System is a for-profit, online learning institution of higher education that is composed of the American Military University and the American Public University. It is wholly owned by American Public Education, Inc., a publicly traded corporation.”

1. BOB MEISTER’S ARGUMENT

Inspired by a recent article by UCSC Professor Bob Meister on for-profit education as it relates to the privatization of the University of California, we’ve begun doing a little research on the topic. The following is a provisional introduction to for-profits that borrows from and builds on the sources listed below. It targets, in particular, UC Regent Richard Blum’s links with the industry.

Meister explains how the strategy of dramatically raising both tuition and enrollment at the University of California, begun by former-Governor Schwarzenegger and former-UC President Dynes in 2004, has created a situation in which the federal government is effectively financing the private for-profit higher education industry via student loans taken out by low-income students. It did so by producing “enrollment bottlenecks at the CCC [California Community College] level, where according to a new survey one-third of all students could not get into the courses they needed as compared to one-sixth nationally who face the same problem” (141). This means that “jobless, low-income students, no longer well served by community colleges, find places in federally financed for-profit schools that expand to meet demand and allow them to live on credit and student grants for as long as they are willing to borrow for tuition” (141-42).

Meister’s conclusion? “The California Master Plan for Higher Education is now operating in reverse. Higher prices at UC have produced a downward cascade of enrollments within the public system” (142). Students transfer down from UCs to CSUs to CCCs to for-profits as a result of ballooning tuition and ballooning enrollment. Meister’s full article is well worth your time, but the take-home point is this: Making sure UC and CSU tuition is reduced is crucial for keeping all low-income students in California out of debt.

2. RICHARD BLUM’S CONFLICT OF INTEREST

A more specific point of interest for California students, educators, and residents is that Richard C. Blum is both a UC Regent and the primary owner of one of the world’s largest for-profit educational corporations, with six locations in California alone. Blum is an investment banker, a real estate mogul, the husband of U.S. Senator Dianne Feinstein, and the former chairman of the Regents of the University of California. He’s a voting member of that 26-person board, as well as a member of the finance and governance committees, and as a powerful member of the governing elite he exerts a significant influence on the direction taken by the University of California. Simultaneously, Blum is the primary owner of the world’s second-largest for-profit educational corporation: Career Education Corporation (CEC). Following Meister’s argument, as tuition goes up and quality goes down at California public schools, there’s a downward flow of student and federal dollars from the UCs, to the cheaper CSUs, to the cheaper Community Colleges System, and finally to for-profit institutions, which are monstrously expensive over the long-term. Companies like CEC are thus potential beneficiaries of the tuition hikes that Blum is in a position to authorize and which he has consistently supported in the UC. This is a substantial conflict of interest.

3. CAREER EDUCATION CORP’S HISTORY (IN QUOTES)

THE TREND

Career Education Corporation was founded in 1994. In fact, nearly all the major for-profit educational companies (besides ITT and DeVry) were founded in the early 1990s. Stephen Burd explains how the “old generation of trade schools gradually died off and were replaced by a new breed of for-profit colleges—mostly huge, publicly traded corporations.” And because they’re publicly traded, institutions like CEC, University of Phoenix, and Corinthian Colleges are obligated to their shareholders as much as to their student-consumers. The numbers for CEC in this respect are clear: in 2010, this “global giant” took in $1.84 billion in revenue, “roughly 80% [of which] came from federal loans and grants, according to BMO Capital Markets, a research and trading firm… up from 63% in 2007” (Goodman).

Although few for-profit colleges report student debt statistics, according to the most recent national data (from 2008), 96% of graduates from for-profit four-year colleges take out student loans, and these students borrow 45% more than graduates from other non-profit four-year colleges (Project on Student Debt).

PUBLIC LOANS

Burd and others have emphasized, rightly, the high default rates on the loans taken out by students enticed or coerced into attending for-profit schools: “For-profits top the Department of Education’s list for the 2005-2007 cohort default rates, with campuses at ATI and Kaplan reporting default rates far above 20%. Most of the for-profits’ expansion has been in the states of California, Arizona, Texas and Florida, with the metro areas of Los Angeles, Phoenix, Dallas and Miami-West Palm Beach being centers of their growth. For comparison, in Miami, Everest Institute [a for-profit] reports a default rate for two of its campuses to be 18.1% and 20%; Miami Dade College, the district’s community college, which serves as a primary channel for local beginning students, reports a default rate of roughly 10%; Florida International University, a public university serving the Miami metropolitan area, reports approximately 5%” (emphasis added).

PRIVATE LOANS

“For a while it looked like the meltdown on Wall Street, and the ensuing credit crunch, would put an end to predatory lending at for-profit schools. In 2008 Sallie Mae quit offering subprime private loans to students at for-profit colleges because the astronomical default rates had helped throw its stock price into a nosedive. But the proprietary college industry has found a way around this roadblock, namely making private loans directly to students, much the way used-car lots loan money to buyers rather than going through a third party. For example, in a recent earnings call with investors and analysts, Corinthian said that it plans to dole out roughly $130 million in ‘institutional loans’ this year, while Career Education and ITT Educational Services Inc., another for-profit chain, have reported that they expect to lend a combined total of $125 million” (Burd).

And, of course, “These loans are risky: Career Education and Corinthian recently told investors they had set aside roughly half the money allocated this year for private lending to cover anticipated bad debts” (Goodman). In fact, “Career Education and Corinthian Colleges only expect to recover roughly half of the money they distribute through their institutional lending programs, according to communications with shareholders. Why would they lend knowing they won’t get the money back? Because any loss is more than offset by federal loans and financial aid dollars, which, despite the surge in private educational lending, still fund the bulk of tuition at proprietary schools. Say a student gets a $60,000 federal financial aid package and supplements it with a $20,000 institutional loan. The school comes out $40,000 ahead even if the borrower ultimately defaults. Plus, getting students in the door pumps up enrollment numbers, which makes for happy shareholders” (Burd).

CEC has been among the worst in pushing private loans on students. “Corinthian and Career Education… have faced the most damning allegations when it comes to educational quality and steering students into shady private loans. Other chains have better reputations on these fronts, among them the University of Phoenix and DeVry University. But even they have a spotty record of graduating students” (Burd).

THE STUDENTS

All this affects an enormous number of people. CEC has 90,000-100,000 students, 500,000 alumni, and 13,000-15,000 employees. It has more than 100 programs at over 90 schools in 25 states and 5 countries, over 500 online courses, and over 80 online degree-granting programs. “Enrollment at the 17 culinary schools of the Career Education Corporation—most of them operated under the name Le Cordon Bleu—swelled by 31 percent in the final months of last year [2009] from a year earlier” with the help of private direct loans and methodical advertising campaigns that include door-to-door peddlers and pushy websites (Goodman).

And CEC has at least 6 schools in California alone (not counting the American InterContinental University campus in Los Angeles which was shut down in 2008 after being put on federal probation for non-compliance):

  • Brooks Institute (Santa Barbara)
  • Brooks Institute (Ventura)
  • International Academy of Design & Technology – IADT (Sacramento)
  • California Culinary Academy (San Francisco)
  • Le Cordon Bleu (Los Angeles)
  • Le Cordon Bleu (Sacramento)

According to the small amount of” disclosure” data that the corporation makes publicly available (per federal regulation), Blum’s CEC enrolls roughly 2,000 full-time undergraduate students per year in California alone. To be specific, the number of first-time, full-time undergraduate students who began pursuing a bachelor’s, master’s, or associate’s degree, or a diploma certificate between Fall 2007 and Summer 2008 was 378 for the Culinary Academy in SF; 1,108 for Le Cordon Bleu Pasadena; 316 for Le Cordon Bleu College Sacramento; 0 for IADT; and 384 for the two Brooks campuses. (Data for IADT and Brooks is from Fall 2004.) That’s a significant if not overwhelming number, and it only accounts for enrollment in at CEC’s schools in California.

SAME OLD, SAME OLD

Don’t be fooled by the fact that CEC seems to have been hurting of late. The cause of company’s slowdown in profits, according to interim CEO Steven Lesnik? “The complexities of the regulatory environment and other issues that have arisen over the last year.” The solution? Increased lobbying of Congress, of course. Nowhere does the company acknowledge that the real issue is that their business model is based on exploiting government programs and coercing students into taking on debt. And that’s not because no one’s told them. Their practices have led to numerous investigations, lawsuits, allegations, exposés, controversies, and scandals. We might do well to add to that list by continuing to investigate and publicize Regent Blum’s conflicts of interest. Such tactics go hand-in-hand with our demand for the democratization of the board of regents itself.

SOURCES

Written by Jeremy Schmidt (UCLA English) and Elise Youn

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One Response to “Public Education, Inc.”

  1. jeremy December 11, 2011 at 3:32 pm #

    Looks like the for-profits have lobbied in such an “extreme” manner that new federal regulations against them have been watered down and won’t accomplish much.

    http://www.nytimes.com/2011/12/10/us/politics/for-profit-college-rules-scaled-back-after-lobbying.html?_r=2&hp=&pagewanted=all

    http://www.nytimes.com/interactive/2011/12/10/us/top-for-profit-college-spenders.html?ref=politics

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