College, Inc. (full documentary) | FRONTLINE

[Music] tonight on frontline it's education for profit business is booming you're thinking about going back to school they'll find you alone it was just such an incredibly simple process give you a diploma we educate the students the traditional higher education has given up on but what are the costs i really am at a dead end and the student loans are going to keep mounting and mounting and mounting the danger is a kind of fast foodization of higher education itself this is an online university this is what it looks like correspondent martin smith investigates you've been in office now for a year what have you done to stop this college inc [Music] [Music] hey willie michael could you give me a call when you get a chance thanks [Music] francisco garcia how are you sir what's the next step francisco or bob in your mind with uh with uh michael meet michael clifford i didn't see the email confirmation from them did they confirm he calls himself an educational entrepreneur dennis's read on it is that the regionals have just never had to deal with that before from his headquarters in the sleepy beach community of del mar california clifford is building an empire was it mark twain that said don't let college get in the way of your education he invests in failing universities and injects them with large amounts of capital when they go public he can make a bundle of money in the process the regulatory environment has changed so much one of his schools was involved in a major 2008 ipo on wall street grand canyon university you may never have heard of it but today it's valued at 1.2 billion dollars hello it's michael a former musician who never attended college michael clifford is an unlikely player in the rarefied world of academia i was doing a lot of cocaine drinking a lot smoking a lot of pot from the music business then the club scene somebody introduced me to jesus christ by reading me the bible and it changed my life i became a born-again christian and then my spiritual mentor a guy named bill bright from campus crusade for christ international sat me down one day and said you need to get into post-secondary education and i said bill i've never gone to college i don't know what you're talking about right right the when i came home and told a couple of my friends that i was going to buy a university they all said are you back on crack or something i mean no one buys a college and i said no no i think it can be done today clifford is part of a movement that is transforming the way we think about higher education in america he and his investors have turned around a half dozen colleges that now enroll close to 40 000 students there are people who would say look this guy michael clifford he never went to college he was a musician he sort of drifted around he had a born-again experience do you have the credibility do you have the bona fides to be determining the future of colleges around the country no i don't but i'm doing it and i think that's the great thing only in america i mean my new book is called how to run a college by a guy that never went to one clifford doesn't act alone he attracts some of america's biggest investors like former ge chairman jack welch according to the wall street journal welch invested two million dollars in one of clifford schools i invest in bonds and other things invest in all these widgets i invest in private equity or invest in a school hi i'm jack it's education for profit i like this investment more than anyone i got [Laughter] traditional colleges raise capital from wealthy alumni and other donations clifford's for-profit schools sell shares to investors i just think if everybody is going to fund clifford's latest turnaround project is a small nursing school in a hispanic section of san diego we have probably invested in the neighborhood of six to seven million dollars in the school it will get as big as we want it to get because the demand for bilingual nursing and other related health care programs is so great clifford took over inter-american college in 2009 it's geared to serve latinos and he plans to open a string of campuses outside military bases the students typically hold jobs by day and take classes well into the night to improve their job prospects typical student is they're adult students so their average age might be in their early 30s they're very career oriented protein carbohydrates in the past these students might have graduated high school and found a good job as a factory worker or a secretary there was no need for more school but with the economy changing they're coming back to school in record numbers they represent a huge and growing market it's a phenomenon that leaders of america's community colleges have known for years in an old industrial section of queens new york the jobs are long gone and students are crowding classrooms college is now fundamental if you're going to work to just simply work to make it as an adult you are going to need an education because the economy is about knowledge but the demand is so great community colleges can't keep up there's an explosion of enrollment this year and most of us have been turning away students in california i know it's tens of thousands maybe hundreds of thousands of students who couldn't even come in how do you meet that demand what laguardia community college has done and other colleges throughout the country have said come to us and when we're full we're going to shut the door and more and more you're having to do that we are having to do that the failure of community colleges to accommodate the demand has given clifford and others a huge opportunity many schools are not meeting the market demand and we have somewhere between 30 and 50 million working american adults who have not finished their college degree the question is are for-profit schools the answer in the 90s clifford apprenticed with the undisputed master the architect of the for-profit model john sperling [Applause] [Music] in 1976 sperling a cambridge university educated humanities professor turned his back on traditional academia and moved to phoenix arizona he believed he could mass-produce education and run his school more like a corporation than a university now his school is everywhere the university of phoenix [Music] it's one of the largest universities in the world enrolling close to a half million students more than the entire university of california system and all the ivy league schools combined [Music] i traveled here knowing that the university of phoenix is wary of the media but they had agreed to some interviews then at the last minute they backed out and gave no explanation [Music] instead i spoke to former phoenix executives it was not by accident that this university developed in the southwest and the west and that's where people go to reinvent themselves and that's where john reinvented the university why did the university need to be reinvented what's wrong with the way that universities were running up until the time that john spurling came along with phoenix john saw the constraints of most most college professors you know anybody who's got any new ideas in college are quickly beaten down the academy hasn't had a real change in how it worked for almost 500 years mark defusco arrived at the university of phoenix in the mid-90s with a phd in education from usc but he quickly embraced the phoenix model phoenix people go to school all year round we started classes every five weeks and instead of starting classes in september and january we started classes in january february and march sometimes two in april if we had more students then we could handle we'll build another site and handle some more we built campuses by a freeway because we figured that's where the people were so if you went by any major freeway in the southwest you're going to find the university of phoenix campus we put schools 20 minutes apart because that's about as far as somebody could drive at rush hour to keep costs low the university of phoenix hired teachers on short-term contracts they did away with tenure i didn't have to worry about tenure if they weren't getting to the outcomes i needed i just wouldn't give them another contract and where it takes a traditional university months or years to get a new course approved by faculty at phoenix they could generate one in a matter of days we would put a group of faculty members a group of experts into a room in a hotel for a weekend and we wouldn't let them out until they came up with new curriculum the university was not bound by bricks and mortar either students who couldn't attend to phoenix campus could log in to courses online we were designing the coursework around the people who were going to use it the customer you bet it wasn't long before wall street took notice and in 1994 the university of phoenix and its parent corporation the apollo group went public in an otherwise flat market the stock took off it was a very exciting time for the first 15 quarters we broke records and earnings every every quarter apollo group this stock is done we were filling in places that no one had ever filled in before it was a change of an industry and early managers at apollo did very very well what do you mean by very very well it did very very well i mean ultimately there's not college professors and and college administrators in this country that did as well as apollo administrators i mean how much could a college administrator for the university of phoenix make the sky was the limit when i left apollo i shouldn't say this i shouldn't say this a free country i understand i understand it but it's boasting and i won't save it no well in terms of how much you made you did very well we did better i did i did better than i ever imagined today phoenix founder john sperling is a billionaire and many of his executives have reaped millions with money like that to be made the business model caught fire it's been replicated across the industry for-profits offer a range of degrees but focus on career training in the growth sectors nursing business management i.t it's difficult to assess the quality of the degrees across all colleges traditional or for profit there's no standard measure imposed on them but we did talk to satisfied students i love grand canyon and the community that it represents and also the christian background this school is just perfect just it's night classes i'm studying um merchandise product development and it is the coolest thing i've ever done in my life i love it but i was surprised to learn how expensive tuition at the for-profits is five to six times the cost of a community college and as much as twice a four-year state university on wall street they're a big hit from a business perspective it's a great story you're serving a market that's been traditionally underserved there is a need for more education and it's a very profitable business it generates a lot of free cash flow so it attracted a lot more financiers and that really helped take the industry to the next level one of the most successful was grand canyon university the school that michael clifford came across in 2004 when it was a small struggling christian college you've got 60 million dollars invested in improvements here in the next three years yes today under another former university of phoenix executive brian mueller the school is flourishing there's a business school with a brand new building the nursing program has state of the art facilities the basketball team is competitive and the baseball team has a new diamond some 40 000 students are now enrolled at grand canyon that's a 400 percent increase in just a few years but you won't find the majority of those students here i hear it instead most of them are here oh yeah 90 of grand canyon students are logging in online from across the country these servers alone represent 35 000 of them this is an online university this is what it looks like this is where other than the people involved the instructors and the students this is where they all come together electronically online education is incredibly profitable and how much capacity do you have built in here how big can you go it allows schools to tap into a wellspring of new students and expand rapidly at the flick of a switch we can easily add more servers and take several times this several times so yeah 100 150 000 yes an online course at grand canyon costs from 400 to 550 dollars a credit hour we watched an online class at another school we were asked and agreed not to show it but for the most part it's just instructor-led discussion groups there's little in the way of video or graphics but it is convenient the times where i have to work in the morning i can come home and do school work at night and the times that i work in the afternoon i get up and i do school work during the day but some critics of this model worry there may be something lost the danger obviously is a kind of fast foodization of higher education itself where low cost convenience and ease of ease of finishing become values in themselves to the possible detriment of the things that only can be accomplished slowly and over time at grand canyon most of mueller's profit comes from his online operation but he still sees the value of anchoring his university in a traditional campus there is a lot of value in the minds of a teacher in minnesota that's going to do a master's degree program she's going to do it online now even though she's not coming to campus the fact that it has a traditional campus that looks like the campus that she went to as an undergraduate the fact that the campus is growing and flourishing and has all of the excitement around it is very is important so it builds your brand it absolutely builds the brand [Music] not just a job search a journey beyond building the campus and installing his online servers mueller is spending even more money getting the word out 25 million dollars last year alone we're all here for a purpose find yours for-profit schools spend a lot on marketing whatever your business card says you're in the business of you their ad costs rival those of multinational brands which university revolutionized education in america the granddaddy university of phoenix spent 130 million dollars on ads in 2008. which university has the largest business school in the country that's more than brands like tide revlon and fedex why wait any longer what they spend on sales and marketing can rival or exceed what they spend on teaching i want to be the best dad and if you take a look at for-profit colleges the analysts will tell you that anywhere between 20 and 25 percent of the total revenue of the company is in sales and marketing about a quarter in most cases the faculty are in the 10 to 20 range should that make us uncomfortable i don't know why why would one be uncomfortable well you're spending more on getting me to come to the school than you are on the service you're providing once i'm there i understand well is that right when i go and buy perfume for my mom the chemicals in the bottle and the bottle itself amount to about 50 cents the advertising amounts to five or six bucks but you're not selling perfume what makes education so special for-profits have to get people's attention and and they do a very good job of getting people's attention are you thinking about going back to school yes excellent what are you thinking about going forward in addition to lots of advertising the industry relies on an army of sales people here recruiters are working a job fair trying to convince job seekers to come back to school you had said something about accounting we have an mba with an emphasis in accounting we also have a master's in accountancy which the for-profits need to continually add students when you think about it for the university of phoenix for example in order to grow on top of the folks that are leaving you've got to add the equivalent of you know one to one and a half ohio states per year the pressure to grow has raised questions about enrollment practices 2004-2005 started to see some companies probably doing things they shouldn't have been doing you know going after population student populations that maybe did not deserve to go to school we're not going to succeed in school they were focusing on enrollments more than the quality in the early 90s a congressional investigation accused a number of for-profit schools of employing false or misleading advertising and using illegal recruitment efforts while some of those schools were shut down allegations negative press and lawsuits continued to dog the industry we talked to the chief washington lobbyist for the for-profit schools harris miller the industry has a black eye has been struggling for credibility why i don't think the industry has a black eye i think the sector's doing very well we're growing by 25 percent a year 2.8 million students attending our schools we have some challenges because there have been some allegations that everything is not perfect i wish it were but what about the pressure of wall street to have them grow the pressure is to deliver a high education quality for their students our schools know that anytime they step out of line there's a huge risk and there's a large focus on compliance at all times including on enrollment issues thank you for calling devry university we wanted to find out more about how the enrollment process works we'd heard complaints about call centers and employees called enrollment advisors using high pressure sales tactics on prospective students then we got hold of this internal email from argosy university in it a director of admissions is writing his team of enrollment counselors create a sense of urgency it says push their hot button don't let the student off the phone dial dial dial tammy barker was an enrollment advisor at another for-profit school ashford university i didn't realize just how many students we were expected to recruit and the amount of pressure that they put on you to meet these quotas i think challenges anybody's integrity in a letter to frontline ashford's parent company bridgepoint says they don't have quotas but barker says she was instructed to make 150 calls a day and close on at least 12 students a month if your number started dropping trainers would come around and start telling you to up your outgoing calls anywhere from 300 to 450 a day to meet those quotas to get those applications they used to tell us you know dig deep get to their pain get to what's bothering them so that that way you can convince them that a college degree is going to solve all their problems another former ashford enrollment counselor in a submission to the department of education wrote we are forced to do anything necessary to get people to fill out an application our jobs depend on it thank you for calling ashford university bridgepoint says ashford has zero tolerance for unethical behavior the focus is to start the student whether they're academically ready whether they're financially ready they need to start class ray campbell worked as a financial aid advisor at the university of phoenix once a student was recruited it was his job to hook them up with a loan so they could start paying for classes as quickly as possible if i put on my report the student's not ready and they don't start i would hear it i would constantly be pressured of why aren't they ready is there a way we can start them what can we do to get them ready anyway the focus was on this student needs to start period just weeks before this broadcast the university of phoenix replied at length to a list of written questions from frontline on the question of pressure tactics they said should we find an enrollment advisor misleading students prompt action would be taken including termination in the same letter they wrote we are committed to financial literacy federal student loans are the lifeblood of the for-profit schools although their students comprise only 10 percent of the college going public they consume almost a quarter of all federal financial aid the taxpayers are essentially funding this industry something like 75 percent of their revenue comes from federal grants and loans the university of phoenix which is the biggest for-profit it now gets 86 percent of its revenue from the federal government up from something like 48 9 or 10 years ago the schools say they're providing opportunity helping students of modest means pay for college we educate the students that traditional higher education has given up on traditional higher education has become a very socio-demographically elite group of people if you're not wealthy or upper middle class you're not going to get into a traditional higher education system so the only options lower income students and working adults have is either to go to a community college some of them can go to minority serving institutions and our option is the third option what remains troubling is that on average the debt load for for-profit students is more than twice that of students at traditional schools unlike a public community college where a small grant will usually cover most the tuition for the for-profit colleges the tuition requires substantial borrowing so a student who drops out or who doesn't get a high-paying job sooner or later they have to pay the piper and uh that can mean tens or even hundreds of thousands of dollars in loans that they have to pay back that's what happened to ann cobb i had two young girls and i was trying to find odd jobs my ex at that time went bankrupt so all the bills actually rolled over onto me in 1994 ann cobb was a 35 year old single mother making less than 8 000 a year and living on food stamps when an enrollment advisor from the university of phoenix helped her get a student loan it was just such an incredibly simple process i mean it was sign a few places here and you know we'll let you know and i'm sure you'll be approved and i said well you know i'm not sure i have a lot of bills is it's still going to be okay oh yeah no problem no problem at all don't worry about just sign here cobb graduated in 1999 with over 30 000 in debt over the course of a decade with deferments consolidations and penalties and an interest rate that has gone as high as fourteen percent the amount now due has ballooned to over sixty thousand dollars you never hear these stories you hear the happy stories with the double car garage in the great house and everything else you don't hear these horror stories cobb is not the only person with large student debt there are many like her and this has some people worried concern is that they're bringing in students who can't succeed or graduate loading them with debt and the for-profit college is not the one that is on the hook it's you and me it's the taxpayer it's the federal government i know you're worried about the complexity of it but a plan to split the baby makes a lot of sense to me michael clifford is always in search of his next big deal he'll never get an opportunity like this anywhere in the rest of his life period we're on our way to a meeting for his latest potential acquisition well i'm going to push gary hard today we wanted to see what it takes to revive a failing college thank you sir call me good evening thank you what is it that you do that turns a school from a distressed operation to a successful one well what i feel i do is i bring the 3ms money management and marketing money management and marketing that's what it takes combined with passion to turn around the schools clifford has found a school in oakland california that has fallen on hard times [Music] patton university is like many small colleges across the country who have seen their endowments disappear during the recession [Music] president gary moncher wants to save patton but without an immediate influx of cash patton may not make it through the year [Music] patton is at the crossroads with the economic turndown we lost almost 50 percent in in in our in our asset i mean literally dropped from 10 million dollar equity to 5 million and the future didn't look very bright so the question is are we going to be passive and see what happens or are we going to try to be proactive despite its dire predicament patton still has one very valuable asset something called regional accreditation for the most part a regionally accredited school is considered a higher quality school like the harvard g is regionally accredited but so is devry so is university of phoenix same type of accreditation that the ivy league schools have um so if you can find an underperforming traditional school with regional accreditation that's a very valuable property we had to do appraisals on what regional accreditation is worth for wall street and the independent appraisers came up with a number that a school was worth 10 million dollars because it cost 10 million dollars 10 years and a 50 50 chance of success to obtain regional accreditation so that accreditation is a very valuable thing it is once you have accreditation you qualify for the student loan program and that's what clifford needs accreditation is the key to unlocking federal financial aid funds i heard about patent university from one of the regional accrediting executives who said we really like this school we're very concerned about its future financially would you go talk to them michael and i kept looking at pat and going what can i do with the school i kept working on it and then it hit me like a ton of bricks that it was the perfect fit for the dream center dream center is a non-profit christian mission associated with the angelus temple a mega church near downtown l.a [Music] since its founding in 1994 the dream center has been a hit with christian teenagers from across southern california [Music] michael clifford is on its board of directors the dream center is housed in a former hospital that acts as a 24-hour rehab facility and shelter for ex-convicts drug addicts and prostitutes but if clifford can make his deal with patton dream center will also include a fully accredited dream center college of working towards this fall launching dream center college because of michael's hard work if we take a prostitute off the street or an ex-crips or bloods member we bring them into our programs and we start an education process let me make sure i understand so the gang member the former gang member or prostitute or whoever it is that comes to you a homeless person can get a college loan for an education absolutely and it's not just the people in the shelter that clifford's interested in it's the social workers too we did a lot of market research and we believe that there's a gigantic market for us in los angeles of the 19 to 25 year old who would like to get a degree but would like to help people hands-on so you're going to be able to connect both the people that are providing the the social workers with a with a loan uh and and get them on a degree path at this dream center university and you're going to be able to take some of their clients the former gang members and prostitutes and get them a college exactly in the dream center conference room i sat in on a meeting with clifford and patton's president as they tried to work out the final details of their deal what are the big barriers to the deal let's put the turds on the table or here's kind of like if i can simplify it michael and i like the fact you get right to the bottom line i can't think of a more exciting opportunity for patton to be involved in this work we just need to move on in some way that makes sense to you absolutely well it always takes more money and longer time i mean if we think it's going to cost 2 million it's going to cost 5 million if we think it's going to be in two years it's going to be five years it always is that way you know it's an unusual deal in one respect clifford wants to keep patent and dream center non-profit because i think it's a i think it's two or three million bucks in the first 12 months is what i'm hearing but clifford's negotiated it so that if he can't find enough charitable donors he can bring in investors and take dream center college for profit because we can always go raise capital for a for-profit strategic alliance between the two i don't really understand how it all works with investors coming in and why would investors invest in this and not the apollo group and it's a startup company and what's the what's what's the payback in reality this is a three to seven million dollar project i mean i'm very thankful that patent has the opportunity that it has at this time but i'm very concerned about education as a business for profit and that's simply speaking to a personal bias so we need to make sure though the issues on financial aid and all that are buttoned down clifford would like to get this deal done soon what's happening is the red current regulatory environment is very different than it was one year ago he's worried that the political winds in washington are shifting you cannot assume that the doe or the regional credit bodies are going to act like they did a year ago it's extremely hostile out there toward changes you know we just don't want any blow ups thank you mr chairman and thank you very much for holding this this hearing last fall for the first time in eight years the house committee on education held a hearing about the for-profit schools it seems to me the student's a bit of a pawn here with 20 billion dollars of federal student loans and grants funneled to the industry each year congress is considering stepping up its oversight i'm asking what happens to the student out there they're hearing troubling stories about some of the school's aggressive recruitment practices in which recruiters at two separate proprietary schools help prospective students we went to talk to president obama's new secretary of education arne duncan to get his take on the for-profits i don't think there's anything inherently wrong with a for-profit educating students where they are providing them with a great education where they're being honest about it where there's value for uh for the investment and long-term you want to see those players you know do well but where there is high pressure tactics where there are deceptive tactics where there is dishonesty we have to challenge that in a very serious way the government has been involved in a number of lawsuits in recent years one of the biggest was against the university of phoenix and dealt with a rule concerning something called incentivized compensation it stipulates that schools cannot pay enrollment councillors based solely on the number of students they recruit the concern is that they're bringing in students who can't succeed or graduate just so the recruiter can make more money if you're paid based on how many people you enroll you'll enroll pretty much anybody with no admission of wrongdoing phoenix avoided a trial last year by settling out of court with the government and two whistleblowers for 67 million dollars a number of former students from other schools are also filing suits i believed a lot of lies that were told to me and it wasn't until after the fact that i'm finding out it was anything but the truth sherry hefferkamp was looking to get a master's degree in psychology when she talked to an enrollment counselor at argosy university in north dallas texas the guy i talked to was personable he seemed like he really wanted to get to know me we had a really good conversation and then he said you know instead of applying for the master's program go ahead and apply for the doctorate program they've got two spots available so you better apply right now and so i was thinking heck yeah i'm going to hurry and apply just the thought of oh my goodness i could be a doctor in psychology that would be great i went ahead and i applied according to hafer camp argosy told her that the degree was going to be accredited by the american psychological association they told me that i had nothing to worry about and the only reason why we're not apa accredited is because we are new to the dallas area in fact argosy dallas never did obtain apa accreditation haferkamp has now joined with 17 other former argosy students and filed the lawsuit claiming she was defrauded in a letter to frontline argosy's parent company edmc says argosy dallas continues to aspire to apa accreditation and rejects any charges of fraud haferkamp has since moved to maryland where she can't hang a shingle without an apa accredited degree i really am at a dead end i don't know which way to go and the student loans are going to keep mounting and mounting and mounting halfer camp is now sinking in over one hundred thousand dollars of federal student loans this debt is almost impossible to escape if you default on a federal student loan you will be hounded for life barmac nasserian is a washington representative of traditional colleges it is the most collectible kind of debt there is it is non-dischargeable in bankruptcy they will garnish your wages they will intercept your tax refund they will sue you in court there is all you become ineligible for federal employment you become ineligible for any other kind of federal benefit increasingly many states piggyback those prohibitions so it is it is it it ruins you what was i doing before just hanging around at home everest college is part of corinthian college's inc one of the biggest players in the for-profit market everest held out the promise of a bright future to three nursing students they said that we were going to be making 25 an hour and 25 to 35. they told me like how you know you're and they're gonna find us a job they're gonna they're going to place us because they have a lot of connections and they're big so i was like okay this is a good this is good why shouldn't we huh they each paid almost thirty thousand dollars for a 12-month program i got my license in december of 09 and i've been on countless interviews and they all asked if i've ever been in a hospital and i would have to tell them we never set foot in a hospital ever we went to a museum of scientology for our psychiatric rotation our pediatrics rotation we went to a daycare oh yeah that was our pizza we went to a daycare despite graduating and getting licenses all three women have since struggled to find jobs claiming they didn't have the right training in fact they were given no practical experience in hospitals as they say they were promised only in nursing homes and health clinics we asked corinthian colleges about this they responded by letter stating that the nurse's course provided thorough and appropriate training and that students were fully informed that sites were subject to change at any time the women want their money back and along with 10 others in their class are considering a lawsuit let me ask you about these nursing students at corinthians we talked about the nurses with harris miller they have 30 000 in debt right what can they do well the government can basically wipe that out i mean the government has the ability to if these and if these allegations are correct and these students were misled the government can do a lot of things if they're true i i presented we asked secretary duncan about the nurses claims and what miller had said and he said if they determine that the allegations are correct the government can wipe out their debt is that true i don't know if we have the ability to wipe up wipe out their debt and again that's the wrong answer the wrong the right answer is to stop that bad that bad practice well clearly that would be a good idea to stop that but i mean i was surprised to hear from the chief lobbyist to sort of pass this off and say well the government can wipe that out you can't wipe that out no sir we are very concerned about the amount of debt that students are taking on whether that be federal student loans as well as private loans student debt is a big concern in congress today conjuring fears of a looming default crisis reminiscent of the subprime mortgage debacle it's not a small matter outstanding student loans across all college sectors are roughly equal to america's total credit card debt about 750 billion dollars it sort of reminds me where we were two years ago with liar loans and no doc loans in in in in the housing market where people started accepting people who couldn't prove their income couldn't prove employment but we sold them a 450 000 house but the for-profits maintained their business practices are sound and they don't have a loan default problem we have a school a welding school where the default rate is less than one-half of one percent and in the gao report mr scott and his colleagues reported that they found many schools in our sector with very low default rates including even a few in inner cities so clearly they're doing 90 of our students are in adequate loan repayments so apparently they are finding ways to repay their loans you're saying 90 of the students are paying back their loans they're not they're not in default right so 10 are in default 10 or 11 the less official figure some are higher some are lower yes that's that's the average we constantly hear declarations of good news all of the official stakeholders tout what strikes one as impressively low default rates well of course the reason is because we're not counting all of them in federal financial aid because of very heavy lobbying by institutions default is defined as non-repayment within a very narrow window of currently only two years from the first date that you enter repayment so if you can push default outside of that window they go away they don't exist they don't count nasserian believes the default rate at for profits could be as high as 50 percent and consider it another way according to current government figures for-profit students are much more likely to default on their loans they represent just 10 percent of all college students but nearly half of all defaults they have about 10 percent of the students they have about 44 of all student defaults that sounds like there's a bigger problem than just a few bad apples it's something we need to watch are you uh yes we are i mean you've been in office now for a year what have you done to stop this right well we have some work to do and uh you know we have not the the clear answer is we haven't stopped it um we have challenged some floats we've had some actually i wouldn't say slabs we've had some pretty significant financial settlements and we're going through a process now and we're thinking through what additional steps we need to take in a cramped conference room packed with wall street investors and lobbyists department of education regulators are attempting to negotiate new rules to try to stem the growing number of defaults one of the most contentious is a proposed rule on something called gainful employment which requires that upon graduation students should be able to find employment sufficient to pay back their loans it's a sort of direct test of whether for-profit colleges actually fulfill the role that they say that they serve if you're being sold at bill of goods if you're told you're going back to train to be a policeman it ends up you're being trained to be a minimum wage security guard there's a problem with that if you're being told you're training to be a nurse and taking out loans that you know associated with that potential income salary and you're actually going to be just drawing blood there's a problem with that the gainful employment test if passed will apply only to for-profit schools and some vocational programs at other colleges the for-profit colleges i think this makes them very nervous they're worried because they know that many of their members are charging a lot of money that many of their members have students who are defaulting on mass after they graduate they're afraid that this rule will cut them out of the program but in many ways that's the point yeah exactly it's the largest accrediting body so it took the hit because it's so big it has 1600 schools that would mean back in his west coast offices clifford is feeling the pressure from regulators as well today he's having to calm a nervous investor you know it's a bump in the road and unfortunately it's a slap in the face to george and jennifer and the people have been working so hard his chancellor university the school purchased with help from jack welch has come under scrutiny chancellor is under a close watch when we see a problematic institution being acquired and being changed we put it on a very short leash sylvia manning is the new president of the higher learning commission the regional accreditor that oversees chancellor under her leadership the commission is taking a harder stance against accreditation buying we've elevated the scrutiny tremendously it is really inappropriate for accreditation to be purchased the way you know a taxi license can be purchased every so often an institution can't or won't measure up and accreditation is withdrawn for jack welch this is just the price of doing business we're not going to stop educating people because we're afraid of some bureaucrat nailing us with an eye and a dotted eye and a cross t there's always a risk you can't be afraid to go into a business because of regulation risk we're working very hard to prove that we can instill the academic rigor and quality of education for the students that the school had not been delivering for many many years because you don't want to see that accreditation get pulled when you're correct but we halfway down the road we won't work with a school unless the regulatory authorities want us to work with the school i mean wall street says hey we put our money up we own this business it's ours and we're going to run it the regulation community says these are entities that are part of the public trust they were non-profit you've converted them to for-profit but they still have a public mission to educate our society and that's where the big tug of war has been but life's too short to be at war with everybody and i don't believe the regulators are enemies this tug of war between regulators and investors has put wall street on edge short sellers have entered the fray betting education stocks will fall check out apollo group after the close the earnings came out they were a penny better than expected but they might face a million and a half in liabilities and some open-ending report released in the department of education the industry is fighting hard against the regulations washington lobbyists have descended on capitol hill with donations in hand and they are starting to have an effect in march 18 congressmen and women from both sides of the aisle signed a letter to secretary of education duncan urging him to soften his proposed gainful employment rule change it shouldn't surprise anybody that a tremendous amount of money goes into lobbying care the one requirement here for all of the rest of their practices to ensue is that billions of dollars of federal money flow with no accountability no oversight and minimal regulations and for that to happen they need to pay attention to washington and they do [Music] every american will need to get more than a high school diploma and by 2020 america will once again have the highest proportion of college graduates in the world soon after he took office president obama pledged as much as 12 billion dollars to expand america's community colleges this year after a fierce debate in congress the amount was slashed to just 2 billion it appears that if the president wants to get more americans to go back to school he's going to need the for-profit sector the obama administration realizes that the for-profit colleges are going to have to continue to grow in order for the administration to meet its college graduation goals they're almost getting the point where they're too big to fail there'd just be too many students left out on the street with nowhere to go what happens to these students where do they go next they're certainly not going to go to the community colleges there's certainly not going to be loads of classrooms available at the state schools they're cutting back the for-profits make it easier for them to actually get what they need so why shouldn't they make money on it i mean ultimately that's part of what the american dream is all about but is education a business i believe so listen i'm happy that there are places in the world where people sit down and think we need that um but that that's very expensive and not everybody can do that and so for the vast majority of folks who who don't get that don't get that privilege then i think it's a business just last week a senior department of education official promised more scrutiny of for-profit schools their stocks fell but in los angeles michael clifford's dream center college is accepting students for the fall of 2010. for now it remains a non-profit a plan to build a for-profit online program has not been finalized meanwhile clifford's busy expanding inter-american college he's renamed it united states university hello oh i'm right in the middle of a meeting but you're so important i had to drop everything very difficult very difficult [Music] next time on frontline world in southern africa it was supposed to harness the energy of children to bring fresh water to their villages now five years later this play pump hasn't produced any water for six months what went wrong with the play pump we would all love there to be a magic bullet that's not the way it works the politics of trying to help this story and more on the next frontline world frontline's college inc is available on dvd to order visit shoppbs.org or call 1 800 play pbs [Music] frontline is made possible by contributions to your pbs station from viewers like you thank you with major funding from the john d and catherine t macarthur foundation committed to building a more just verdant and peaceful world additional funding is provided by the park foundation and by the frontline journalism fund major funding for this program is provided by the bill and melinda gates foundation [Music] you

Channel: FRONTLINE PBS | Official

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Length: 54min 31sec (3271 seconds)

Published: Tue Jun 14 2022