Folly Of For-Profit Schools


It has been known for several years among people who pay attention to higher education that many for-profit colleges and universities are little more than scams. A multitude of facts revealed that many of these for-profit schools were giving loans to students who were not qualified to attend college and would have trouble getting a good job upon graduation, much less paying back their loans.

This week the federal government reached a $95.5 million settlement with Education Management Corporation (EDMC), which operates schools such as the Art Institutes, Argosy University, Brown Mackie College and South University. Not only did EDMC, which is partly owned by Goldman Sachs, fail to provide a quality education, but it also allegedly violated a federal ban on the practice of paying admissions personnel on the number of students they enrolled. Students’ academic abilities and perseverance were not a consideration.

For example, the Associated Press reported that one North Carolina student was cold-called by a recruiter who knew that the student’s mother was incarcerated and her father was deceased. Without disclosing upfront the cost of $100,000 to obtain a culinary degree, the recruiter was able to enroll the student who quit with just months left before she was supposed to get her degree because the curriculum was changed that required her to take even more classes.

The student, Nadia Taylor, said, “Right now I have $47,000 in debt and literally nothing to show for it.”

Federal officials and state attorneys general have lauded that the settlement with EDMC includes a $102.8 million loan forgiveness program. However, that forgiveness program is only available to students who had less than 24 transfer credits and dropped out within 45 days of enrollment. In North Carolina, that means only 2,900 students will have their loans forgiven. Thousands of others, like Taylor, apparently will receive no relief.

Some might say that is the students’ fault for taking out such loans, that the “buyer beware” mentality should prevail. But the recruiters violated the law and deliberately misrepresented their schools. More importantly, from an economic standpoint, 90 percent of these loans were federal government loans. Over an eight-year period EDMC received $11 billion of taxpayers’ money.

And yet, the perpetrators of this fraud basically got away free. As of press time, no one has been charged with fraud. No one is going to jail. And the penalty, $95 million, is less than one percent of the $11 billion EDMC received from government loans. In that respect, the size of the fine is laughable.

In fact, since government officials agreed to settle the case, EDMC did not have to acknowledge any wrongdoing. If it had acknowledged wrongdoing, then, according to the New York Times, “individual students would have had potential grounds to discharge their loans taken out to attend the colleges, potentially costing hundreds of millions of dollars.”

Until people start going to jail for these crimes, these fraudulent for-profit schools will continue to go about their business. Even though shares of EDMC have decreased in value, EDMC still has more than 20,000 corporate and school employees.

It’s not clear why the government is so hesitant to prosecute corporations like EDMC to the full extent of the law. Such meekness gives credibility to the belief that the government and certain organizations are too cozy with each other.

The government did get EDMC to agree to create a new, one-page, easy-to-read disclosure that provides important information for students as they consider attending an EDMC school. Such a disclosure is a step in the right direction, and it would actually be beneficial to students and their parents if all colleges and universities had to disclose such information. But it does nothing to punish those who sold these students a bill of goods and stuck the American taxpayer with an $11 billion bill.

While government officials are patting themselves on the back for reaching such a deal, EDMC is still in operation, and with the financial backing of the American taxpayer, the folly of for-profit colleges continues.


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