For-Profit Education Defends Its “Beachhead”

From the New York Times, another example of what happens when education goes from being a vocation to being a for-profit industry:

WASHINGTON — Last year, the Obama administration vowed to stop for-profit colleges from luring students with false promises. In an opening volley that shook the $30 billion industry, officials proposed new restrictions to cut off the huge flow of federal aid to unfit programs.

But after a ferocious response that administration officials called one of the most intense they had seen, the Education Department produced a much-weakened final plan that almost certainly will have far less impact as it goes into effect next year.

We have reported previously on for-profit K-12 providers, or Education Management Organizations (EMOs). The businesses, dubbed EMOs by Wall Street analysts, “emerged in the early 1990s in the context of widespread interest in so-called market-based school reform proposals,” according to a report from the National Education Policy Center at the University of Colorado at Boulder.

Imagine Schools, Inc., Connections Academy, Einstein Academy, and Charter Schools USA are among the largest for-profit primary education EMOs to watch. Named in the Times report, Kaplan University, University of Phoenix, and ATI, a college network based in Dallas, are among the providers pursuing “tens of billions of dollars in federal student aid” for higher education. Ninety percent of their revenues comes from federal aid. The schools mean to defend their “beachhead” in the education industry from what Avy Stein, a partner in the equity fund that owns Education Corporation of America, called “Armageddon for the industry.”

It only took $16 million for the industry to hire A-list help such as Anita Dunn (Obama friend and former White House communications director); Jamie Rubin (major Obama campaign bundler with a stake in ATI); Richard A. Gephardt (former House majority leader); John Breaux (former Louisiana senator); and Tony Podesta (brother to John Podesta, Obama’s transition team leader) to get the administration to “narrow the scope of the original plan.” While describing the lobbying effort as “extreme,” the official in charge of White House rule making, Cass R. Sunstein, claims “the haranguing had zero effect.” But enough to describe as haranguing.

The Times continues:

The industry was on the defensive after a series of federal investigations portrayed it as rife with abuse. They found that recruiters would lure students — often members of minorities, veterans, the homeless and low-income people — with promises of quick degrees and post-graduation jobs but often leave them poorly prepared and burdened with staggering federal loans.

During hearings led by Senator Tom Harkin (D-Iowa), the schools challenged the motives of witness and hedge-fund trader Steve Eisman who likened their profit margins to those of subprime mortgage lenders. When Eisman admitted holding positions in industry shares, the for-profit schools accused him of hoping to make millions by short-selling their stocks after badmouthing their businesses.

Readers should remember that amidst the fights over federal tax dollars, shareholder dividends and Wall Street profits, the industry has just one mission: education. Appearances notwithstanding.

[h/t Crooks and Liars]

(Cross-posted from Scrutiny Hooligans)