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View Full Version : U.S. Issues How for profit education is like subprime mortgages.


KC native
06-20-2010, 02:50 PM
So, I know I'm gonna get some nonsense about mercantilist yada yada from stupid bitch and Teej, but for the rest of the wingers, why didn't the free market work here? Why are we going to need more regulation?

http://abcnews.go.com/Business/TheBigMoney/profit-colleges-subprime-mortgages/story?id=10949046
How For-Profit Colleges Are Like Subprime Mortgages
Report: Both Subprime-Mortgage Business and For-Profit Colleges Are Built on Giving Loans to People Who Can't Pay Them Back
By MARK GIMEIN

June 19, 2010

Ashford University of Clinton, Iowa traces its beginnings all the way back to the end of World War Ia fact underlined for visitors to its Web site by the proud "Founded 1918" that hangs off the bottom of the school's logo.

It's an extraordinary and improbable record of longevity. Ninety-nine percent of Ashford's classes are online, yet its founding precedes the birth of the Web by about 75 years. For a 92-year-old school, Ashford is conspicuously obscure. You won't find it in any of the lists of best colleges, though Peterson's college guide does note its "24 acre small town campus with easy access to Chicago."

In the world of for-profit education, though, Ashford is less obscure: It's one of the most incredible growth stories of the past decade. In 2005, a startup company called Bridgepoint Education Inc. (BPI) spent $9 million to buy a struggling 332-student religious school, the Jesuit University of the Prairie, from the Sisters of St. Francis. BPI renamed it Ashford. Now Ashford, together with the University of the Rockies (another tiny school, the former 75-student Colorado School of Professional Psychology, which BPE bought in 2007) enrolls more than 65,000 students.

Last year, BPE's two school took in $454 million in tuition and fees from its students. If Ashford's academic reputation has not grown as fast as its enrollment, it is no surprise, considering where all that money went: $145 million was spent on marketing and recruitment, which is $25 million more than the colleges spent on instruction.

As striking as how little of Ashford's money is spent on education is how much of it comes from government grants and federally backed loans. 85 percent of BPI's $454 million in revenue last year was funded with federal student aid.

Even among for-profit schools, Ashford's growth is exceptional. But Ashford's basic formula of pulling in federal aid dollars and using them to market to ever-more students, however, is much like the template for the entire for-profit higher-education industry. Extolled as a free-market solution to rising education costs, schools like Ashford have instead turned into a study in how to repurpose public resources for private gain.

BPE, Ashford's parent company, is one of several corporations featured in a striking report from the investor Steve Eisman. Eisman is well known from Michael Lewis's The Big Short for having anticipated the subprime crash. Now Eisman has turned his attention to for-profit education. He's catalogued how federal education aid is now funneled to for-profit schools that have delivered stellar profits to their owners and dismal graduation rates for students while leaving taxpayers with a bill for billions of dollars in defaulted student loans.

Over the past year, there have been reporters, such as Daniel Golden at Bloomberg, who've done extraordinary work detailing the abuses of the for-profit education sector. What Eisman brings to the table is a wealth of data and a well-trained eye for the economic underpinnings of the industry and the striking ways in which it resembles the failed subprime loan business.

How is for-profit education like subprime mortgages? Three points stand out in Eisman's report:

*Both the subprime-mortgage business and for-profit colleges are built on giving loans to people who can't pay them back. Just as the housing boom was fueled by bad mortgages that could be sold to Fannie Mae and private investors, the for-profit education boom relies on students taking on debt that is guaranteed by the federal government even when students have little realistic hope of repaying it. As Eisman showed in an extraordinary presentation for investors, federal aid, mainly loans, is essentially the sole driver of the for-profit education industry.

The 85 percent of revenue that Ashford gets from federal education programs (it gets another 5 percent from military scholarships like many such schools, it vigorously recruits soldiers and veterans) puts it in the middle of the pack. At the Apollo Group, the owner of the University of Phoenix, government aid pays 90 percent of tuition.

Because the federal loans that students take out are guaranteed by the government, colleges and lenders don't need to worry about whether they are repaid. The Education Department monitors student-loan default rates for two years after students leave school; for-profit colleges make sure that even students who can't pay fill out deferment or forbearance forms to keep the numbers in line. After that, the former students are on their own, and things get worse fast. Eisman estimates the default rate after three years at Corinthian Colleges, a 105,000-student for-profit school group, at a startling 41 percent.

* On the ground floor of both the mortgage and for-profit college business, growth is driven by bonuses to marketers. The role that mortgage brokers and bank account representatives played in the subprime business is held by recruiters in the for-profit education business.

In his presentation for investors, Eisman traces how the for-profit business took off when rules on recruiter compensation were loosened in 2001. What's more, he catalogues what happened to the officials in the Bush administration Education Department who made that happen and then became lobbyists for the for-profit college industry.

At the end of last year, BPI had 1,175 recruiters responsible for drumming up business. The company plainly discloses in its annual report that it sets tuition (currently $7,860 a year) to stay within the loan limits of Title IV, the regulations governing financial aid. One Ashford recruiter Eisman quotes is more blunt: "They conveniently price tuition at the exact amount a student can qualify for in federal loan money. If a person has money available for school, Ashford finds a way to go after them. & It's a boiler room, selling education to people who really don't want it."
* Just like the subprime crisis, for-profit education is a slow-moving nightmare, eating up more and more incremental education aid dollars year by year. For-profit colleges are by far the fastest-growing sector of education, with Education Department data showing enrollment going from 364,000 to 1,469,000 in the decade from 1998 to 2008.

But if the growth in students has been great, the growth in the volume of federal aid dollars that for-profit education takes in is far greater. For-profit schools now enroll 8 percent of students but as Eisman's report shows, they take in a full 24 percent of federal student aid. Given the rate of student-loan defaults at for-profit schools, Eisman estimates that if they are to keep growing at the present rate, by 2020, students at for-profits will have defaulted on $275 billion in federally backed loans, and a cost to the government of $330 billion.

Numbers like that do get folks attention, even in these days when the country has gotten almost used to multibillion-dollar bailouts. There is some good news on the horizon. The Education Department is considering new rules that would clamp down on how college recruiters are paid and put some limits on tuition, based on the salaries graduates could expect. In the short term, Eisman thinks this will seriously cut into the industry's profit margins. But he says that they'll just slow, not stop, the growth of the business.

In an interview, Eisman advocated a far more dramatic step to rein in the industry. It's driven by simple economics and would get to the core of the issue. Right now, colleges bear none of the risk of defaulted loans. It's the same separation of risk and reward that Eisman saw in the subprime industry. The solution he'd advocate is simply making the colleges pay back the government a share as much as 50 percent of the loans that go back. "They're so profitable," says Eisman, "they can afford it."

Or, more directly, as Eisman puts it: "Let 'em eat it." That's a solution to the for-profit education bubble that's both simpler and more drastic than any of the regulatory changes being considered.

It's also a solution that should be an easy one for anyone who might genuinely believes in the role of for-profits in education. As it stands now, for-profit schools are one of the economy's embarrassments for believers in free markets. They have every incentive to skimp on the costs of education (recall how little Ashford spends on instruction) while collecting as much they can in tuition by encouraging students to max out their loans. Making them share the risks of those education loans makes them responsible for their failures. If you want for-profits to deliver a better profit, it's the natural free-market approach.

For the moment, though, that's a nonstarter. Legislatures remain filled with ex-lobbyists and future lobbyists for the industry. (As Eisman points out, a former chief lobbyist for the Apollo Group is now a top congressional education policy staffer). What's more, as enrollment grows and for-profit schools grow ever more ubiquitous Wal-Mart (WMT) just announced a partnership with one that will give its employees degrees in fields like "retail management" their political base grows.

In this way, too, you might say that for-profit education is a lot like subprime: At some point we'll get to the rational solution. Just don't count on it happening before the taxpayers are already staring at epic losses.

Copyright 2010 ABC News Internet Ventures

vailpass
06-20-2010, 02:52 PM
Like anyone reads or cares what you post.

KC native
06-20-2010, 02:54 PM
and here is Eisman's speech

KC native
06-20-2010, 02:54 PM
Like anyone reads or cares what you post.

I know your hatred of minorities gets in your way but not everyone is a hate filled pussy like you.

vailpass
06-20-2010, 03:01 PM
I know your hatred of minorities gets in your way but not everyone is a hate filled pussy like you.

You aren't a minority, just an asshole. Stop playing the race card and face the facts.

KC native
06-20-2010, 03:10 PM
You aren't a minority, just an asshole. Stop playing the race card and face the facts.

Ah that's rich. Run along now. It's painfully transparent that you are in over your head again. Direkshun was right about you needing floaties to wade into the deep end.

This is a great article and an important issue seeing as how they are receiving billions in federal aid but they aren't delivering on education.

Dallas Chief
06-20-2010, 03:10 PM
Hey neighbor! Since you are the one that went to all the trouble to post this big old article based on some outdated news AND highlight sections you thought were important, I think the more pertinent question is- why do you think the free market "isn't working"in this case? I mean anyone can post an article or a link written by somebody else. If you are gonna ask the question don't you think maybe you ought to give it a go yourself? Am I right or what???

KC native
06-20-2010, 03:15 PM
Hey neighbor! Since you are the one that went to all the trouble to post this big old article based on some outdated news AND highlight sections you thought were important, I think the more pertinent question is- why do you think the free market "isn't working"in this case? I mean anyone can post an article or a link written by somebody else. If you are gonna ask the question don't you think maybe you ought to give it a go yourself? Am I right or what???

Um, I'm not a proponent of unfettered markets. I believe regulation is key to prevent shit like this. When I start taking a complete laissez faire stance like Teej or BEP then maybe you can try and put that shit on me until then grow up.

Second, how is this outdated news?

Saul Good
06-20-2010, 03:37 PM
I think the more pertinent question is- why do you think the free market "isn't working"in this case?

I don't consider loans that are guaranteed by the Federal Government to be part of the "free market". If the loans weren't guaranteed, you'd see a modicum of common sense used when granting loans.

Dallas Chief
06-20-2010, 03:41 PM
Um, I'm not a proponent of unfettered markets. I believe regulation is key to prevent shit like this. When I start taking a complete laissez faire stance like Teej or BEP then maybe you can try and put that shit on me until then grow up.

Second, how is this outdated news?

Don't get nasty with me brotha. You are the one dropping the spam on the board calling folks out without sounding off on where you stand. So I guess you dropped that shit on yourself junior. But since you've spoken your peace on it, and we now know your take on it you are now free to go. Nobody ever said you supported unfettered capitalism run amok in higher education.

Old news in the sense that PBS did a take on the for profit system about six weeks ago. I guess we intellectual types prefer Frontline on Tuesday Nights over telenovellas... :)

Pitt Gorilla
06-20-2010, 03:51 PM
Don't get nasty with me brotha. You are the one dropping the spam on the board calling folks out without sounding off on where you stand. So I guess you dropped that shit on yourself junior. But since you've spoken your peace on it, and we now know your take on it you are now free to go. Nobody ever said you supported unfettered capitalism run amok in higher education.

Old news in the sense that PBS did a take on the for profit system about six weeks ago. I guess we intellectual types prefer Frontline on Tuesday Nights over telenovellas... :)ROFL

googlegoogle
06-20-2010, 04:00 PM
I know your hatred of minorities gets in your way but not everyone is a hate filled pussy like you.

KC dumbassnative neg repped me for posting about 'government checks going to the dead'.

Why asshole? Is that how you earn an income you stupid fu**tard?

Is there anything intelligent in your comments?

I guess we know who butters your bread. OBAMA DOES!

vailpass
06-20-2010, 04:05 PM
Ah that's rich. Run along now. It's painfully transparent that you are in over your head again. Direkshun was right about you needing floaties to wade into the deep end.

This is a great article and an important issue seeing as how they are receiving billions in federal aid but they aren't delivering on education.

Pairing yourself with direckshun? You do realize you occupy the gimp corner don't you? And how is it exactly that you qualify for minority status? Or is that just something you play when you want sympathy or a government handout?

The fact that you consider your posts to be "deep" is the height of comedy.
By all means, continue to post riduculously long articles and kid yourself that many outside of the gimp circle give a shit what you say.

ClevelandBronco
06-20-2010, 04:07 PM
Pretty good thread so far.

http://iamyouasheisme.files.wordpress.com/2008/09/300px-train_wreck_at_montparnasse_1895.jpg

JohnnyV13
06-20-2010, 05:32 PM
Acually, this is really more of Big Government COMBINED with free market capitalism, which yeilds a coathanger abortion of an economic entity.

A purely for profit entity would have more restraint if they bore more risk with respect to loans.

But, I won't ignore the reality that many long term business relationships such as school loans, health insurance or home mortgages are ripe for marketing abuse. The darwinian nature of markets doesn't work as well when the product's "payment cycle" is so long. Customers frequently lack perspective when purchasing something early in life that will have fiscal impacts for 30 years.

BucEyedPea
06-20-2010, 06:12 PM
Acually, this is really more of Big Government COMBINED with free market capitalism, which yeilds a coathanger abortion of an economic entity.
That goes by the following names: mercantilism, neo-mercantilism, cartel capitalism, and corporatism.

A purely for profit entity would have more restraint if they bore more risk with respect to loans.
Well, well we agree. Exactly!

But, I won't ignore the reality that many long term business relationships such as school loans, health insurance or home mortgages are ripe for marketing abuse. The darwinian nature of markets doesn't work as well when the product's "payment cycle" is so long. Customers frequently lack perspective when purchasing something early in life that will have fiscal impacts for 30 years.
Pure exaggeration.

KC native
06-20-2010, 07:18 PM
Don't get nasty with me brotha. You are the one dropping the spam on the board calling folks out without sounding off on where you stand. So I guess you dropped that shit on yourself junior. But since you've spoken your peace on it, and we now know your take on it you are now free to go. Nobody ever said you supported unfettered capitalism run amok in higher education.

Old news in the sense that PBS did a take on the for profit system about six weeks ago. I guess we intellectual types prefer Frontline on Tuesday Nights over telenovellas... :)

Go fuck yourself. I don't watch television news. Now, go troll somewhere else.

KC native
06-20-2010, 07:19 PM
Pairing yourself with direckshun? You do realize you occupy the gimp corner don't you? And how is it exactly that you qualify for minority status? Or is that just something you play when you want sympathy or a government handout?

The fact that you consider your posts to be "deep" is the height of comedy.
By all means, continue to post riduculously long articles and kid yourself that many outside of the gimp circle give a shit what you say.

http://icanhascheezburger.files.wordpress.com/2008/03/funny-pictures-screaming-cat-has-floaties-water-boat.jpg

KC native
06-20-2010, 07:29 PM
That goes by the following names: mercantilism, neo-mercantilism, cartel capitalism, and corporatism.


Well, well we agree. Exactly!


Pure exaggeration.

and you didn't disappoint here either. :bravo:

BucEyedPea
06-20-2010, 07:50 PM
La! La! La! La! La!

Dallas Chief
06-20-2010, 08:03 PM
ROFL

I don't know which is more ironic? Me trying to puff myself up as an intellectual type because because I watch PBS and tripping all over my d!ck with my mobile spelling -or- having that spelling called out AND corrected by someone that calls themselves Pitt Gorilla. ROFL

Dallas Chief
06-20-2010, 08:14 PM
Go **** yourself. I don't watch television news. Now, go troll somewhere else.

What is this troll you speak of? I have as much right to be here as you do. When was the last time you kicked a nickel in around here? Huh? Why so angry? I wanted to know what you thought. WTF is the point of dropping a story in here without adding your own $.02. Nevermind...cabron.

BucEyedPea
06-20-2010, 08:15 PM
I don't know which is more ironic? Me trying to puff myself up as an intellectual type because because I watch PBS and tripping all over my d!ck with my mobile spelling -or- having that spelling called out AND corrected by someone that calls themselves Pitt Gorilla. ROFL
Don't you worry. He's the "Peanut Gallery" poster of the year. Makes hardly a contribution, if any, but comes in here just to heckle and throw peanuts at posters.

Dallas Chief
06-20-2010, 08:19 PM
Go **** yourself. I don't watch television news. Now, go troll somewhere else.

Well this isn't television news, technically. Since you care so much...

http://www.pbs.org/wgbh/pages/frontline/collegeinc/view/?utm_campaign=homepage&utm_medium=proglist&utm_source=proglist

Direckshun
06-20-2010, 08:36 PM
http://icanhascheezburger.files.wordpress.com/2008/03/funny-pictures-screaming-cat-has-floaties-water-boat.jpg

I laughed.

Direckshun
06-20-2010, 08:37 PM
POLITICAL DISKUSHUN

YER DOIN IT WRONG

googlegoogle
06-21-2010, 03:23 PM
Go **** yourself. I don't watch television news. Now, go troll somewhere else.

We know you don't read too.

Pants
06-21-2010, 04:16 PM
We know you don't read either.

FYP, monkey.

vailpass
06-21-2010, 04:39 PM
FYP, monkey.

You in the direkshun/KC Native camp Metro?

Pants
06-21-2010, 05:19 PM
You in the direkshun/KC Native camp Metro?

I don't have a camp. I like Ron Paul's ideas a lot but I'm not batshit crazy like some of the other posters here.

Taco John
06-21-2010, 05:23 PM
Is the thought here that going to college shouldn't be a risk? The answer is simple: show enough initiative to qualify for scholarships.

I didn't show that initiative in high school. I was bored by the busy work, and despite being in AP classes, I just put in enough effort to demonstrate that I belonged. It frustrated my teachers and parents to no end. In the end though, I had to pay for it by paying my own way through school, which included getting loans. Once I got the loans, though, I was committed, and realized that the only person I was cheating was myself. At that point, it was nothing but A's and B's.

College should be a risk. If I didn't have everything on the line, I might not have had the wake up call that I needed.

Taco John
06-21-2010, 05:27 PM
Acually, this is really more of Big Government COMBINED with free market capitalism, which yeilds a coathanger abortion of an economic entity.



^^^^

This... With the minor adjustment that once Big Government gets involved, Free Market Capitalism is no longer "free market" capitalism, but instead something that I'll call "progressive capitalism." Which is to say "coathanger abortion of an economic entity."

Taco John
06-21-2010, 05:31 PM
I don't have a camp. I like Ron Paul's ideas a lot but I'm not batshit crazy like some of the other posters here.

The only reason they won't think you are is because you probably can't argue in favor of your ideas. If you could or did, you'd be in the same boat as those of us who are proud to argue in favor of our ideas.

BucEyedPea
06-21-2010, 07:44 PM
^^^^

This... With the minor adjustment that once Big Government gets involved, Free Market Capitalism is no longer "free market" capitalism, but instead something that I'll call "progressive capitalism." Which is to say "coathanger abortion of an economic entity."

Mercantilism in many ways.