According to Hechinger and Lauerman (2010), Strayer Education Inc. a chain of for-profit colleges that receives three-quarters of its revenue from U.S. taxpayers, paid CEO Robert Silberman $41.9 million in 2009. That's 26 times the compensation of the highest-paid president of a traditional university. Right behind him was Andrew Clark CEO of Bridgepoint education at $20 million. Kevin Modany of ITT only made $7.6 million in 2010 but he also received a $1.2 million retention bonus in December 2010 if he stays for 6 months. From 2003 to 2010 top executives at the top 15 U.S. publicly traded for-profit colleges received $2 billion from the proceeds of selling company stock (Hechinger and Lauerman, 2010). At the same time, these schools had the worst loan-default and four-year-college dropout rates in U.S. higher education history. Since 2003, nine for-profit college insiders sold more than $45 million of stock each while receiving 90 percent of their revenues from government grants and loans.
Apollo is the largest and most notorious of these for profits and operates the for-profit University of Phoenix which claims an enrollment of over 400,000, a number many claim is grossly inflated. Its founder and executive board chairman John Sperling's total compensation, excluding stock-option exercises, was $6.4 million in 2009. In 2010 Sperling's stock-option gains will total $38 million. Phoenix claims to have the country's highest enrollment and is the country's largest recipient of federal student aid. In 2008 it received $3.2 billion from the government. In the year ending August 2010 Phoenix spent over $1.1 billion on sales, promotion and recruiting. There is no record of how many admission recruiters work for Phoenix but ITT Educational Services a for-profit one-fifth the size of Phoenix employs 1,700 recruiters (Lauerman, 2010). Why so many? It takes a lot of convincing to get a teenager or young adult to pay $1,000 for a course that can be taken at the local community college for $80.
Phoenix's enrollment practices have received the highest number of federal lawsuits then any university in the country; in 2004 it paid nearly $10 million in enrollment abuse fines and in 2009 it announced it was putting aside $80 million to cover addition enrollment abuses. Abuses include tying recruiter's salaries to meeting enrollment numbers and using pressure tactics to enroll students which includes lies and false claims about classes, professors, transfer credits, credit for "life experience" and financial aid. This was confirmed by a 2010 report by the U.S. Government Accountability Office, they found that recruiters from Apollo and other for-profit companies misled students about the cost and quality of courses.
According to Coutts (2009) about 50 percent of University of Phoenix students default on their student loans, three times the percentage at private, nonprofit colleges. This problem is pervasive among these for-profit schools where strategy focuses on profits over education. If anyone doubts this consider the fact that since he founded Apollo, Sperling has collected over half a billion dollars. In 2009 Apollo Group paid its co-CEO's Charles Edelstein $11.3 million and Greg Cappelli $7.3 and its president and chief operating officer Joe D'Amico at $6.5 million, meanwhile most of its faculty are poorly paid adjuncts without doctorates (they spend 28 cents out of every dollar for instruction). While these executives get rich (32 cents out of every dollar goes to administrative costs) their students do not get an education but instead become saddled with debt. The graduation rate is a paltry 6 percent and the median debt over $30,000, (Kiley, 2010). The default rate hovers at between 70 and 90 percent. The for-profit doctoral programs are even worse with over 90 percent of those enrolled failing to get their doctorate after 6 years and instead they become burdened with enormous debt. Even if one managed to obtain a doctorate from one of these institutions most academics would consider it worthless and in some cases public school districts do not recognize the credits or degree as an entitlement for a salary increase or upgrade.
Apollo is not alone in using deception and false promises to hook potential students while the executives who run these mills get rich. According to Hechinger and Lauerman, (2010) Robert Huntson retired CEO Pittsburgh-based Education Management, the second- largest for-profit college chain by enrollment, got $132.4 million and Dennis Keller and Ronald Taylor, former co-CEOs of another for-profit, DeVry Inc. together collected $110.4 million in stock proceeds and Keller named DeVry's MBA school after himself.
For-profits increasingly claim they are serving the disadvantaged population that would never attend college if it were not for them and they use this as a justification for their existence. This is far from the truth. A study by Fox Garrity, Garrison, and Fiedler (2008) finds that the for-profits use of the category "unknown" to slot white students and this increases the percentage of the non-white population. They identify a study in California suggesting that white students are the most likely to be categorized as "unknown" (Smith, Moreno, Clayton-Pedersen, Parker, & Teraguchi, 2005). They state "Should this be the general case, it would challenge for-profits' claims about serving minorities-- It seems likely that the day of the for-profits will come to a close as federal and state regulators reject their model of "enrollment equals success." Success must be linked to graduation and jobs after graduation and it is clear that if the for-profits use this as an indicator of success they will come up woefully short. Furthermore, it is an outrage that these institutions who claim to serve the disadvantaged on reality offer little to the student and a lot to their executives and stockholders. Fortunately the for-profit stocks have begun to tank as new federal rules in 2011 would limit their access to federal financial aid if their students debt and default levels are too high and they must now prove their programs prepare students for "gainful employment.".
It is also apparent that as more GenY's enter college age they will question the value of these for-profit degrees. They will not be duped by untruthful or misleading advertisements (these schools spend upwards of 40 percent of their revenue advertising) or pushy admission people. They will rely on their large network of friends and web based information before deciding. In the long run it may not be the government that shuts the for-profits down but this new generation and we are beginning to their enrollment dropping precipitously, Phoenix reported a 40 percent drop in enrollment in November 2010 and Capella saw its enrollment drop 35 percent in January 2011 and they started terminating employees. If you wanted to set up a for-profit school and get rich, you are too late.
Rejecting the Expensive Diploma
Today's students, the Gen Ys, are clearly aware of the spiraling cost of higher education. Like their parents they are also more aware of their financial environment, much more so than prior generations. Being in deep debt at an early age contributes to considerable financial knowledge. They work hard to get out of debt and worry about their credit scores. Being in debt is one reason why so many; 50 percent to 60 percent move home after graduation and why they cram into urban apartments, and why they depend upon parents for financial help well into their late 20's. This also may explain why CEO's and managers maintain that all the Gen Y's care about is money. The 2007 the Society for Human Resource Management conducted a Job Satisfaction survey and found that for Gen Ys; compensation/pay was the number one factor in selecting a job, following were benefits, job security, flexibility to balance work/life, and the ability to communicate effectively with management. In 2009 pay was replaced by job security with pay closely behind. It may be that the Gen Y's are more vociferous in their concern about pay not only because they are in deep debt but also given their electronic connections they know the salary and perks that company's offer in every conceivable field and profession. According to Keeter (2006), eighty-one percent of 18- to 25-year-olds surveyed, by the Pew Research Center for People and the Press, said getting rich was their generation's most important or second-most-important life goal and 51 percent said the same about being rich and famous. GenYs will not pursue the expensive degree option when they can ferret out alternative ways that will save them a bundle, have perhaps greater prestige, and have the education delivered in a manner they find appealing.
What Will Succeed? What the Digital-GenY's want
Is it possible for a student to get a degree taking classes taught by the world's best professors for one tenth of $200,000? Of course: give lectures online by celebrity professors to thousands, have required work reviewed and assessed electronically, or give examinations using the SAT or GMAT exam model or pay librarians a small fee to proctor examinations. It can be done electronically and the student can take a course anywhere. It's beginning to happen. Aspen University in Colorado is exclusively online and it offers masters credits for one hundred dollars per credit. One can obtain a MS in Technology degree for $3,600. At that rate one should be able to obtain a 128 credit BA for $12,800. Will the Gen Y's flock to a program like this? Make it cheap and put it online-maybe. But if it's cheap, online, and prestigious and if the student can offer "try before you buy," they will love it. As mentioned before this is what The London School of Business and Finance is doing: Take classes online with the best faculty through an innovative and familiar delivery channel (Facebook) at no cost and then give the GenY's the Pi????ce de r????sistance. Let them test the quality of the course before putting their money down. That is, take the course for free, and if one wants the credit then pay. They expect 500,000 to go online the first year.
Why will this work? Gen Y's do not like the concept of fixed time, they prefer to decide when things happen and they do not like to be told by some authority that they will be punished if they do not show up when expected. At the University of Florida students live in (summer camp) dorms and take their classes online. GenY's love to travel and live in a world with no boundaries and they welcome alternative cultures. They avoid being stuck in one place for a period of time, no traffic jams on the way to class, no living in an uncivilized dorm rooms with strangers and no standing on line for showers, food, books, advisement, registration, etc. If the student can afford it they can do their degree in Mumbai, London, Costa Rica, etc. It's no longer "a year abroad" its four years abroad. If a student cannot afford it then it's off to work and to the community college for two years. The key is they want to be able to obtain their education their way; full time, part time and they can do their degree in 4 years or 14 years and they will avoid the one thing they hate- debt. They are well aware of the impossible debt students carry and their goal is to obtain a viable degree (not necessarily an education) without debt.
Tuition Debt Bubble
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