Dogman
5th October 2010, 03:22 PM
http://blogs.forbes.com/moneybuilder/2010/10/05/is-education-the-next-subprime-crisis/
By Jacob Zamansky
Stop me if you’ve heard this one before: Publicly traded corporations accused of wrongdoing countering critics by saying they are helping low-income Americans achieve the American dream.
No, this isn’t the subprime loan debacle all over again. It’s the for-profit higher education industry, which is currently reeling from plummeting stock prices and shareholder unrest due to a government investigation that found potentially fraudulent practices and a need for new regulations.
Indeed, on August 3, 2010, the U.S. Government Accountability Office (GAO) issued a report which concluded that for-profit educational institutions had “encouraged fraudulent practices” designed to recruit students. The GAO investigated for-profit colleges in Arizona, California, Florida, Illinois, Pennsylvania, Texas and Washington, D.C. Recruiters at all 15 colleges studied by the GAO were found to have, “made some type of deceptive or otherwise questionable statement to undercover applicants, such as misrepresenting the applicant’s likely salary after graduation and not providing clear information about the college’s graduation rate. Other times our undercover applicants were provided accurate or helpful information by campus admissions and financial aid representatives.”
Zamansky & Associates has been investigating a number of these publicly held corporations purporting to offer accredited higher education including: The Apollo Group (APOL), Corinthian College (COCO), ITT Education Services Inc. (ESI), among more than a dozen others. A full list of corporations our investigation is focusing on can be viewed here. These corporations’ recruitment practices call into question whether they engaged in false and/or misleading statements and failed to disclose information to investors such as their accurate growth prospects and true financial results.
The actions of these companies has been detrimental to shareholders, but, like the subprime scandal before it, there is a human toll as well. On June 24, 2010 Yasmine Issa, a 25 year-old single mother of 3 year-old twins, testified at a Senate hearing that she paid $32,000 to learn to become an ultrasound technician, believing she would receive marketable skills and job placement services. Instead, after exhausting her savings, and taking on $20,000 of debt, she couldn’t find a job, and the so called placement services were of no help. Unfortunately, this sad story is a common one.
Supposedly, lawmakers are going to step-in and change the laws that govern how for-profit education corporations operate. The Department of Education, for example, plans to enact a “gainful employment” rule that threatens to cut off federal student loan money to schools that allowed their students, after having lost their jobs during the recession, to take on more debt than they could afford.
Just like lending institutions such as Countrywide Financial, who argued they were helping low-income families achieve the American Dream when in reality the company was bleeding them dry, for-profit education companies are on the offensive. They have reportedly hired expensive lobbyists and consultants to sway government rule makers, while also taking out full-page ads at their shareholders’ expense. Corinthian Colleges, Inc.’s “1,000,000 students don’t count?” campaign and its website is a prime example.
Wall Street made a fortune selling loans to people who couldn’t pay them back. For-profit education companies similarly paid their executives millions, while making empty promises to students looking to better themselves. And while there are many similarities between the two scandals, the for-profit education industry differs in one very important way: it’s not too late for regulators to act.
Jacob H. Zamansky is a principal at the law firm Zamansky & Associates
By Jacob Zamansky
Stop me if you’ve heard this one before: Publicly traded corporations accused of wrongdoing countering critics by saying they are helping low-income Americans achieve the American dream.
No, this isn’t the subprime loan debacle all over again. It’s the for-profit higher education industry, which is currently reeling from plummeting stock prices and shareholder unrest due to a government investigation that found potentially fraudulent practices and a need for new regulations.
Indeed, on August 3, 2010, the U.S. Government Accountability Office (GAO) issued a report which concluded that for-profit educational institutions had “encouraged fraudulent practices” designed to recruit students. The GAO investigated for-profit colleges in Arizona, California, Florida, Illinois, Pennsylvania, Texas and Washington, D.C. Recruiters at all 15 colleges studied by the GAO were found to have, “made some type of deceptive or otherwise questionable statement to undercover applicants, such as misrepresenting the applicant’s likely salary after graduation and not providing clear information about the college’s graduation rate. Other times our undercover applicants were provided accurate or helpful information by campus admissions and financial aid representatives.”
Zamansky & Associates has been investigating a number of these publicly held corporations purporting to offer accredited higher education including: The Apollo Group (APOL), Corinthian College (COCO), ITT Education Services Inc. (ESI), among more than a dozen others. A full list of corporations our investigation is focusing on can be viewed here. These corporations’ recruitment practices call into question whether they engaged in false and/or misleading statements and failed to disclose information to investors such as their accurate growth prospects and true financial results.
The actions of these companies has been detrimental to shareholders, but, like the subprime scandal before it, there is a human toll as well. On June 24, 2010 Yasmine Issa, a 25 year-old single mother of 3 year-old twins, testified at a Senate hearing that she paid $32,000 to learn to become an ultrasound technician, believing she would receive marketable skills and job placement services. Instead, after exhausting her savings, and taking on $20,000 of debt, she couldn’t find a job, and the so called placement services were of no help. Unfortunately, this sad story is a common one.
Supposedly, lawmakers are going to step-in and change the laws that govern how for-profit education corporations operate. The Department of Education, for example, plans to enact a “gainful employment” rule that threatens to cut off federal student loan money to schools that allowed their students, after having lost their jobs during the recession, to take on more debt than they could afford.
Just like lending institutions such as Countrywide Financial, who argued they were helping low-income families achieve the American Dream when in reality the company was bleeding them dry, for-profit education companies are on the offensive. They have reportedly hired expensive lobbyists and consultants to sway government rule makers, while also taking out full-page ads at their shareholders’ expense. Corinthian Colleges, Inc.’s “1,000,000 students don’t count?” campaign and its website is a prime example.
Wall Street made a fortune selling loans to people who couldn’t pay them back. For-profit education companies similarly paid their executives millions, while making empty promises to students looking to better themselves. And while there are many similarities between the two scandals, the for-profit education industry differs in one very important way: it’s not too late for regulators to act.
Jacob H. Zamansky is a principal at the law firm Zamansky & Associates