Today, Explained - False profit

Episode Date: August 28, 2018

The top student loan officer in the country kicked off the school year by quitting. He says the Trump administration "turned its back on young people and their financial futures." Vox’s Libby Nelson explains one contentious call: Education Secretary Betsy DeVos has rolled back Obama-era regulations on for-profit colleges. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for the show today comes from Google Play. It's like a sandbox, but instead of sand in the box, it's filled with audiobooks. Over a thousand of them to choose from. And you can get $10 off your first audiobook over $10 when you log in with your Google account at g.co slash play slash explained. Libby Nelson, your Vox's resident education expert. A lot of college students are going back to school this week,

and the country's top student loan official marked the occasion by quitting, saying that the current actions being taken by leadership betray families and sacrifice the financial futures of millions of Americans across the country, I think it's a good time to ask, what has Education Secretary Betsy DeVos been up to? Mostly deregulation is what she's been up to, particularly of for-profit colleges. Education Secretary Betsy DeVos is moving to eliminate rules that would put more accountability on poor-performing for-profit colleges. Back on August 10th, Betsy DeVos moved to get rid of a regulation known as gainful employment. The Obama era gainful employment regulations sought to keep schools from burdening

students with debt without providing an education that would give them better job prospects. And that allows them to pay back their student loan debt. Because for-profit colleges run on student loans pretty much? Because for-profit colleges, like pretty much all of higher education, but especially for-profit colleges run on federal student loans. So how exactly was the gainful employment rule put in place? To understand why this happened, you need to go back to the recession. Enrollment grew 66% between 2008 and 2011.

Damn, okay. And between 2000 and 2010, it grew over 300%. What? Yeah, so they absolutely blew up, basically, in the first decade of this millennium. And is this like DeVry? Who are we talking about here? Who are the big stars of for-profit colleges? Yeah, the big names that you know, DeVry is one. DeVry? Who are we talking about here? Who are the big stars of for-profit colleges? Yeah, the big names that you know, DeVry is one. DeVry University.

Corinthian Colleges. Strayer University. Kaplan University. ITT Tech. The Art Institute of Phoenix. Art Institute of Colorado. Ashford University. Capella University.

University of Phoenix. But also, there are a lot of small beauty colleges, cosmetology schools, truck driving schools that people haven't heard of that aren't publicly traded or giant corporations that fall into this category too. Wow. And so 300%, that sounds like what? It's got to be tens of thousands, hundreds of thousands? Is it millions? It is technically millions. So from 2000 to 2010, it went from 403,000 students at for-profit colleges to 1.7 million.

And 2010 is actually, I believe, when enrollment peaked. So we're in this huge recession and people are saying, I'm going to go learn a skill because there's no jobs. I imagine they're also taking out loans to do it. Yeah, absolutely. Because for-profit colleges tend to serve students who don't have a lot of resources. You know, if you've been working retail and you want to go get your truck driving certification, you're not necessarily somebody who can shell out tens of thousand dollars in tuition up front. And so they're taking out a lot of loans, both federal student loans and

private student loans to do it. And then what they were discovering is a lot of students, either after they dropped out of their programs or after they finished, weren't getting jobs that allowed them to pay those loans back. The Obama administration is expected to announce a new rule today that could have a big impact on for-profit colleges. They will lose access to federal student aid programs if those schools don't graduate students who can pay off their student loans. And how radical was an idea, was it, to put this sort of gainful employment rule to impose it on these for-profit colleges? To say, you guys actually need to prove that you're delivering jobs.

Because, I mean, public universities, community colleges don't have to prove that they're getting anyone anything, right? Well, they do in vocational programs. So this rule actually applied to vocational programs at community colleges as well. But because students there take on so much less debt, it was really concentrated and was meant to be concentrated on the for-profit college sector. To meet gainful employment standards, school programs will have to show typical loan payments do not exceed 20% of a graduate's discretionary income or 8% of total earnings. And because of this, there also were a bunch of investigations into what for-profit colleges were doing, and they uncovered a lot of bad practices.

A recent federal probe revealed that students who enroll in for-profit schools received more than $20 billion in federal aid last year. And now they're defaulting on those loans at an alarming rate. In addition, federal investigators went undercover and met with school recruiters who oversold the amount of money students can expect to earn. They told me I'd be able to get a better job, that I'd be making $35,000 to $40,000 a year. I work at Walmart in customer service. I feel like I've been lied to.

It's decimated my financial life. I worked so hard for so many years to have my degree mean absolutely nothing. I couldn't get a mortgage if I wanted one. You've got in your head that after two years you're going to be able to do something you've always wanted to do. And then you find out that it's not true. I learned so much, but I can't do anything with it. They were misstating their job placement rates. They weren't being honest with students when they were enrolling. Students were dropping out, or even if they graduated,

they weren't able to pay back their loans. And so starting at the very beginning of the Obama administration, they tried to write a rule that would hold vocational programs and for-profit colleges accountable for what happened to their students who took out loans after they graduated. Did it work? Yeah. So this is the weird thing. This is a rule that never actually led a program to lose funding. Never? At the same time, it still managed to help transform the for-profit college industry, which is – it's not exactly on life support.

There are still lots and lots of students at these schools. But compared to where it was in 2010 when they wrote this rule, it is night and day. Enrollment is down 47 percent through 2016 and then another 10 percent the year after that. Several big for-profit college chains have just completely closed or gone out of business. 16,000 students are displaced after the sudden closure of 28 Corinthian college campuses. That includes Heald College in Fresno. And that's for a lot of reasons, but one of them is, I believe, because the existence of this regulation and the threat that they were actually going to have to, be held to some standards. But also, investors are looking at this and they're like, oh, God, maybe this isn't actually a good business to be investing in if the government's going to be cracking down on them.

So it mattered with the public, but it also mattered with a smaller but very influential set of people for these institutions, which are the people who are buying stock in them. Were there any other elements of the Obama administration's attempts to sort of regulate for-profit colleges? Yes. So the gainful employment regulation was sort of about trying to stop some problems up front and trying to find the colleges or the programs

that weren't serving students well or that weren't leading them to get jobs that they could pay back their debt and eventually shut them down. The other problem was, as these colleges started going out of business, there were a lot of people with loans that they were still carrying and loan debt that they felt that they shouldn't have to pay off because their colleges closed or were frauds or whatever. And so they also created a regulation that would make it easier for students

to claim that they shouldn't have to pay back their loans because they were defrauded. It's called borrower defense repayment. And that also was rolled back by the Trump administration earlier this year. So it's now sort of both ends. Why? That one feels like anyone could get behind it. Your school went out of business so you don't have to pay them your loan back? The interesting thing is from like a pure fiscal conservative's perspective, there is more of a case for rolling back the borrower defense regulation

because it's expensive to forgive student loan debt than there is to rolling back the gainful employment regulation because it is also expensive for the government to keep spending Pell Grants and student loans at colleges that aren't getting good results whose students probably aren't necessarily going to be able to pay back those loans. If you're purely saying the government shouldn't be spending this money, there's at least a universe where that makes sense for borrower defense. For gainful employment, it's a much harder case. What did Betsy DeVos say when she got rid of the rule? She said that she didn't want to target schools by their tax status, which is something that you hear defenders of for-profit colleges say a lot. And that she said that, you know, all students deserve to have important data when choosing a college, and it's better for consumers to make their own choices was sort of the subtext than for the government to try and direct them to one institution or another. She also said that students deserve, quote,

useful and relevant data to make decisions about their education. That sounds reasonable. It is. It's really reasonable, and it's not just true for for-profit colleges. So is DeVos doing anything to give students more access to information about the schools they're choosing and the programs they're going to? That's the thing. Really good data on outcomes for colleges. So whether students, what their jobs are, whether they can pay back their loans, requires

basically linking up federal student loan information for the loan you took out when you were in school with your tax data from later on so that they can see what you're earning. There is a federal law that prohibits creating that database because of concerns about privacy. The Trump administration has not come out and said that law should be repealed or we should create a system like that. And that is really the block. There are things that you can ask colleges to disclose, But without that link, it's really hard to get solid results on graduation rates, on certainly things like student loan versus income calculations, job placement rates,

the things that students really want to know about where they're going to school. Is Betsy DeVos saying anything about regulating for-profit universities, or is that not really her jam? Not her jam. Not really on the table from what I can tell. And the president, of course, has his own experience with for-profit universities. At Trump University, we teach success. That's what it's all about. Success. It's going to happen to you. He does, although calling Trump University a university is honestly like an insult to for-profit colleges.

It's so much worse even than that. Some former students sued, saying they paid tens of thousands of dollars believing they would become successful in real estate, but were misled. Trump University has agreed to settle the civil fraud lawsuit for $25 million. That's a little bit higher than the rumors that we were hearing earlier today. That's according to a source quoted by Reuters. So the president puts his name on a fake university. The education secretary is deregulating all these for-profit schools. And the country's top student loan officer just quit in protest, where does that leave students?

Yeah, I mean, I think this is one where I think we really are going to have to wait for the next recession. For-profit colleges are not what's driving the increase in student loan debt generally, but they were a huge engine in what drove student loan defaults, people not being able to pay their loans back in the recession in the years immediately after. And so I don't think we're going to see a huge explosion of student loan debt because for-profit colleges have freer reign. I think really the thing to watch for is when the economy inevitably gets bad again and

people want to get better jobs, what colleges do they go to, how much debt are they taking on to do that, and where do they end up? Thank you. One audiobook you could get $10 off on is Heart of Darkness by Joseph Conrad. Horror awaits Charlie Marlowe, a seaman assigned by an ivory company to retrieve a cargo boat along with one of its employees, Mr. Kurtz, who is stranded deep in the heart of the Belgian Congo. Marlowe's journey up the brooding dark river soon becomes a struggle to maintain his own sanity as he witnesses the brutalization of the natives by white traders and then discovers the enigmatic Mr. Kurtz. Joseph Conrad's haunting tale dramatizes the stark realities of Africa in the colonial

period. It's also the basis of Francis Ford Coppola's Academy Award-winning film Apocalypse Now. Another thing you should listen to is the Reveal podcast from the Center for Investigative Reporting. It features long-form, in-depth investigative journalism, but in a podcast. A recent episode is called Cops on a Crime Spree. Baltimore's police department was already notorious, but this year, eight former police officers

were convicted on federal racketeering charges stemming from an FBI investigation. They belonged to an elite task force charged with getting guns off the city's streets. But instead, the plainclothes cops roamed Baltimore's neighborhoods at will, robbing people on the street, breaking into their homes to steal money, drugs, or guns, and planting evidence on their victims. You can find The Reveal podcast wherever you get your podcasts, or you can go to revealnews.org. Libby, when did these for-profit colleges as we know them now start popping up?

So for-profit colleges in some sense or another have been around forever as correspondence schools, business courses. Yeah. We saw a huge boom right after World War II with the GI Bill. There were a lot of fly-by-night chains that, as we would see later, popped up to take advantage of student loans. But the chains that we're talking about now really got big in the 1990s and then in the early 2000s. What happened in the 90s? Your typical for-profit college in the 70s or the 80s was maybe a cosmetology school or a truck driving school, something local. In the 90s, all of a sudden, they started to merge and go and become

what they call super systems, chains with, you know, 200, 300 locations. There are a couple of things that happened. One is that a lot of them started becoming publicly traded and having IPOs. In 1990, there was one publicly traded for-profit. By 2000, there were 40. So people started to see this as like a growth area for investment. As the internet started to grow, like people obviously saw, and not just for-profit colleges, that there's like tremendous potential for educating people that way. And then in 2006, they ended the rule that colleges had to provide at least 50% of their education in physical classrooms in order to tap into

student loans and grants. And that's really when things started to blow up. So how many Americans are enrolled at these for-profit schools right now? Just under a million, about 915,000 in 2016. And that's a little higher probably than this year, because like I said, we've been seeing those numbers decline. So 850,000, 900,000 is probably a decent estimate. How do they find students? It's not like, oh, I'll go to that state school. I'll go to Ohio State. Yeah. So they, you know, they advertise. That's a big one. Hey, you. Yeah, I'm talking to you. Why are you still sitting on that couch? You know,

you could be out there cooking for a living. You speak food. That's why you got to call Le Cordon Bleu. So my kids don't have to forage. Got two jobs to pay a mortgage. And I've also got a brain. Today, DeVry University continues our founder's spirit of innovation in all we do. You can try. I'll do it faster. I was born a multitasker. I'm not just a college student. I'm not just a college student. I'm a Strayer student. There was a commercial jingle for a for-profit college where I was growing up that I could still sing. What is it?

Go for it. It's get your degree, set yourself free with National American University. Get your degree, set yourself free. National American University. And that was in the 90s when they were growing. So you'll see them ads on the subway. You'll hear ads on the radio. And the way that these ads work is they really trade on this idea that you need to get an education. You need to get a better life. It's a really powerful thing to say.

And community colleges are really the competitors, and they usually don't have the budgets to be buying tons of billboards, tons of airtime, have people at call centers waiting for you to put your information into a form online and be on the phone with you that day and trying to get you into an office and signed up. And the other thing is, for-profit colleges can afford to hire enough people that it doesn't feel like this massive educational bureaucracy that you're walking into and staring down. And that's a really powerful thing for students as well. That, like, if you're trying to enroll at a community college, you probably have to know where to go. You have to know where or when to show up.

Like, you can't just enroll in November and, like, start class the next week. You've got to wait until the next semester. For-profit colleges do away with a lot of that. You can walk in. You could be in a classroom in two weeks. Somebody will hold your hand and help you fill out the forms. And like if you're somebody without a lot of resources or somebody who is like intimidated by the idea of navigating educational bureaucracy, that's a really powerful enticement. What are the graduation rates like at these schools?

They're not great overall. So for four-year programs, bachelor degree programs, you're looking at 23% for for-profit colleges versus 59% for public colleges and 66% for private nonprofit colleges. So for associate degrees, for-profit colleges actually do quite a bit better than community colleges. About 60% graduate in three years for a two-year degree versus about 22% of community college students. What do these schools cost, be it a two-year or a four-year program? On average, for for-profit colleges, tuition in 2016-17 was $16,000 a year. The average tuition and fees for a community college was about $3,500 the same year. Community colleges are almost always, financially speaking, a better choice. They also just are less funded.

And so they don't have, you know, programs with a rolling start often that start every three weeks. They can't guarantee you that you can get all of the prerequisites you need to like get through it and get done. For-profits have really capitalized on the underfunding of community colleges in America.

Who goes to for-profit schools? Do we have like ideas of demographics? Is it low income, middle income? If you're comparing for-profits to like who goes to college in general, it's more students who are low income, more students who are women, more students who are people of color, more students who are veterans, who are working, who are of non-traditional age, and who want to find a program that's going to work for them when they probably don't have the time or the money to, like, drop everything and go back to school. I mean, if we're talking about low, middle-income students and programs that cost $15,000 to $20,000, basically, how many people who go to these schools are taking out loans? Like, all of them? Basically, all these schools are taking out loans? Like all of them? Basically, all of them are taking out loans.

Yeah. There's a rule that says that 90% of their revenue, only 90% of their revenue, only 90% can come from the federal government. Excluding, by the way, excluding the GI Bill. So you could have everybody getting federal loans, you know, $90,000 from federal student loans and grants, and then $10,000 from the GI Bill, and you'd be in the clear. They are basically completely dependent on the existence of federal student loans. So this whole industry wouldn't exist without the help of the federal government? 100% no. Absolutely no way. It's so funny. It just feels like another arm of the federal government then. It's totally dependent on the existence of federal student loans and grants.

That's why the gainful employment regulation was such a threat. If you're not totally dependent on the federal government, the idea that the federal government might cut off eligibility for student loans to students in one of your programs is like, oh, you know, like, we'll figure out another way to make up that money. There's no other way to make up that money. Is there like a broader message that Betsy DeVos is sending out to these schools by saying, hey, we think these regulations are bad? If I were a for-profit college right now, I would not be feeling all that constrained by fear of what the federal government would do to me. Not just for going against this regulation, which doesn't exist anymore, but like going against

any rules. She has sent a really clear message that she does not think the federal government should be involved in regulating any kind of higher education, but certainly not for-profit higher education. Libby Nelson is a news editor here at Vox. I'm Sean Ramosferm. This is Today Explained. There's all sorts of play out there. Cosplay, wordplay, swordplay. Also Google Play.

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