Wednesday, August 08, 2012

Paying For It: Tax Payers Provide Profit Educators with 86% of Revenue

Last week the Senate Health, Education, Labor and Pensions (HELP) committee looking into 'for profit' education released a scathing report into the business practices of many of the brand name education companies operating in the US.  Much of the negative business reporting has been presented over the past several years but this report is a complete catalog of an environment wholly driven by profit rather than outcomes beneficial to tax payers (who indirectly fund many of these operators).  In a press release Chairman Harkin said,
“In this report, you will find overwhelming documentation of overpriced tuition, predatory recruiting practices, sky-high dropout rates, billions of taxpayer dollars spent on aggressive marketing and advertising, and companies gaming regulations to maximize profits.  These practices are not the exception -- they are the norm; they are systemic throughout the industry, with very few exceptions,” Harkin said. 
An executive summary is here (pdf) and the full report here but some of the juicier findings from the executive summary are noted below:
  • Committee staff estimates that in 2009 when all sources of Federal taxpayer funds, including military and veterans’ benefits, are included, the 15 publicly traded for-profit education companies received 86 percent of revenues from taxpayers.
  • During the same period [2004-2010], the companies examined spent $4.2 billion on marketing and recruiting, or 22.7 percent of all revenue. Publicly traded companies operating for-profit colleges had an average profit margin of 19.7 percent, generated a total of $3.2 billion in pre-tax profit and paid an average of $7.3 million to their chief executive officers in 2009.
  • For profit colleges are rapidly increasing their reliance on taxpayer dollars. In 2009-10, the sector received $32 billion, 25 percent of the total Department of Education student aid program funds.
  • 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.
  • 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.
  • 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.
  • This may help to explain why more than half a million students who enrolled in 2008-9 left without a degree or Certificate by mid-2010. Among 2-year Associate degree-seekers, 63 percent of students departed without a degree.
There's more,  much more.

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