Senate: Accredited For-Profit Education is Fraud

By Professor Doom

     It’s no secret to the public that many accredited for-profit colleges are shady (at very best), plundering the student loan money while providing no education. It’s no secret to the general public, but does our government know?

     Of course they do. The Federal government shut down Corinthian, despite it satisfying all accreditation requirements (and the accreditor insisted until the very end there was nothing wrong with Corinthian). But I’m not talking about one school, they know the whole system is corrupted.

 

      Hey look, here’s the senate report on the massive corruption of the for-profit higher education system:

United States Senate

HEALTH, EDUCATION, LABOR AND PENSIONS COMMITTEE

For Profit Higher Education:

The Failure to Safeguard the Federal

Investment and Ensure Student Success

     Let’s take a look at snippets from this 2012 report, and the gentle reader should realize our government, which supposedly was formed to protect us from something-or-other, does nothing of the sort. I’m not saying we should have a government to protect us, by the way…but I’m certain we don’t need a government to provide gigantic flows of tax dollars via the student loan scam to well known and quite documented frauds.

Unlike traditional non-profit and public colleges, virtually all of the revenues of for-profit colleges come directly from taxpayers, and significant portions of their expenses are dedicated to marketing and recruiting and to profit.

     While in the “public” higher education system the primary expense is to support a bloated administrative class, the for-profit system spends a great deal of money on marketing. Google’s biggest advertiser is University of Phoenix, for example, which used to spend hundreds of thousands of dollars day on  Google ads. There’s big, big money in higher ed thanks to the student loan scam, but first you have to find the suckers willing to check a box qualifying the loans.

    

     Federal taxpayers are investing billions of dollars a year, $32 billion in the most recent year, in companies that operate for-profit colleges. Yet, more than half of the students who enrolled in (sic) in those colleges in 2008-9 left without a degree or diploma within a median of 4 months. 

     There’s no accountability in this system. Students are pulled in, sucked dry of loan money as quickly as possible, then spit out deep in debt. Now, I grant the public colleges do much the same, but since they’re paid via tax dollars and the “butts in seats” model, the students get trapped in the system much longer.

     The for-profit system is simply more efficient at looting that loan money, plundering in a few months what takes our public college plundering system years to accomplish. I guess this is a bad thing, though I hope someday the Federal government will take a more careful look at what’s going on in public colleges.

Congress has failed to counterbalance investor demands for increased financial returns with requirements that hold companies accountable to taxpayers for providing quality education, support, and outcomes. Federal law and regulations currently do not align the incentives of for-profit

colleges so that the colleges succeed financially when students succeed.

    The above is certainly true, although once again this applies to a considerable extent to our public system as well. Our colleges and universities have no skin in the game when it comes to these student loans, and are all highly motivated to suck students in, teach them about Game of Thrones and how not to shave…then spit them out. Again, it’s good that our government knows about the for-profits, but maybe they should ask a few questions about the other types of schools as well.

Many for-profit colleges fail to make the necessary investments in student support services that have been shown to help students succeed in school and afterwards, a deficiency that undoubtedly contributes to high withdrawal rates. In 2010, the for-profit colleges examined employed 35,202 recruiters compared with 3,512 career services staff and 12,452 support services staff,

more than two and a half recruiters for each support services employee.

     Again, these statements need to be put in perspective with the public schools. For-profits hire legions of recruiters, to look under every nook and cranny for a sucker to qualify for student loans. The Senate is right to criticize for-profits for their lack of student support services.

     On the other hand, many of our state schools are weighted down with legions of administrators, whose stated purpose is always to help students. And, yet, many of these schools have abysmal graduation rates as well, to the point that students must pay extra to get the graduation services they already paid the administration exorbitantly for. Is not the failure here every bit as extravagant as at the for-profits?

This may help to explain why more than half a million students who enrolled in 2008-9 left with-out a degree or Certificate by mid-2010. Among 2-year Associate degree-seekers, 63 percent of students departed without a degree.

     The above statistics are meaningless, as they are provided in a vacuum. It’s a simple matter for the gentle reader to see with his own eyes that our state schools perform just as badly, and often quite worse at community colleges.

Pell grants flowing to for-profit colleges increased at twice the rate of the program as a whole, increasing from $1.1 billion in the 2000-1 school year to $7.5 billion in the 2009-10 school year.

     Wow, from 1 billion in the year 2000 to 7.5 billion in the year 2009 to over 40 billion today. The gentle reader should keep this in mind when told the reason tuition is going up is because of reduced public funding, as this huge increase is also applicable to our public system as well. We really have poured billions and billions into this, with no improvement to education.

The for-profit education companies examined rarely set tuition below available Federal student aid

      It’s only a single sentence, but the above explains a big part of the problem with the student loan scam: whatever the loan is for, that’s the tuition. Most students going to school also want money for incidentals like food, maybe even a book or two.

     So, the government sees that the loans just barely cover tuition, and raises the loan amount. The for-profit school sees the loan amount has been raised, and thus raises tuition.  This process repeats itself every year, leading to endless tuition increases, and a skyrocketing total student loan debt that passed a trillion dollars years ago, with no end in sight.

      While most of the criticisms of for-profits apply nearly as well to our state/public/non-profit system, this one doesn’t. Most state systems can’t just change their tuition willy-nilly; this is, alas, the only reason our often corrupted public system doesn’t have the same tuition as the for-profit.

Internal documents, interviews with former employees, and Government Accountability Of-fice (GAO) undercover recordings demonstrate that many companies used tactics that misled prospective students with regard to the cost of the program, the availability and obligations of Federal aid, the time to complete the program, the completion rates of other students, the job

placement rate of other students, the transferability of the credit, or the reputation and accreditation of the school.

     Alas, we’re back into criticisms that apply just as well to our public system of higher education. Allow me to just discuss one specific example, from a disreputable (but still public) community college.

      Our students are told by administration about how they can get their degree in 2 years. Our students are told that the Pell Grant (scam) will pay full tuition, provided the student registers for 12 credit hours, “full time,” a  semester, for two semesters a year…24 credit hours a year.

      Two years later, the student has 48 credit hours…and still needs at least another year to graduate.

     What happened? Our programs take 66 credit hours to complete. Administration gives the students terrible advice, dooming them to have no chance whatsoever of graduating in two years, and the students are screwed from their very first semester. Even if the student requires no remedial work (most will), even if the student doesn’t fail a single course (most will), the student has no chance of actually getting a 2 year degree in 2 years if he follows disingenuous administrative advice.

     So, yeah, the for-profits mislead students…I assure the gentle reader there’s quite a bit of deception in our state systems as well. Again, the schools have no skin in the game when it comes to the loans, they just want butts in seats, and don’t care at all if all the students fail.

     I’m only glossing over the highlights here, but absolutely every single thing this one hundred and eighty four page Senate report has to say indicates failure in every way in the for-profit system of higher education. While the report neglects to point out how nearly every failure of for-profits has a parallel in the public system, I’ve done what I can to inform the reader; I do wish there was some way to inform the Senate of this important information.

       That said, there are two takeaways from this report:

1  1)    Our government knows, and has known for years, that our for-profit schools are doing great harm to our citizens, and it's all paid for with tax dollars.

2  2)    The primary reason the for-profit system is such a colossal failure is funding by the student loan scam. With a single stroke of a pen, our government could shut down this loan scam system and  save many of our kids from a lifetime of debt slavery as well as stop putting the taxpayer on the hook for over a trillion dollars now of eventually unpaid student loans.

     

    In both cases, our government has done nothing about it.

www.professorconfess.blogspot.com

Pension Funds Officially Doomed

By Professor Doom

     I’ve touched on this before as regards higher education, but more needs to be said.

Majority of Pensions Headed for Bankruptcy

     I mostly talk about higher education, but something’s been bugging me, and higher education is usually pretty quiet over the summer (which is why we don’t need legions of highly paid full time administrators, something the people paying for the schools should understand…).

     First, a bit of history:

     The Titanic hit the iceberg, and sank around 2 hours and 40 minutes later. After it hit the iceberg, the ship was doomed, but, being so large a ship, it still took hours to sink. After it hit the iceberg, I’m pretty sure, for many on board the ship, they thought they were going to be fine…this ship hadn’t sunk, didn’t appear to be sinking to the casual observer, thus all was well. The people who stayed in their staterooms would have noticed nothing but a big bump (the iceberg), then over two hours of nothing…then cold water suddenly rushing in as the doom of the Titanic arrives. The mathematics of the situation said that the ship would be fine for a while, then it would sink quickly.

     And that’s what happened. I’m sure the gentle reader is asking “What does any of this have to do with pension funds?”

     Pension funds struck their own iceberg in 2008. Yes, that was eight years ago, but pension funds, much like the Titanic, are huge things: there’s going to be a big lag between the fatal blow and the actual time of death.

     Before I get to what happened, let me explain in simple terms how many pensions work, especially public pensions (which, in a country where the state/local/federal government combined is the largest employer, are huge).

     First, the pension figures out how much to pay to the pensioner. Let’s call this $50,000 a year, for example.

      Then, the pension figures out how much money they can safely make, using only safe investments (after expenses). Let’s call this a 5% return, even though many pensions figured they’d make more—realize expenses can easily consume a percent or two off the return.

     So, the pension fund figures they need $50,000 a year, and to make 5% off of invested money. From this, the fund could put aside $1,000,000, because then the net interest income (5% of $1,000,000, or $50,000) would match the payments to the pensioner.

     This is ridiculously conservative, however. Most pensions, especially our poorly managed public pensions, would put aside around $500,000. Yes, then they only make $25,000 in interest and have to make the difference up in principal, but that’s fine. It’ll take less than 20 years for the money to be all gone, but most pensioners live less than 20 years after retirement (and those that die early offset those that live “too long”). This admittedly is risky underfunding, but most public funds were/are underfunded like this.

     So, in short, pensions put aside $500,000 to pay $50,000 in yearly benefits, assuming a 5% rate of return. In 20 years, the money put aside is long gone, but the pensioner is dead by then so it’s all good. Let’s just follow this for a few years. After 1 year, for example, $475,000 put aside. At the end of year 2, there’s still $448, 720 in the account.  After year 3, there’s still $421,156. These are simple calculations for the folks that run pension funds, and they see it all coming from years away.

     In 2008, an iceberg hit the financial markets and a glimmer of the immense fraud going on in high finance almost revealed itself. The Federal government rushed to save the big banks perpetrating the fraud, printing huge amounts of cash to cover the bank losses, and lowering interest rates to, well, basically nothing, greatly enhancing bank profits. 

 

      Much like with the Titanic, after the 2008 bump everything seemed fine…but the mathematics of the lowered interest rates (particularly the insane negative rates that are becoming common) will sink every pension fund, I promise you.

     Instead of interest rates yielding a net 5% profit (keep in mind, the fund has expenses to pay, cutting into the yield of the invested money), now pension funds, if they want to invest safely, can only get around a net of 1% (humor me as I keep the numbers simple, although a fraction of a single percent is more accurate, and there are trillions of dollars in negative interest rate bonds, to give an idea how desperate for yield people are now). 

     Imagine that fund with $500,000 in 2008. In 2009, instead of dropping to $475,000 like before, there’s now only $455,000 in the account. 

      Now, one bad year is no big deal, pension funds play the long game, and they can make up the difference with just a slightly better yield in future years, say 5.2%. But the Fed has kept rates at near nothing for 8 years now. The “emergency measure” of making rates ridiculously low has wreaked havoc all through our financial system. It was supposed to be a single-year measure, but despite the government saying all is fine now, those rates have yet to creep up to normal in the last eight years.

      One year isn’t too bad, but eight years? We have a problem. They’ve lost too much money, there’s not enough new money coming in (because the planned payments to the pension funds were set when safe rates were at 5%), and there is mathematically no way they can survive, without massively cutting benefits.

      In 2010, that fund will have $450,500 instead of $475,000.  By 2016, it’ll be $204,000 or so.  The money is going to run out in less than five years after that. In the old model, most pensioners would die in 20 years…but now they need to die much more quickly. Anyone in this fund will get a nice check every year, as planned, no complaints at all, right up until there’s absolutely no money in the fund. Then they get nothing. I reckon there will be complaints then, yes?

      Short of cataclysmic war killing lots of pensioners (don’t rule that out, alas), the numbers just won’t work here.

      At this point, interest rates on safe investments need to shoot up around triple what they were before 2008, and stay that way for over a decade. A few years ago, “all” pension funds needed was a bit above 10% safe returns. When I was a stockbroker in the 80s, you could get CDs paying over 10%. Now pension funds need safe rates to get over 15% for a decade or more to possibly reverse the last 8 years of no-interest returns. This isn’t going to happen, no way, no how.

     We’re already seeing the worst managed funds starting to die.

Two of Chicago’s four city pension funds will be bankrupt within a few years, according to Chicago Mayor Rahm Emanuel. You’d think that’s a scenario unions – the supposed champions for public-employee retirements – would want to avoid.

But not in Chicago. Unions are fighting to block any kind of pension reform, effectively locking in bankruptcy for city-employee pension systems.

     The funds have taken on too much water. Just about every fund is, simply, doomed, even if things look hunky-dory right now.

Phoenix is far from alone. Cities around the Grand Canyon state are experiencing pension “sticker shock,” in the words of the Arizona Republic. Six other cities—including Mesa, Scottsdale, and Glendale—face $23 million in extra pension payments next year. Thanks to poor stock market performance and an inability to reduce its pension benefits,

      The worst managed funds are already in big trouble, as I link above and below.  These are the worst managed, but every fund will be sinking soon.

More than a quarter of a million active and retired truckers and their families could soon see their pension benefits severely cut — even though their pension fund is still years away from running out of money.

…Already, three other pension plans that pay benefits to truck drivers and ironworkers have applied to the Treasury to have their pension benefits reduced…

--I point out that the accountants can see the bankruptcy coming from years away, but it is as inevitable as the sinking of the Titanic after it hit the iceberg.

      The private funds will go belly-up, and they’ll either be allowed to fail (destroying huge numbers of families) or the Federal government will take over. The Fedgov will likely take over the public employee funds.

Pension Crisis Climaxes in Mississippi After Hospitals Don’t Pay

 

      Now, when the Fed takes over, the first action they’ll take is to cut payments, and cut payments big time. 40% cuts will be typical, and hey, that’s still better than the 100% cuts that funds not taken over by the Fed will pay.

     The only way funds can avoid doom is to cut benefits, steeply. Again, this is simple math, and reducing benefits like this is what we call “austerity.”

      Hey, anyone seen those riots in Greece and other countries when “austerity” is practiced? We’ll be seeing that here, too, because once wide swaths of the population see their checks cut or removed completely, they’re going to riot, starve, or, most likely, both.

      I know, there are many huge and obvious problems in America right now, and many people will simply hope for the best that this mathematical inevitability will not occur. I encourage the gentle reader to please, please, don’t count on your state or private retirement fund being there in a decade or two…at this point it’s as likely as the Titanic finally pulling into port.

www.professorconfess.blogspot.com

Rerun: Administrative Corruption, Part 3

A few years ago, I ran a long series detailing just how ridiculously corrupt our higher education administration is, across many institutions. I'll be returning to this soon, but, for amusement, I recycle an old post; a new post will go up tomorrow)

By Professor Doom

 

“…a major east coast university maintained an office in a centrally located European capital. The nominal purpose of this office, directed by a senior vice provost, was to build connections….The vice provost spent his time traveling around Europe and holding dinner meetings with…scholars, administrators, and minor government officials….after several years, the vice provost retired and his European office was closed…the vice provost drew a hefty salary. He employed an assistant and other staffers…he required an adequate travel, dining and entertainment budget…

 

---and he accomplished nothing at all, and never intended to do so, eventually retiring from the position and from higher education. From Benjamin Ginsberg, The Fall of the Faculty, p70. Considering the pay of all the staff, we’re talking $500,000 a year or more being spent like this.

 

     I can’t emphasize strongly enough how the complete lack of checks and balances on administration has led to extreme waste in higher education. It’s hard to estimate how much money was thrown away by the vice provost’s sweetheart job, as a precursor to his retirement…most people retire then travel, he just did it the other way around. Ten million dollars were spent on this fiefdom, maybe? And nobody in administration thought anything of it, being far too busy securing their own fiefdoms.

     Administration is unstoppable and fast in its growth. One young institution I was at began with just a handful of administrators. Every year, another classroom or two was taken over for administration purposes; soon, there was no office space left for faculty, which were then housed in classrooms. After a decade, less than half the floorspace of the campus was available for classes, supposedly the primary mission of the institution (as opposed to providing administrative office space).

     About the only check on administrative greed is the trustees, but far too often, the trustees are “in on it,” to the point that it’s not in their interest to do something about it.

      Naturally, accreditation is supposed to cover this sort of thing, but it’s a joke. Auburn was placed on probation by SACS (their accreditor) due to serious violations of trustees doing big business with the institution—I’m hardly the only faculty member to notice how often the logos of companies owned by trustees can be found on vehicles doing work at the institution. As always, such probations are really just gentle pokes…even with millions of dollars of insider/corrupted money changing hands, Auburn gets years to change their activities so they can be performed in a way even a blind incompetent regulator like SACS can’t see  legitimately.

 

     Faculty who wonder why their school’s board continues, year after year, to support an utterly incompetent president, or why the board has opted to summarily fire a competent one, might do well to follow the money.

 

--Benjamin Ginsberg

 

     While for now I’m avoiding discussion of activities at the top since that is just too easy, I feel Daniel Goldin at Boston University merits a special mention, because he didn’t actually make it to the top. The main purpose of the board of trustees is to pick that top guy, and they chose Goldin. Goldin made the mistake of announcing his intention to examine the institution’s business relationship with the trustees, and to remove those that were engaging in improper activities. The mistake, of course, being that he announced that before he’d entrenched his position. The trustees rescinded the offer, but paid him $1.8 million to keep his mouth shut as a consolation prize. Much as administrative control of faculty hiring has led to spinelessness and subservience to administration as common faculty traits, trustee control of the presidency leads to corruption in administration.

     Institutions in higher education complain often of budget issues, but when you read story after story like this of millions sloshing around, it’s tough to believe there’s a real shortage of money. Meanwhile, faculty struggle to get light bulbs for their classrooms, or pay for their own toner for the printer, or scramble to find paper so they can give tests…because there’s no money, you see.

     It isn’t just about the money, administrators also have the power to award degrees, above and beyond the “honorary” Ph.d.s that can be sold like party favors. In addition to “misappropriating” over $2,000,000 to fund a lavish lifestyle that people complained about for years, an Education dean at the University of Louisville awarded a Ph.D. (in Education, and I’ll gratuitously add “of course”) to a student that had attended few classes, in exchange for $375,000. I’d also discuss the Master’s degree handed out by a university president to the daughter of a governor, but that’s for later. I suppose in comparison the administrator who gave himself and his son some minor degrees hardly merits mention, even with the dozens of other infractions he committed.

 

Me: “Do you have any idea who that graduate is?”

Other faculty member: “None at all.”

--at a small school I taught at, every graduation would have students I KNOW I failed, nevertheless getting their diplomas. There would also be a handful of students with specializations in mathematics, and some of them I had never seen before…it was such a small school that there was only one other person who could possibly have had the students. He never knew who they were, either. We would stand at gradation with looks of complete mystification on our faces, as though we were at another school’s graduation ceremony. I emphasize: the school only had a few hundred students, on a campus with a score of rooms…there wasn’t a way to miss a person over the course of years.

 

    I emphasize again: the above stories are just the corruption that is known about. Considering that it’s primarily egregious behavior over the course of years that leads to anyone getting caught, it’s fair to consider the possibility these stories are but the tip of the iceberg.

     It’s easy enough to come up with stories of “friends” of administrators getting an unjustified admission to an institution. I’ve seen a few myself, but honestly, if the department head wants to enroll his nephew into a mathematics Ph.D. program, as long as he can do the work, I’m fine with it (he couldn’t, but I don’t begrudge him the opportunity).

     On the other hand, knowing that degrees can simply be handed out by administrators is pretty scary, from a faculty point of view. Already, the content of my courses is heavily influenced by administrative pressure, as is my grading. Even the courses offered are determined by administration…now that administration can award degrees too, how long is it until faculty are no longer needed at institutions of higher learning? As I’ll address later, faculty are now a minority on campus, and the proportion of administrators rises every year…my question isn’t that rhetorical at all.

     Should administration, which such a track record of corruption, even remotely have the power to hand out degrees? Should there be any limit to the power of administration in higher education? I’m struggling to find a question relating to this level of corruption that would require to the reader to think even a little about an answer.