The subprime mortgage crisis destroyed the hopes and dreams of African-Americans. Will for-profit education institutions do the same?
The subprime mortgage crisis that crippled the United States was particularly unkind to Black America. The fact that African-Americans hold a greater proportion of their wealth in the form of home ownership, made the economic devastation all the worse. Amaad Rivera of United for a Fair Economy estimates the crisis will cause the greatest loss of African-American wealth in modern U.S. history.
For many Blacks, this downfall was predicated on the mis-information, deceptive loan practices, and in many cases, blatant fraud perpetrated by unscrupulous lenders. In the most abusive of practices, mortgage brokers signed African-Americans to risky high interest subprime loans, even when they qualified for safer traditional loans – a fact highlighted in research conducted by the Center for Responsible Lending.
Yet, there’s an eerie feeling that the con game is being played out again, and once again its victims are frequently minorities who can least afford it.
The Next Wave of Exploitation
You’ve seen their magazine ads, watched their television commercials, listened to their radio pitches. A better life with a solid high paying career can be yours. Financial freedom and independence are just around the corner – if you attend their classes.
In physical classrooms and online, for-profit institutions offer every solution – from certification in cosmetology to four year college degrees, and even MBAs. In the worst economic downturn since the Great Depression, their promises are a lifeline, a shot at achieving the American Dream.
Enrollment has skyrocketed. The for-profit University of Phoenix has become the second largest educational system in the country. Only the State University of New York has more students.
Despite their rapid growth and fancy promises, the dirty little secret is that these entities frequently leave their students drowning in debt with no marketable degree, or worst yet, no degree at all.
According to Christine Lindstrom, Program Director at the U.S. Public Interest Research Group:
“Evidence has mounted that the career education sector relies on high-pressure sales tactics to recruit students and loads them up with debt to pay for programs that provide them little benefit.”
High Pressure Recruitment Tactics
A PBS Frontline report reveals how for-profit education recruiters employ hard-sell sales techniques to enroll new students. Rosy pictures are painted of the lucrative job offers that await graduating students. Students are told they must sign up today. Class size is limited. They can’t let this opportunity pass them by.
Undercover applicants working for the Government Accountability Office discovered first hand how pervasive these aggressive tactics are. The undercover applicants faced incessant pressure to enroll from every institution they contacted. One undercover applicant received over 180 calls from a recruiter in a single month, some calls occurring as late as 11pm.
In addition, for-profit college recruiters frequently misled the undercover applicants about post-graduation job opportunities and salaries. Recruiters frequently lied about the school’s accreditation and in some cases even encouraged applicants to commit fraud on their financial aid applications.
An ABC undercover investigation caught similar shady recruitment practices on tape:
Aggressive and dishonest recruitment tactics have been such a thorny issue that many states have taken for-profits to court. In 2007, for example, Corinthian Schools settled for $6.5 million with the California Attorney General’s office for using false salary and job placement information to persuade students to enroll.
Students As Cash Cows
As the PBS Frontline report highlights, the reason for such aggressive recruitment lies in the fact that prospective students are profit making machines. They provide for-profit institutions with access to federal student loan money, a lucrative cash cow for these for-profit businesses.
While enrolling less than 10% of the nation’s students, for-profit institutions receive nearly 25% of the country’s federal student loan money. The University of Phoenix, for instance, obtains a whopping 86 percent of its revenue from federal financial aid.
Experts also point to the fact that the cost of a for-profit education is more expensive than traditional community colleges and four year universities. According to the Government Accountability Office courses in massage therapy and computer-aided drafting that cost $14,000 at a California for-profit college, run $520 at a local community college.
No doubt much of the higher cost is going to pay CEO salaries and shareholder profits at the expense of students and the American taxpayer.
Targeting Low Income and Minority Students
Ironically it’s minorities with limited financial resources who these for profit institutions covet the most. These people qualify for high amounts of government financial aid, and therefore are more likely to enroll with borrowed money.
The University of Phoenix has a nationwide African-American enrollment of about 23 percent, and it seems some institutions will go to any lengths to recruit students.
A recent Businessweek investigation chronicled the activities of for-profit recruiters as they scoured homeless shelters and halfway houses looking for potential students to load up with loan debt – students like Marisol Lugo, an ex-heroin addict living in a transition house. Lugo lasted just a short time in a nearby for-profit institution before running into academic difficulties, but not before racking up significant debt.
On the horizon – For-profit companies looking to specifically target African-Americans by becoming the online equivalents of HBCU’s. Latimer Education, a DC based firm, is in the process of building an online university. It’s too early to tell whether this venture will provide high quality online education or if it will become another diploma mill, targeting minorities for their student loan money potential.
High Default Rates, High Debt, and Limited Job Opportunities
Since her story was first posted in Good Housekeeping and following her testimony to Congress, Yasmine Issa has become the poster child for for-profit education abuse. Looking to make a better life for herself and her children, Yasmine Issa enrolled in the Stanford-Brown Institute’s ultrasound training course.
After graduating in 18 months with significant student loan debt she realized she would be unable take the American Registry for Diagnostic Medical Sonography exam. Passing the exam is necessary in order to obtain work in the field. Issa was unable to sit for the exam because the Sanford-Brown program was unaccredited, a fact Issa claims the program recruiters failed to tell her.
Not only is Issa now unable to obtain a job in her field of study, but she’s also a further $27,000 in debt – a fate that consumer advocates argue is all too common.
In addition to high drop-out rates, some students at for-profit institutions claim companies simply do not take their degrees seriously. All of which leaves students jobless and unable to repay their steep student loan debt. Some loans reach well over $100,000.
According to the Chronicle of Higher Education, thirty percent of loans made to students attending four-year for-profit colleges default within 15 years of entering repayment, more than twice the default rate of public and private nonprofit college loans.
While students are crushed with debt and the tax-payers saddled with the cost of student loan defaults, the for-profit companies have safely transferred the student’s tuition money to their balance sheets.
This insult is especially cruel since student loans cannot be discharged in bankruptcy court. Students are saddled with this crushing debt for life. Worse yet, since many employers use credit scores as criteria for hiring, a defaulted student loan can become particularly crippling. Student loan defaults also make many people ineligible for public housing and other federal aid.
This wake of destruction for the sake of corporate profit sounds strikingly familiar to the recent subprime mortgage crisis.
Senator Tom Harkin summed up the for-profit situation clearly in a recent editorial:
“Haven’t we heard this story before? It features a high-pressure sales force persuading consumers in search of the American dream to go deep into debt to purchase a product of often dubious value. Default rates are sky high. Taxpayer money is squandered. Top executives walk away with fortunes.”
Once again, corporate America’s manipulation of the promise of the American Dream could leave many in our communities devastated.
What’s your take? Do you think for-profit educational programs take advantage of people down on their luck, or do they provide an opportunity some may not otherwise have had? Perhaps you’re a graduate of a for-profit instiitution who’s successfully found secure employment. Share your story.