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Posted by on Apr 8, 2010 in Business, Career, Education, Opinion, Social Issues, TG Roundup

Stay Away from those “On-Line, For-Profit” Schools

Remember the pet-rock fad? People were stupid enough to buy those “pet-rocks.” Surprisingly, the business itself was legitimate. There is another ‘legitimate’ business, which is essentially fraud: several for-profit universities in USA!

Online education by the ‘for-profit universities’ is the next biggest fraud to be exposed.

These schools are businesses. They sell “degrees.”  Nothing appears wrong with that until you dig down on their sleazy business practices. Buying a ‘degree’ is not like buying a finished product. Rather, you have to finish the product and take it with you. Few people finish these products.

New York Times has a great article on this recently (emphasis mine).

At 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 that can exceed $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, selling 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 low-income students.

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


The Apollo Group — which owns the for-profit University of Phoenix — derived 86 percent of its revenue from federal student aid last fiscal year, according to BMO. Two years earlier, it was 69 percent.

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. (Those anticipated increases may shrink, depending on the outcome of wrangling in Congress over health care and student lending.)

Enrollment at for-profit trade schools expanded about 20 percent a year the last two years, more than double the pace from 2001-7, 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.

Before you dig deep into debt and enroll into one of these outfits for the lure of a ‘degree,’ which is essentially worthless:

Pet-rocks can be used as paper weights. But, your degree from some of these sleazy colleges will not have any weight even with pet-rocks sitting on top of it.


  1. Mohan garu,

    If the online schools like UoP are still making profits, it means that they are able to lure students. We should not be blaming the schools but those students who are making poor choices.

    I would be curious to know why any student with common sense would go to such schools instead of community colleges which are much better.

    Coming to your view about driving under-performing schools out of business does not make any sense to me. Is not the root cause or causes somewhere else?

    • I was going to respond more to Chakravarthy’s comments about ‘free markets’ driving them out of business. Looks like I will have this topic, at least partially, as a topic on my show tomorrow. Here is the heads up.

      Students making poor choices because they are ill-informed. Why are they ill-informed? Because, the regulators are asleep at switch – just like they were during rampant mortgage fraud at the lender level (Chakravarthy garu: FYI, as per a FBI 2004 report, mortgage fraud: 80% by lenders; 20% by consumers). Look at the numerous violations of these schools. Examples: a) incentive based enrollment and recruitment targets. b) massaging numbers related to dropout rates by paying of Pell grants on behalf of the students and unleashing collection hounds at these students who lost in two ways – no degree, no money.

      Do you know who are the hottest recruits as the recruiters/counselors at University of Phoenix? Used car salesmen and former mortgage brokers. Their hardball recruiting tactics lure the unsuspecting into the student loan death trap – that too for a degree they have no chance of completing.

      Yes, their stocks are doing will because they found a way to siphon money from government loans into their coffers. The CEO of UoP made $80 million in 2007-2008. Of course he will – the sociopath hedge fund managers are quite good at orchestrating a number of short-squeezes in APOL stock (now at $65). When this stock falls, it will hit single digits in no time.

      Chakravarthy garu – you may think that this is free-markets at work. I disagree! Before this fraud is exposed, 10s of thousands of not-so-well-to-do students drown in debt and their lives are ruined.

      Join me tomorrow on my show – we will talk more about this.

  2. Mohan garu-

    Your comments show-case the power of free markets. You are essentially playing a role in driving some of these bad schools out of business, by advising potential students to not go to these schools.

    Now, how do you get rid of under-performing government funded state schools?

    • I am in favor of driving “severely” under-performing government schools out of business. However, I teach at GMU where a good percentage of students come from publicly funded community colleges. Most of them do “alright” to “well.” The community colleges they come from will not measure-up to Harvards, but they do a lot lot lot better than UoP.

      If drivers for existence of a school is performance (of its graduates) without regard for cost of education, this society becomes a society of the rich. In such a society only the rich get good education, just like the rich teams win all the championships..

      more later…