For-profit colleges swindle students

Education comes second to institutional income at a steep price

His tenure at the Art Institute came to an end on Easter when he was hurt in a serious car accident. Unable to type for six months, Pantzke decided he'd instead study photography on his own. In just 18 months at the Art Institute, he'd run up $26,000 in debt and burned through an additional $65,000 of his G.I. Bill benefits — with almost nothing to show for it.

Yet if Pantzke got away, there were plenty of other servicemen where he came from. A story by Bloomberg news caught a recruiter from Ashford University visiting a wounded warrior barracks at Camp Lejeune in North Carolina. It seems that injured veterans — notably those with head injuries — are particularly receptive to the for-profit sales pitch. The story's opening line said it all: "U.S. Marine Corporal James Long knows he's enrolled at Ashford University. He just can't remember what course he's taking."

Federal data shows that for-profits are increasingly targeting veterans. In 2009, they took in almost as much military money as public colleges did — though they were educating just one-third of veteran students. Last year, eight of the top ten educational institutions collecting G.I. Bill benefits were for-profit, taking in a stunning $626 million.

Barmak Nassirian, former official with the American Association of Collegiate Registrars and Admissions Officers: "Over-advertise, oversell, overcharge, and under-deliver. They found a system where the pitch goes to one guy and the bill to someone else."
courtesy of Barmak Nassirian
Barmak Nassirian, former official with the American Association of Collegiate Registrars and Admissions Officers: "Over-advertise, oversell, overcharge, and under-deliver. They found a system where the pitch goes to one guy and the bill to someone else."
Rick Kriseman, a Florida State representative, represented Mary in her suit against Argosy University: "When the school did not have those [internship] slots, they found reasons to either dismiss the students or to make it so uncomfortable for them that they left on their own accord."
courtesy of Rick Kriseman
Rick Kriseman, a Florida State representative, represented Mary in her suit against Argosy University: "When the school did not have those [internship] slots, they found reasons to either dismiss the students or to make it so uncomfortable for them that they left on their own accord."

"I think sometimes the emphasis is on signing up the student as opposed to whether or not the student is really ready to be successful at that school," says Holly Petreaus, an official with the Consumer Financial Protection Bureau and wife of General David Petreaus. "The top 10 recipients of GI bill aid, eight are for-profit schools, and they are very heavily engaged in marketing to the military — quite successfully, frankly."

It's all about the Benjamins

The University of Phoenix will never be confused with Yale. According to one 2010 report, 90 percent of its students fail to graduate within six years.

Still, by pure monetary standards, former CEO Todd S. Nelson was a success. During his tenure, he tripled revenue for the school's parent company, the Apollo Group. Enrollment surged to more than 300,000.

Unfortunately, he accomplished this the old-fashioned way — by cheating. Since 1992, it's been illegal to pay recruiters based on how many students they bring through the door. Phoenix did it anyway until two recruiters blew the whistle, initiating a suit that would ultimately cost the school $88.3 million in settlements and fines.

Under pressure, Nelson was forced out in 2006, walking away with a generous $18 million severance. Founder John Sperling put a polite spin on the exit, saying only that Nelson was "preoccupied" with stock price to the detriment of the school's long-term health.

Yet if Nelson's profit motives were too lusty for Phoenix, they were a match made in corporate heaven for Goldman Sachs. The Wall Street bank had partnered with two private equity firms to buy EDMC. Nelson was hired as the company's new CEO. Former Maine Gov. John McKernan Jr. — the husband of U.S. Sen. Olympia Snow — was named chairman of the board. Over the next five years, the company's revenue would nearly triple to $2.8 billion.

Last year, Nelson took home $13.1 million in salary and stock. By the standards of for-profit executive pay, he was working on the cheap.

Gregory Cappelli, his replacement at the University of Phoenix, received $25 million last year. CEO Robert Silberman of Strayer Education raked in an astounding $41.9 million in 2009. Yet even this pales next to Jonathan Grayer, the former CEO of Kaplan University, who walked away with a $76 million severance package — courtesy of Kaplan's parent company, the Washington Post.

By comparison, Harvard President Drew Faust collected a meager $875,331 in 2010.

Nelson's bad-boy practices have predictably caught up with him. Last year, the Justice Department and attorneys general from five states charged EDMC with fraud for paying recruiters based on the money they generated. Six more states have joined the suit.

EDMC claims its sales pay is not just based on bodies enrolled, but also on such things as business ethics, professionalism, and job knowledge. Kathleen Bittel would beg to differ. She was an EDMC recruiter when Nelson arrived, and will readily attest to the change in atmosphere.

Over the next three years, the sales staff increased from 950 people to more than 2,600. "Once Goldman Sachs took over and they brought in [Nelson], everything changed," she says. "Everything became much more cutthroat. It was just more oppressive and very high pressure.... They were watching you constantly. We used to joke it was like being on the cotton plantation and they were the overlords coming by on their horses. The only thing they were missing were the whips — but they had the whips verbally."

Like Lawrence, Bittel had studied psychology and proved adept at forging bonds. She'd gone back to school in her 40s to support her family of four after her husband got cancer. She understood the difficulties of raising kids, working full-time, and going to college. At first, she admits to "drinking the Kool-Aid," believing Argosy's online program could help people like her.

But after six months on the job, she was allowed to take Argosy courses for free. That's when she discovered she'd aided a bait-and-switch. Many of the features she heralded to students were barely functional or didn't exist. The Worldwide Professionals Network, where students could find graduate mentors in their field, was nothing more than a bulletin board. Promised MP3 downloads of classes also didn't exist.

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