Monday, November 22, 2010

Scrutiny Takes Toll on For-Profit College Company

I remain convinced that the for-profit education industry, at its current size and as it currently operates, has become similar to the subprime mortgage industry: on a small scale, carefully targeted, it was a good thing, but then a flood of easy (mostly government) money plus deregulation (see next article) attracted a host of bad operators, the industry exploded in size, and utter depravity occurred that swept up even the good players – like Kaplan, which was profiled in this NYT cover story two weeks ago.  This is why the funds I manage remain short many companies in the sector, though not WPO. 


Yes, many low-income and minority adults who have been failed by the K-12 system attend these schools, but it's not clear to me that most of these students are benefitting.  Instead, the majority appear to receive degrees of questionable value and are saddled with very high debts that they can't possible repay – or discharge, even in bankruptcy (thanks to an outrageous law that prohibits discharging ed loans (and ed loans only) in bankruptcy).  Here's an excerpt from the NYT story, which highlights how Kaplan preys on returning veterans, only 28% (!) of whom are repaying their loans:

Though Kaplan is not the largest in the industry, the Post Company chairman, Donald Graham, has emerged as the highest-profile defender of for-profit education.

Together, Kaplan and the Post Company spent $350,000 on lobbying in the third quarter of this year, more than any other higher-education company. And Mr. Graham has gone to Capitol Hill to argue against the regulations in private visits with lawmakers, the first time he has lobbied directly on a federal issue in a dozen years.

His newspaper, too, has editorialized against the regulations. Though it disclosed its conflict of interest, the newspaper said the regulations would limit students' choices. "The aim of the regulations was to punish bad actors, but the effect is to punish institutions that serve poor students," Mr. Graham said in an interview.

He said the regulations' emphasis on debt would make it harder for Kaplan to serve older working students who must take out loans to attend school.

He added that Kaplan could play an important role in meeting President Obama's goal of a better-educated work force. Kaplan Higher Ed, Mr. Graham said, has also broadened the reach of the Post Company — beyond the middle-income students who typically use its test-prep services — to include lower-income students.

"We purchased colleges that served mostly poor students, and we have embraced that role," Mr. Graham said. "For students with risk factors, older working students with children, Kaplan has dramatically better graduation rates than community colleges."

The company has acknowledged, however, that the new rules could hurt Kaplan. According to 2009 data released this summer by the Department of Education, only 28 percent of Kaplan's students were repaying their student loans. That figure is well below the 45 percent threshold that most programs will need to remain fully eligible for the federal aid on which they rely. By comparison, 44 percent of students at the largest for-profit, the University of Phoenix, were repaying their loans.

Kaplan is facing several legal challenges. The Florida attorney general is investigating eight for-profit colleges, including Kaplan, for alleged misrepresentation of financial aid and deceptive practices regarding recruitment, enrollment, accreditation, placement and graduation rates.

Kaplan is also facing several federal whistle-blower lawsuits whose accusations dovetail with the findings of an undercover federal investigation of the for-profit industry this summer, including video of high-pressure recruiting and unrealistic salary promises.

"The claims they make are absurd and simply not reflective of the kind of company that Kaplan is," said Andrew S. Rosen, Kaplan's chairman. "We're confident that when a court rules, we'll have a clear demonstration that this is not who Kaplan is."


Scrutiny Takes Toll on For-Profit College Company

Published: November 9, 2010

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