Tuesday, June 22, 2010

Flipping Colleges for Profit

Slate's The Big Money has a June 17th article entitled "Subprime for Students," which details how a not-for-profit college gets flipped into a raging money machine.  In this version of a now-familiar tale, a private concern bought out a small religious school for $9 million, renamed it, and turned it into an online school set up to harvest federal aid dollars.  The result: $454 million in tuition and fees last year (actually from two schools treated this way).  The company, BPE, spends $145 million on marketing and recruitment, according to the article.  It's a finely tuned machine:
At the end of last year, BPE had 1,175 recruiters responsible for drumming up business. The company plainly discloses in its annual report that it sets tuition (currently $7,860 a year) to stay within the loan limits of Title IV, the regulations governing financial aid. One Ashford recruiter Eisman quotes is more blunt: “They conveniently price tuition at the exact amount a student can qualify for in federal loan money. If a person has money available for school, Ashford finds a way to go after them. … It’s a boiler room, selling education to people who really don’t want it.”
 How many recruiters does your school have?  I bet you don't need a comma to write it down.

This situation gets compared to the sub-prime mortgage crisis.  Details are in the article, but one estimate of the loan defaults by 2020 puts the total in the hundreds of billions

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