The Predatory Culture Behind For-Profit Education Loans

After Goldman Sachs became a partner in Education Management Corp, after the Pittsburgh company's executives agreed to sell its portfolio of more than 70 colleges for $3.4 billion, employees soon noticed a drastic shift in culture, writes Chris Kirkham at the Huffington Post.

"Longtime admissions managers were replaced, ushering in an era in which recruiters were endlessly hounded by supervisors about hitting weekly enrollment targets. The admissions staff nearly tripled, requiring expanded floor space to accommodate a sales force of more than 2,600 across the country."

It's not hard to imagine that letting boiler rooms push poor folks into taking out impossible-to-shed federal loans is a really bad idea, particularly when it's to pay big bucks to attend a weak for-profit "college", writes Ryan Chittum at the Columbia Journalism Review.

Kirkham writes that management handed down revamped telemarketing scripts designed to prey on poor and uneducated consumers, honing in on their past mistakes in life as a ploy to convince them that college would solve all their problems.

"Recruiters told people with felony criminal records that pursuing a criminal justice degree would allow them to achieve their dreams of joining the FBI — an impossible scenario, because the bureau is barred from hiring people who have been convicted of such offenses. They convinced students with no access to a computer or Internet that they could use the local library for classes, even though they would need to save files and download specific software to access coursework."

"You'd probe to find a weakness," said Brian Klein, a former admissions employee who worked for three years at Argosy University Online, one of four major colleges operated by EDMC.

"You basically take all that failure and all those bad decisions, and you spin it around and put it right back in their face as guilt, to go to this shitty university and run up all of this debt."

"It just got to the point where I felt like I was lying to these people on a regular basis," said Patrick Flynn, a recruiter at EDMC's South University online from 2006 through 2009, when he quit.

"Honestly, I just felt dirty doing the things I was doing. It's almost like they were trying to make me take advantage of people's belief in what this education was going to get them, when I didn't buy into it myself."

Unlike in the mortgage markets, this new market in higher education boasted seemingly unlimited growth potential at virtually zero risk. The burden of college loan repayment falls entirely on students' backs, shielding corporations from the consequences of default.

"The colleges essentially receive all their revenues upfront, primarily through federal government loans and grants for tuition, regardless of whether students are able to gain employment and pay back their loans."

But a recent complaint from the U.S. Justice Department detailed a business bent on recruiting students at all costs.

According to a statement from EDMC:

"The company's focus on the student experience and success did not change after the 2006 transaction."

The statement noted that EDMC has doubled expenditures on capital improvements intended to benefit students in the five years after the private equity deal.

The most recent student loan default data, released this month, showed that the percentage of students defaulting within two years of leaving at the Art Institute of Pittsburgh nearly doubled, from 7.9 percent in 2008 to 15.4 percent in 2009. South University's default rate increased from 7.9 percent to 13.5 percent between 2008 and 2009.

In August, the Justice Department and attorneys general from five states, including Florida, California and Illinois, alleged widespread fraud in EDMC's recruiting model, arguing that admissions employees were compensated entirely based on the number of students enrolled.

Lawyers for EDMC challenged the notion that the "quality factors" had no bearing on an employee's salary. Bonnie Campbell, a former Iowa attorney general serving as a spokeswoman for EDMC's legal team, pointed out that EDMC had two education law firms independently review the compensation plan to ensure it complied with the "safe harbors" in the law.

"It just cannot be legally said that EDMC relied solely on enrollment numbers, because they didn't," Campbell said. "It wasn't even possible to arrive at an evaluation without a consideration of the quality factors."

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