On Monday, the federal government agreed to give Corinthian Colleges Inc.—one of the largest for-profit education corporations—access to $16 million in federal loan and grant money so the embattled company can keep its doors open.
For years, Corinthian—a mammoth conglomerate of the 107 campuses of Everest College, Heald College, and WyoTech schools—has been the subject of lawsuits and investigations by the Department of Education (DOE) over how the company marketed its schools, potentially misleadingly, to students.
The Department of Education restricted Corinthian’s access to federal funds earlier this year, but it was not until late last week that the company announced the limitations threatened its immediate operation. The newly allocated funds will allow Corinthian to continue to serve its 72,000 students as it acts on several DOE requests, including closing some of its schools and employing an independent auditor to direct operations.
The company will also attempt to sell off significant parts of its educational network, after allegations of falsifying data on graduate job placement and marketing fraud, in order to stay afloat.
And all this is occurring in a context of broader concerns regarding the value of credentials earned at for-profit institutions in the labor market, as well as increasing concern over student debt.
Privately Profiting from Public Funds
This float by the federal government is just the latest addition in the saga of for-profit institutions of higher education in America. Many scholars, including TCF’s Suzanne Mettler, have drawn attention to the huge expansion of this industry within the past thirty years, as well as its dubious funding model.
The for-profit higher education sector exploded after the federal government began loosening civilian federal student aid laws and regulations in 1972, allowing young people to apply their federal grants and loans to vocational programs and implicitly sanctioning a huge increase in enrollment at these institutions.
Today, federal student aid sources are the primary revenue stream for these companies, coming out to total of $32 billion in the 2010–11 academic year alone. To put this figure in perspective, the 2014 federal budget outlined $25 billion for jobs initiatives and $39 billion for the entire Department of Homeland Security. More than $4 out of every $5 of Corinthian’s $1.6 billion revenue came from the federal government and, thus, taxpayers nationwide.
In response to the increasing concern, the Department of Education, led by President Obama, is looking to revamp the long-standing “gainful employment” regulation in an attempt to ensure those institutions that receive federal funds offer a meaningful return for their students upon graduation. The DOE also proposed more stringent regulation in March. The public comment period for the new guidelines closed at the end of May and the final regulation is expected to be released in October.
There are many elements of this industry that should make the public wary and the Obama administration more strict in their regulatory attempts. The students in the private for-profit sector tend to be poorer than their counterparts at public or private non-for-profit institutions, the average federal grant in aid at these institutions is greater, the mean program cost at for-profit colleges is higher, and the compensation for the heads of for-profit institutions is larger.
Something is very wrong.
Is Profit Antithetical to a Good Education?
Perhaps the problem lies not simply in the execution of the for-profit higher education model, but rather the model itself.
The stated goal of these for-profit, publicly held educational companies, as with any for-profit institution, is to increase revenue streams. Yet, these corporations necessarily do so by exploiting government funding and going cheap on educational expenditures for the least well-off—and arguably least-prepared—of our nation’s students. In essence, they are cranking out profit by pushing risk and debt burden onto students and American taxpayers.
Corinthian’s shady practices underscore why, at its base, the institutional profit model is inherently antithetical to student interests. Regulation, such as the gainful employment proposal, may remove some of the lies these organizations have propagated for their own benefit among potential students, but it will not resolve the fundamental conflict of interest between the actors in the education marketplace.
Certainly, the same claims can be made regarding any product for which individuals pay a price; the seller always has an incentive to decrease costs in order to increase revenue.
But shouldn’t education be different?