New Problems Disguised as Solutions

Short-cuts to alleged solutions may bury us beneath a new crop of the old problems.

The New York Times (14/03, “In Hard Times, Lured into Trade School and Debt” by Peter S. Goodman) reports: “One fast-growing American industry has become a conspicuous beneficiary of the recession: for-profit colleges and trade schools.

“As institutions that train students for careers in areas like health care, computers and food service, enrollments are soaring as people anxious about weak job prospects borrow aggressively to pay tuition exceeding $30,000 a year.

“But the profits have come at substantial taxpayer expense while often delivering dubious benefits to students, according to academics and advocates for greater oversight of financial aid. Critics say many schools exaggerate the value of their degree programs, setting young people on dreams of middle-class wages while setting them up for default on untenable debts, low-wage work and a struggle to avoid poverty. And the schools are harvesting growing federal student aid dollars including Pell grants awarded to lower-income students.

“‘If these programs keep growing, you’re going to wind up with more and more students who are graduating and cannot find meaningful employment,’ said Rafael I. Pardo of Seattle University School of Law and an expert of educational finance. ‘They can’t generate income needed to pay back their loans, and they’re going to end up in financial distress.’

“For-profit trade schools have long drawn accusations that they over-promise and under-deliver, but the woeful economy has added to the industry’s opportunities along with the risks to students, according to educational experts. They say these schools have exploited the recession as a lucrative recruiting device while tapping a larger pool of federal student aid.

“They tell people, ‘If you don’t have a college degree, you won’t be able to get a job,’ said Amanda Wallace, who worked in the financial and admission offices at the Knoxville, Tenn., branch of ITT Technical Institute, a chain of schools that charge roughly $40,000 for two-year associate degrees in computers and electronics. ‘They tell them: “You’ll be making beaucoup dollars afterward, and you’ll get all your financial aid covered.”’

“Ms. Wallace left her job at ITT in 2008 after five years because she was uncomfortable with what she considered deceptive recruiting, which she said masked the likelihood that graduates would earn too little to repay the loans.

“As a financial aid officer, Ms. Wallace was supposed to counsel students. But candid talk about job prospects and debt obligations risked the wrath of management, she said. ‘If you said anything that went against what the recruiter said,’ Ms. Wallace said, ‘they would threaten to fire you. The representatives would already have conned them into doing it, and you just had to keep your mouth shut.’

“A spokeswoman for the school’s owner, ITT Educational Services, Lauren Littlefield, said the company had no comment.

“The for-profit educational industry says it is fulfilling a vital social function, supplying job training that provides a way up the economic ladder.”

That, however, would seem to have its rungs in bad, bad shape, resembling in fact the liberties taken with the facts, and our history with them, our history, and what our schools and legislators have been forced to forget. And now, it would seem, instead of repairing the damage caused by this background, more of the same is being dished up as a supposed part of the remedy to our great and deepening crisis.

“‘When the economy is rough and people are distressed with unemployment, they look to education as the way out,’ said Harris N. Miller, president of the Career College Association, which represents approximately 1,400 such institutions. ‘We’re preparing people for answers.’

“Concerned about aggressive market-practices, the Obama administration is toughening rules that restrict institutions that receive federal student aid from paying their admissions recruiters on the basis of enrollment numbers.

“The administration is also tightening regulations to ensure that vocational schools that receive aid dollars prepare students for ‘gainful employment.’ Under a proposal being floated by the Department of Education, programs would be barred from loading students with more debt than justified by the likely salaries of the jobs they would pursue.

“‘During a recession, with increased demand for education and more anxiety about the ability to get a job, there is a heightened level of hazard,’ said Robert Shireman, a deputy under-secretary of education. ‘There is a lot of Pell grant money out there, and we need to make sure it’s being used effectively.’

“The administration’s push has provoked fierce lobbying from the for-profit educational industry, which is seeking to maintain flexibility in the rules.

“The Career Education Corporation, a publicly traded global giant, last year reported revenue of $1.84 billion. Roughly, 80% came from federal loans and grants, according to BMO Capital Markets, a research and trading firm. That was up from 63% in 2007.

“The Apollo Group – which owns the for-profit University of Phoenix – derived 86% of its revenue from federal loans and grants, according to BMO Capital Markets, a research and trading firms, according to BMO. Two years earlier it was 69%.”

Adept at Capturing Grants Rather Than Spreading Truth

“For-profit schools have proved adept at capturing Pell grants, which are a centerpiece of the Obama administration’s efforts to make higher education more affordable. The administration increased financing for Pell grants by $17 billion for 2009 and 2010 as part of its $787 billion stimulus package.

“Two years ago, students at for-profit trade schools received $3.2 billion in Pell grants, according to the Department of Education, less than went to students at two-year public institutions. By the 2011-12 school year, the administration now estimates, students at for-profit schools should receive more than $10 billion in Pell grants, more than their public counterparts, depending on the outcome of wrangling in Congress over health care and student lending.

“Enrollment at for-profit trade schools expanded about 20% a year the last two years, more than double the pace from 2001-07, according to the Career College Association.

“Mr. Miller, the association’s president, said for-profit schools were securing large numbers of Pell grants because their financial aid offices were diligent and because the schools served many low-income students.

“But financial experts say the surge of federal money reaching such institutions reflects something else: their aggressive, sometimes deceitful recruiting practices.
“Jeffery West was working at a pet store near Philadelphia, earning about $8 an hour, when he saw advertisements for training programs offered by WyoTech, a chain of trade schools owned by Corinthian Colleges Inc., a publicly traded company that last year reported revenue of $1.3 billion.

“After Mr. West called the school, an admissions representative drove to his house to sell him on classes in auto body refinishing and upholstery, a nine-month program that cost about $30,000.

“Mr. West blanched at the tuition, he recalled, but the representatives assured him the program amounted to an antidote to hard economic times.

“‘They said they had a very high placement rate, somewhere around 90%,’ he said. ‘That was one of the key factors that caused me to go there. They said I would be earning $50,000 to $70,000 a year.’

“Some 14 months after he completed the program, Mr. West, 21, has failed to find an automotive job. He is working for $12 an hour weatherizing foreclosed houses.

“With loan payments reaching $600 a month, he is working six and seven days a week to keep up.

“‘I’ve got $30,000 in student loans, and I really haven’t much to show for it,’ he said. ‘It’s really frustrating when you’re trying to better yourself and you wind up at Square One.’

“‘The majority of our students graduate,’ said a spokeswoman, Anna Marie Dunlap, in a written statement. ‘Most see a significant earnings increase.’

“The increase in market opportunities for the for-profit education industry comes as governments spend less on education. In states like California, community colleges have been forced to cut classes just when demand is greatest.

“‘This is creating a very ripe environment for the for-profit schools to pick off more students,’ said Lauren Asher, president of the Institute for College Access & Success, a California-based nonprofit research group that seeks to make higher education more affordable. ‘The risks of exploitation are higher and the potential reward of these practices is higher.’

“For-profit culinary schools have long drawn criticism for leading students to rack up large debts. Now, they are enjoying striking growth. Enrollment at the 17 culinary schools of the Career Education Corporation – most of them operated under the name Le Cordon Bleu – swelled by 31% in the final months of last year from a year earlier.

“When Andrew Newburg called the Le Cordon Bleu College of Culinary Arts in Portland, Ore., to seek information, he was feeling pressure to start a new career. It was 2008, and his Florida mortgage business was a casualty of the housing bust. A associate degree in culinary arts from a school in the food-obsessed Pacific Northwest seemed like a portal to a new career.

“The tuition was daunting – more than $41,000 for a 14-month program – but he said the submissions recruiter portrayed it as the entrance price to a stable life.
“The recruiter said, ‘The way the economy is, with the recession, you need a safe way to be sure you will always have income,’ Mr. Newburg said. ‘In today’s market, chefs will always have a job, because people will always have to eat.’

“According to Mr. Newburg, the recruiter promised the school would help him find a good job, most likely as a line cook, paying him as much as $38,000 a year.

“Last summer, halfway through his program and already carrying debts of about $10,000, Mr. Newburg was alarmed to see many graduates taking jobs paying as little as $8 an hour washing dishes,’ he said. He dropped out to avoid more debt.

“They have a basic money-making machine.’ Mr. Newburg said.”

It has been, in fact, the go-go ethic of piling up producers’ debt as ever-accelerating speculative financing which was the curse that President Obama was supposed to be exorcizing rather than surrendering to.

More Bills Than Paychecks

“Career Education says admissions staff are barred from making promises about jobs or salaries. The school requires students to sign disclosures stating that they understand that its programs afford no guarantees.

“‘Our students are given the tools needed to become the future leaders in the industry,’ proclaims the Le Cordon Bleu web site. ‘Many graduates have attained positions of responsibility, visibility and entrepreneurship soon after completing their studies.’

“The job placement results that the school files with accrediting agencies suggest a different outcome. From July 2007 to June 2008, students who graduated from the culinary arts associate degree program landed jobs that paid an average of $21,000 a year, or about $10 an hour. Oregon’s minimum wage is $8.40 an hour.

“The job placement list is cited in a class-action lawsuit filed against the Portland school – previously known as Western Culinary Institute – by graduates who claim fraud, breach of contract, unlawful trade practices. Executives at Career Education denied the allegations while asserting it would be wrong to judge the school on the basis of its graduates’ first jobs.

“‘You go out in the industry and work your way up,’ said Brian R. Williams, the company’s senior vice-president for culinary arts.

“On a recent morning at the campus in Portland, hundreds of students donning chef’s whites labored in demonstration kitchens stocked with stainless steel countertops and commercial gas ranges. A chef inspected plates of boeuf Bourgogne and risotto Milanese. Students melted and pulled sugar into multicoloured ribbons. Others used a chainsaw to sculpture blocks of ice into decorative centerpieces.

“‘It’s employable skills; that’s what we teach people here,’ said the school president, Jon Alberts. ‘We try to give them as much of an industry experiences in the classroom as possible.’

“But several local chefs said the program merely simulated what students could learn in entry-level jobs.

“‘When they graduate and come in the kitchen, I tell them, “I’m going to treat you like you don’t know anything,”’ said Kenneth Giambalvo, executive chef at Bluehour, an upscale restaurant in Portland’s Pear District. ‘It doesn’t really give them any edge.’

“What the school does give many students is debt, often at double-digit interest rates – debt that even bankruptcy cannot erase without a lengthy, low-odds legal proceeding.”

William Krehm

– from Economic Reform, March 2010