U.S. Government Still Aiming The Cash Faucet At Fraudulent For-Profit Colleges
Good news for all you scammers out there running bogus for-profit colleges: the United States government is wondering whether you’ve got some extra storage room in your basement for all these surplus billions of dollars it doesn’t have. Here, just take ‘em, man. They’re yours.
The New York Times is reporting that the Department of Education is handing over “tens of millions of dollars every month” to for-profit schools that have been accused of fraudulent or predatory behavior, even when those accusations have come from federal government officials or state attorneys general.
Consider the Education Management Corporation, which runs 110 schools in the United States for chefs, artists and other trades. It has been investigated or sued in recent years by prosecutors in at least 12 states. The Justice Department has accused the company of illegally using incentives to pay its recruiters. And last year, investors filed a class-action lawsuit, contending that the company engaged in deceptive enrollment practices and manipulated federal student loan and grant programs.
Education Management nonetheless received more than $1.25 billion in federal money over the last school year.
Earlier this year the Department of Education released a package of aid measures for students of Corinthian Colleges, Inc., a for-profit post-secondary education company whose business completely shutdown earlier this year after a flurry of legal activities related to shady business and recruiting practices sent the company into a steep and irreversible tailspin.
Because Corinthians was a relative giant in the growing field of vacuuming money from the pockets of poor saps looking for an affordable education, it was assumed that their collapse and the resulting attention of the Department of Education would hail a new day of regulatory stewardship of the industry. Not so!
Despite stepped-up scrutiny, hundreds of schools that have failed regulatory standards or been accused of violating legal statutes are still hauling in billions of dollars of government funds. They include tiny beauty schools with staggering loan default rates and online law schools with dismal graduation records and no bar association accreditation. Without government funds, which account for the overwhelming bulk of revenue, few of these institutions could attract students or stay in business.
Ted Mitchell, under secretary of education, noted “that the best way to solve this problem is at the front end and not to let bad schools operate.” Now, I’m no economist, but it seems to me the goal of preventing shady for-profit schools from operating is undermined somewhat by handing them billions of dollars every year. Maybe someone at the Federal Reserve could work out the math on that.
The government does have the power to withhold payments from any of these schools should their default rate rise above 30 percent three years in a row. The default rate is seen as a reliable indicator of whether students are progressing enough or earning enough in job placements to pay back their loans, so when it rises at a given college there is reason to suspect the college is either over-promising when recruiting or under-educating for their specific field.
Of course, these companies find and exploit every loophole, and, in 2014, nearly 100 schools with default rates above 30 percent collected $116 million in federal aid. Here’s a sobering number, from the Times report: For-profit schools enroll about 12 percent of the nation’s college students, yet they account for nearly half of student loan defaults. Even with outrageously outsized default rates, for-profit colleges are soaking up the government cheese.
