over the holiday weekend, we received a couple feedback items – one being a tweet from an account apparently set up only to let us know that we need to “relax”. from this “one tweet, one follow” mobile account, we got a link to an article that uses the infamous Steven Slater JetBlue emergency-slide-with-a-beer as a basis to suggest how you should leave a business “with class”.
after talking about it, the group felt is was a fairly transparent attempt by members at american career college or west coast university to try to get us to stop our efforts. but we did not want to be too dismissive and, more importantly, we wanted to use it as an opportunity to show how equating our effort to the actions of a frustrated flight attendant veteran could not be farther from the truth. our team is trying to bring attention to predatory practices by exposing or highlighting the actions of a specific organization engaged in the behavior.
the group also concluded that there might be a knowledge gap out there. while our team thinks it is obvious how an organization can take advantage of the student loan/grant program, we realized that many of you do not work in the industry and you do not have the experience we do. we realized that we need to spend a little time explaining how it works and decided to dedicate today’s post to this explanation.
starting a for-profit school simple in concept, but difficult to execute and the accreditation process at the beginning is appropriately rigorous. there are on-site visits and standards that must be cleared to get started and each program has a number of reviews and associations that manage each program.
the weak link is in the maintenance of those that have been established for a while. programs that were setup and accredited 10-20 years ago are not scrutinized nearly as much as new programs. as with many things, the process of keeping a program is much simpler than trying to start a new one. Additionally, over a 10-20 year period, the schools and agencies establish a relationship. this is not illegal by any means, but schools fund the accrediting agencies and it creates very difficult situation for review teams if they know that harsh discipline might cause a school to leave for another accrediting agency and reduce the fees they collect (same complaint made about the MMS in the oil/gas regulation). this creates a system that tends to acquiesce more than it should.
while this part of the system has holes, the dishonest behavior really does not rest here. all interactions with accrediting organizations have for the most part been forthright, honest and true to its responsibilities. it is the fact that the group is routinely undermanned and spread thin leaving much more responsibility to run a respectable education institution to those that are leading the for-profit organization.
the for-profit certificate product
the selection of the program that a school will run is critical and, in the past, led to success or failure. now, because of the enormous growth of the industry, the programs that will generate the best profits and the least scrutiny have been identified and are top on the list for any certification. these programs include:
the programs are popular with for-profit schools because they are short in length, require limited classroom size and labs, and have aspirational components to them (a paralegal is like a lawyer, a medical assistant is like a nurse, etc.). additionally, there are good job prospects and the community college system either does not have the resources to accommodate the demand or substitution programs are not available.
to this point, there is nothing wrong and the for-profit education component is working as it should – fulfilling demand that the public system cannot support. it would be appropriate that the business take a profit for delivering education that the some patrons might find to be superior and pay a premium (where the profit comes from) for this. at this point, all is pretty good and it really speaks to why this system exists in the first place.
getting what you paid for?
it is irrefutable (at least in southern california). the costs of taking one of these programs at a for-profit school is somewhere around 15x-20x taking it at a community college (see tuition page – $600-$1,000 vs. $15,000). this is a fact. to put it in context – this is the same as buying an ipad for $7,500-$12,000 or $48.75 for a Big Mac. why would ANYONE do this?
access – there are admissions standards at community college and a process, by necessity, to limit enrollment. so while there is plenty of demand, there will be people left behind and the community college wants to focus its resources on those with a track record of performing well in the classroom. this leaves a group of people underserved and this group might pay 15x more to simply get the opportunity to theoretically atone for not doing as well in past classrooms.
speed – another reason someone might buy the $47 hamburger is because of speed. the sooner the student is done, the sooner she will be earning the higher wage. for-profits push this argument to its farthest point using averages and generalized education statistics to move this point as far as possible.
better outcomes – lastly, prospects might pay a 1500% premium for better outcomes. if attending a particular institution could ensure a better chance of success (i.e. getting a better paying job in the new field), it would make sense for her to pay more to attend that school.
admittedly, there are a few more arenas that might have someone pay more, but we find it hard to believe that any of these would effectively motivate someone to pay such a high price.
unfortunately for the for-profit school, these advantages that can create better pricing opportunities create their own problems. while providing access to less accomplished students is laudable on many levels, it will increase cost and efforts as the organization develops ways to help students play catch up academically. Simultaneously, this is challenged by the second point – speed – and pretty much makes it impossible to take every less educated student and teach them MORE in a shorter time period than the traditional process. the result is that outcomes are challenged to exceed its traditional counterparts because it requires for better comprehension and better preparation in a shorter amount of time from a group that excludes all those that were accepted from the community college system. it is impossible to believe that for-profit outcomes could exceed its counterparts – let alone exceed it by 15x to justify the price differential.
against the grain of market rules
while solutions like lowering price to be more in line with community college or taking more time to improve the quality of the education are available, this would challenge the margins and the profit of the business significantly. so, by most free market standards, there is no reason for the proposal from a for-profit school like american career college or west coast university should thrive and grow. how does it survive?
the key centers around government support – but not the one you usually hear about from the for-profit organizations. while it is undeniable that the government provides money to the public school system (incl. community colleges), the government program that is bastardizing the system is the one that is given directly to the student – student grants (which do not have to be paid back) and loans (that do have to be paid back).
when a student contacts a school like american career college to find out about the admissions process, the school will, as it should, tout its clear benefits – access and speed. this is used to get students more interested which by any account is not controversial on any level. but once the price tag comes out, it is a very tough sales endeavor to get anyone to fork up the $47 for that Big Mac – no matter how many I can get or how soon you can get it to me.
and this is the moment of truth. faced with this, the business could accept the signs provided by the marketplace and lower the price to something that equates the profits to the value of access, speed and outcome, ignoring the way that the student pays for it and accepting its place in the market. or it can choose to enter the government subsidy into the equation and price to maximize it. most schools to the latter and while it is clear that this slope is slippery, no one has really gone over the edge yet. it is when you start to target prospects based on her grant and/or loan availability, you start to get into the predatory practices. This is because of the student’s mindset to grants versus loans versus personal funds as well as the hierarcial distribution of these funds.
as many know, student aid is based on need. the more need, the more favorable the terms of your funds. explicitly, the child of a middle income family would likely get a range of loan options with no grant money; conversely, a member of a poverty level family will likely see mostly grants before they would even need to consider loans.
while loans delay the payment, most students understand that at some point they will need to pay it back and so it makes the investment easier but there is still something to consider. It is treated as layaway or a payment plan. grants, on the other hand, simply lower the price and are considered a “coupon”, if you will. it is this situation that fuels the decision making of the executive teams and creates the inappropriate actions.
how did the price of for-profit schools get to be 15x that of community college?
imagine to start, that the price was the same – lets say $1,000 for an medical assistant program both at a community college and a for-profit school. price would not be an issue and the student would pick a school for independent reasons. Also, because of the government public education subsidies, the community college would have more money in the end and the for-profit school would likely be taking a loss.
so now the for profit school has to charge 50% more to make up for the public education subsidy and to equal the financial outcome making the price $1,500 for the same MA program. If this happened, then the school would have a very difficult time justifying the extra 50% without creating benefits that make a student spend more. This might be access, speed or outcomes.
But what if there is a way that I can get my extra $500 without making these improvements? Here is where grants come in. In essence, finding a student who comes to the door with $500 in grant money just lowered your price by the same amount. so this student uses the $500 does not care about the potential benefits of access, speed or outcomes. this simultaneously makes the cost of potential projects to build these advantages unnecessary and the school simply pockets the $500 as profit.
What if that person comes to the door with $8,000 of grant money? while the substitute product only cost $1,000, you can charge $9,000 and the financial decision returns to neutral. and if my costs are $1,000 (as stated before – without a need for projects), I get to clear $8,000 for myself.
this works also as you slide up the need continuum and include loans. what if a student comes with $8,000 in grants and $2,000 in loans? can we charge $11,000? sure! the cost to the student is now $1,000 today (same as community college) and $2,000 to me over the next 10 years when I will conceivably will have more income. the loan gets discounted in the mind of the prospect (thanks to some pressure by the admissions rep) and the $1,000 today is the perceived price.
now you can see how there is every incentive to pursue the students with the most need so my company can continue to raise the price.
this has got to create problems….its too easy.
well, as stated before, we know that student loans/grants are based on need so lets just find the most in need. however, these are also the least educated and least prepared to make these decisions (there are plenty of studies out there supporting education and income correlations). it generates a litany of questions.
how can we realistically give the less educated a comparable education in less time?
are we sure that these prospects understand what they are signing up for?
we need to exceed in outcomes – how do we do that when we have time constraints?
unfortunately, these questions often get replaced by the following questions from admissions or the business office.
so how does my business find more of these people with the $8,000 free money versus those with none or only $500?
this is where an organization starts to get into trouble. by answering the first set of questions with “lets get the money first and then we will deal with that”, the organization has left the education harbor and drifted into the sea of profits, from which it is very difficult to return. so when you read stories about recruiting in homeless shelters and the like, you can now see how valuable the high financial need prospects are. they are so valuable that an organization would do this in the open with little attempt to conceal.
why aren’t there more lawsuits/complaints/outrage about this?
there are many reasons why this has stayed under the radar. first is that the government has implemented rules to target these practices. specifically there is a 90%/10% rule which requires at least 10% of students’ tuition to come from outside the student loan program. this however is toothless as most will solve by using private loans which really does not help the student any. additionally for every $1 in a private loan, the organization gets $9 of guaranteed funds from federal student aid. with this kind of trade off, any accountant would be happy to take on risk on the private loan front.
additionally, there are rules around admissions team compensation plans that are meant to curb aggressive practices. what the government has yet to recognize is that these rules have all been effectively gamed by the industry and most of the institutions have found fixes around these.
another reason is that the victims of these crimes are either members of the underprivileged community or the faceless taxpayer, both of whom have a difficult time mounting a meaningful defense. because the victims cannot mobilize, it goes somewhat unreported.
lastly, it is very difficult to communicate or determine “intent”. when a group is recruiting in a homeless shelter, are they trying to provide better opportunities or trying to steal government grant money? it is tough to parse and due to the general positive public sentiment of educators, many have received a pass on this.
what are we to do?
going back to the start of this post, you now might understand better why we just cannot see a connection between what we are trying to do with our collection of former employees and Steve Slater of JetBlue fame. while Mr. slater was upset and frustrated over years of abuse from clients, he would acknowledge that it was all within the realm of the job he selected and he at no time was asked to bend laws, bankrupt students, or put undue pressure on prospects to do his job effectively.
our group understands the inner workings of an organization that is knowingly using underprivileged communities to get access to government funds without delivering anything close to the performance that justifies charging 15x the price. No one bemoans those that uncovered that the Department of Defense was paying $640 per toilet seat – we believe that we are providing the same public information campaign. taking the advice of Frankie and “relax” is just not the appropriate response to an industry stealing billions of our dollars and giving to a select few wolves in sheep’s clothing. in our opinion, telling the story to the public shows more class than letting it go forward unchecked.
if, after reading this, you agree that this is as large of a problem as we think, please help us promote the site. you can reach us at friendofthestudent.wordpress.com or follow us on twitter (@frndofstudents) or facebook (friendofthestudent page).
while the government, activists (including this blog), and media continue to question the unethical and greedy practices of the for-profit education sector, instructors and/or the quality of education often gets thrown into the mix. however, from all of our conversations, it has been clear to us that this allegation is more complex than simple guilt by association. while the business end of the for-profit machine is mercilessly pummeling the government and underprivileged students, it is not fair to say that the education end of the school is 100% in cahoots.
in our contributors’ comments, it was communicated that the instructors were given a complex situation to manage with little or no recourse. Because of the “take anyone who can get financial aid” admissions process, the teacher is stuck with a classroom ranging from the reluctant/nothing-invested student to the highly-motivated/self-funded. By all accounts, this would be difficult to manage especially when the room needs to graduate a particular percentage in order to keep its license. So in most cases, the class gets bogged down.
As if this wasn’t enough, the admissions team sticks education again by taking 15%-30% of the revenues for to keep themselves happy while they pursue unethical and aggressive recruiting practices. In privately held for-profits, the business is routinely looking for 40%+ profit margins meaning that there is only 30%-45% of revenues left for the entire rest of the business – including fixed costs, salaries, etc. Bottom line, is that education routinely is told that there are little resources for what they want to do to enhance the teaching process.
Lastly, they lack any organizational power to influence change. When you have a VP of admissions bragging to the entire executive team that he brings in 100% of the revenue (thus, profit) and needs something to improve it, the business will trip over itself to feed the monster. that is how the budgets for admissions gets so bloated. for example, at american career college, the meals and entertainment budget (the day-to-day account, meetings/events had a different budget) could easily afford lunch for every admissions rep every day the school was open with room to spare.
so, the instructors do the best they can with what they have. now, it is true, they have chosen working for this type of organization so they are part of the machine. usually this is complicated by aggressive salaries to keep them where they are, something very compelling for a person trying to survive the current recession.
bottom line, while an admissions staff, especially the VP of admissions, have no excuses for the practices they have implemented, the culpability of the instructors is not clear. we should be sure that we do not paint everyone with same paintbrush we use for admissions/administration.
at this point in time, the US Senate HELP committee and the US Department of Education are considering various actions to try and better manage the enormous amount of funding that goes to student loans and grants. we would like to suggest better transparency for ALL institutions that collect these funds – including privately-held for-profit education institutions.
according to an article from Andy Kroll on Mother Jones, for-profit education institutions represent almost 25% of our education loans and grants while only educating only 10% of our students. this alone is not the reason for the scrutiny as a number of these institutions legitimately argue that they have lower admission standards to extend educational opportunities to those less fortunate and, thus, need more aid.
the problem is that we have no mechanism or leverage to ensure that they are actually educating this group. as Daniel Golden has demonstrated in a number of articles, including this one about recruiting the homeless, this argument leaves a huge loophole for profit seekers to simply admit anyone to collect our tax dollars and fill the pockets of its investors.
but it gets worse. lets consider shades of gray. according to an article in the LA Times by Julia Love, the average publicly traded for-profit school grew profits to “$229 million in 2009, up from $150 million the year before.” however, while the publicly traded for-profit schools admittedly access public funds on a larger scale, the profits that are created are at least available through the purchase of shares in the organization. and while this is not getting back to the lower class that it leveraged to collect the funds, it is available to anyone with a 401k or any investment tool in his or her portfolio.
in privately held firms like american career college and west coast university in LA, things are completely different. these firms take from over 5,000 or 6,000 students per year and share the proceeds with 50 people with a vast majority going to one individual. while this alone is no crime – it is capitalism – someone has to ensure that we are getting the benefits we are contracting. the fact that these books are closed and not available for public review leaves the system ripe for manipulation and malfeasance. surrounding this are rumors of land development, family excursions, extra houses, and boats purchased by the education organization – how does that help educate the students of the greater Los Angeles area?
you say “the accrediting bodies are there for this”? they are in bed with the schools they govern. just like the recently uncovered challenges found with MMS in the oil industry, the same organization that collects the fees of the schools are the same organizations that regulate them. there is no way they are going to cut off their nose to spite their face. they need the revenue to pay for their existence. a simple example of this was a request for placement rates by our group to ABHES, the accrediting body of american career college and a number of other health care educators. they referred us back to the schools. how do we even know if they are checking that these are accurate or that we are receiving accurate information? isn’t this the sole function of this organization? it is a mess.
if sunlight is the best disinfectant, i say we shine it here. it is by no means radical and it makes everyone responsible – a simple quid pro quo. you want our money, we see how you are spending our money. if we like it, then you can have it. if not, it does not keep them from being educators – they simply need to find a way through private loans or through performance like any other private institution.
or they can educate without the for-profit part of the business. lets see how many Michael Clifford’s stay in the industry after that. we think we could make a pretty tidy profit betting that they would get out as quickly as they came in.
it is clear that tuition is going up and, at this point, it has reached the point of absurdity. children born today will incur education costs over $100,000 in public school and over $200,000 for private school. this begs the question…..why?
the first cause listed by most public schools is the drying up of public funding due to budget cuts during the recession. here in California, this has been very well documented both locally and nationally. while this might not be tasty to the palate, it is pretty simple to understand. less subsidies leave only two options – more revenue or less services/costs.
for a non-profit private colleges, its a little different, but the equation is similar. the administration is dependent on donations and endowments and the financial performance of these funds to help subsidize the operations of the organization. it is not hard to imagine that the recession of 2009 impacted the intake of donations and the market’s collapse had an impact on the performance any savings or trust funds held by the organization – especially in safe fixed income vehicles in an environment where fiscal policy make borrowing almost free. lower proceeds and lower interest income results in the same two options – more revenue or less services/costs.
what does not make sense is how this impacts for-profit institutions. the school uses the legitimate claim that, as a private entity, its tuition has to be higher than those supported by state funding. as a for-profit entity, it cannot collect donations or receive endowments. so with both of these out of the equation, why would this year be any different than the economics of last year for this school?
recently, West Coast University, a for-profit nursing school in the LA metro owned by American Career College, increased tuition for current students by 5%, despite communicating to prospective students that $130K+ tuition was “locked in” when they started the accelerated program. however, in the statement from the president, he references state school increases as the rationale for the increase at West Coast University. how did costs increase for the unsubsidized, for-profit school? more available teachers would push down labor costs. commercial real estate is less expensive than the past. demand for education is up dramatically due to the economy so marketing costs are down. what could this 5% be going to?
this circular argument only confirms that the organization gets the student both coming and going. if the economy is booming and the state funds education more, for-profits can point to the increase in funding as a reason to increase tuition (since they do not receive these funds). if budgets are stretched, the for-profits can point to cuts by the state as a reason for the increase and an unaware public accepts it.
i discussed the west coast university increase with my group of experts and, while they could not confirm the details of the decision, they did confirm that the business did not receive state funding and enjoyed what one called “dishonorable” operating margins – something north of 40% – meaning that the cost of “running the school” left at least 40 cents on every dollar for the administration to allocate to buying new buildings or land (like the OC Fairgrounds) or to hand out as bonuses.
it seems a little much when $52,000 (40%) from $130,000 tuition is not enough. recently West Coast University earned eligibility to apply for WASC accreditation. we hope that someone at WASC will look into this.