This is an astonishing article. The US Department of Education is making profits from student loans while the kids go deeper into debt.

This is 21st century entrepreneuralism at its worst.

Shahien Nasiripour of the Huffington Post writes:

The U.S. Department of Education says it has been working to help borrowers who are struggling under the weight of crushing student loan debt. But as Washington focuses on reducing annual federal budget deficits, the huge profits off those same borrowers may prove too alluring for Education Secretary Arne Duncan.

In the fiscal year ending Sept. 30, his department reaped more than $42.5 billion in profit from federal student loans, according to federal budget documents. That total was roughly a third higher than in 2012 and the agency’s second-highest ever profit haul after a $47.9 billion gain in 2011, according to a Huffington Post analysis. The Education Department confirmed the 2013 profit figure.

Had Congress and President Barack Obama not agreed over the summer to temporarily lower student loan interest rates, the Education Department’s 2013 profits would have been about $8 billion higher, according to the Congressional Budget Office, and they would have set a new record.

In a sign of just how important student loan profits have become for the Education Department’s bottom line, its reported gains off lending to students and their families over the last year comprised nearly half of the agency’s total outlays, the biggest share since at least 1997.

This is alarming because the best way to boost student enrollment and retention rates is to lower the cost of college. But now we find that the US Department of Education is making a huge profit instead of lowering costs!

No wonder its idea to lower costs is to collect data.

Now that President Obama has turned his attention to the problem of college affordability, it is also time to revisit a very important report that was released last year and buried by Beltway lobbyists.

Senator Tom Harkin of Iowa, the ranking Democrat on the Senate Health, Education, Labor and Pensions Committee, released a blistering report in 2012 about for-profit “universities.”

They have high attrition rates, low graduation rates, and large numbers of their students leave without a diploma but with a large debt to repay.

Senator Tom Harkin released a hard-hitting report about the need to regulate them.

The report found that:

• Between 2008 and 2009, over a million students started attending schools owned by the companies examined by the Committee. By mid-2010, fully half (54 percent) of those students had left school without a degree or certificate. For Associates-degree students, 63 percent left without a degree.
• Most for-profit colleges charge much higher tuition than comparable programs at community colleges and flagship State public universities. The investigation found Associate degree and certificate programs averaged four times the cost of degree programs at comparable community colleges. Bachelor’s degree programs averaged 20 percent more than the cost of analogous programs at flagship public universities despite the credits being largely non-transferrable.
• Because 96 percent of students starting a for-profit college take federal student loans to attend a for-profit college (compared to 13 percent at community colleges), nearly all students who leave have student loan debt, even when they don’t have a degree or diploma or increased earning power.
• Students who attended a for-profit college accounted for 47 percent of all Federal student loan defaults in 2008 and 2009. More than 1 in 5 students enrolling in a for-profit college-22 percent-default within 3 years of entering repayment on their student loans.

Tamar Lewin wrote in the New York Times:

According to the report, which was posted online in advance, taxpayers spent $32 billion in the most recent year on companies that operate for-profit colleges, but the majority of students they enroll leave without a degree, half of those within four months.

“In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation,” Mr. Harkin, an Iowa Democrat who is chairman of the Senate Health, Education, Labor and Pensions Committee, said in a statement on Sunday. “These practices are not the exception — they are the norm. They are systemic throughout the industry, with very few individual exceptions.”

Over the last 15 years, enrollment and profits have skyrocketed in the industry. Until the 1990s, the sector was made up of small independent schools offering training in fields like air-conditioning repair and cosmetology. But from 1998 to 2008, enrollment more than tripled, to about 2.4 million students. Three-quarters are at colleges owned by huge publicly traded companies — and, more recently, private equity firms — offering a wide variety of programs.

Enrolling students, and getting their federal financial aid, is the heart of the business, and in 2010, the report found, the colleges studied had a total of 32,496 recruiters, compared with 3,512 career-services staff members.

Among the 30 companies, an average of 22.4 percent of revenue went to marketing and recruiting, 19.4 percent to profits and 17.7 percent to instruction.

Their chief executive officers were paid an average of $7.3 million, although Robert S. Silberman, the chief executive of Strayer Education, made $41 million in 2009, including stock options.

Why did the Harkin committee’s expose of these frauds go nowhere?

The for-profit institutions hired the best lobbyists money can buy, from both political parties, as reported here in the New York Times:

The story of how the for-profit colleges survived the threat of a major federal crackdown offers a case study in Washington power brokering. Rattled by the administration’s tough talk, the colleges spent more than $16 million on an all-star list of prominent figures, particularly Democrats with close ties to the White House, to plot strategy, mend their battered image and plead their case.

Anita Dunn, a close friend of President Obama and his former White House communications director, worked with Kaplan University, one of the embattled school networks. Jamie Rubin, a major fund-raising bundler for the president’s re-election campaign, met with administration officials about ATI, a college network based in Dallas, in which Mr. Rubin’s private-equity firm has a stake.

A who’s who of Democratic lobbyists — including Richard A. Gephardt, the former House majority leader; John Breaux, the former Louisiana senator; and Tony Podesta, whose brother, John, ran Mr. Obama’s transition team — were hired to buttonhole officials.

And politically well-connected investors, including Donald E. Graham, chief executive of the Washington Post Company, which owns Kaplan, and John Sperling, founder of the University of Phoenix and a longtime friend of the House minority leader, Nancy Pelosi, made impassioned appeals.

In all, industry advocates met more than two dozen times with White House and Education Department officials, including senior officials like Education Secretary Arne Duncan, records show, even as Mr. Obama has vowed to reduce the “outsize” influence of lobbyists and special interests in Washington.

The result was a plan, completed in June, that imposes new regulations on for-profit schools to ensure they adequately train their students for work, but does so on a much less ambitious scale than the administration first intended, relaxing the initial standards for determining which schools would be stripped of federal financing.

Robert Scott is president of Adelphi College in Long Island, New York.

Here, he offers his ideas about how to strengthen higher education and direct federal aid more thoughtfully to students.

First, he suggests a year of mandatory national service in communities after high school graduation. Rationale: This service year would help young people develop knowledge, skills, abilities and values outside of school by doing supervised, constructive work in communities and with organizations that need assistance. They would gain maturity needed to succeed in advanced study and save money for postsecondary opportunities.

Second, direct federal research grants to regional and community institutions of higher education. Rationale: The criteria for selecting such institutions for competitive grants could be based not only on their expertise, but on their success in enrolling students from low-income families and in graduating students in a timely manner without large amounts of debt.

Third, provide grant and loan forgiveness funding to students who enter high-need professions like nursing, health-related services (and, I might add, teaching). Rationale: We know that students’ employment decisions are influenced by the debt they accumulate in college. This program could not only help students manage their debt but encourage them to consider less well-paid employment and still help stimulate the economy.

President Scott subtly adds that some of the funding might be enhanced by reallocating federal aid from “institutions with high loan default rates and low graduation rates.” He refers to the large numbers of for-profit online “universities” that match those two criteria. Those institutions have high default rates and low graduation rates; they are protected by lobbyists from both parties in Washington, who keep these failed institutions eligible for federal aid despite their disservice to students and society.

David Sirota has a thoughtful and provocative column in Salon in which he argues that access to college has become so important that college should be funded like high school.

In other words, public institutions of higher education should be paid for by taxes so that higher education is accessible and does not burden students with a mountain of debt.

Citing Matt Taibbi, Sirota writes:

“…economic and political trends are now converging to force an entire generation into a truly no-win situation: either don’t get a post-secondary education and severely harm your ability to get a job in an already weak economy, or get a post-secondary education and condemn yourself to a lifetime paying off debt that you may never be able to pay off because the economy is so weak and your job prospects are still not guaranteed.”

It was once the case that a high school diploma was prestigious because most people didn’t have one. Once high school became universal (90% of those between 18 and 24 now have a high school diploma), then the high school diploma carried no prestige but became essential for all but the most menial, low-skills job. Now, college diplomas have become entry-level requirements for many jobs. They are not yet as commonplace as high school diplomas, but certainly we are seeing credential inflation, where some employers demand a college diploma for jobs that could be done by a high school graduate.

So the crux of the dilemma is this: How can students pay for college as costs balloon out of sight?

President Obama’s answer was to implement something like No Child Left Behind or Race to the Top for higher education and make federal aid dependent on “value-added” by various measurements.

But measuring the various outcomes of higher education won’t reduce its cost; they might even increase the costs by increasing administrative burdens.

Sirota’s answer: Make public higher education as free as public high school.

When I was in Finland two years ago, the one thing I learned that impressed me most was that all higher education was cost-free to students. The Finns view education as a basic human right and do not believe that people should have to pay for a human right. That would be like paying for the right to vote.

There was a time in the not so distant past when most community colleges were free. They should be tuition-free now. That would be a good place to start.

Here is the link to the story about the Obama plan to cut costs and measure everything for value-added in higher education.

I forgot to add it because I was waiting in the doctor’s office for a check up and they called me in just when I was supposed to post the link.

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So forgive my occasional oversight. If you don’t see a link, let me know and I will fix it.

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