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America’s Tax Syphons: An Update

[F]or-profits entice students (particularly low-income students) with low upfront costs while offering little instructional support, thereby saddling them with large debts and few marketable skills.

…Education Management Corporation (EDMC)… was founded in 1962, and had long been reputed as one of the higher quality for-profits in an industry plagued by questionable practices. In 2006, EDMC was taken over by a private equity consortium led by Goldman Sachs along with Providence Capital Partners and Leeds Capital. Goldman and its partners installed new executives who promptly reallocated resources from instruction to marketing and recruitment.

… Total enrollment across EDMC’s brands, which include Argosy University, South University, Brown Mackie College, and the Arts Institutes, more than doubled between 2006 and 2010. By 2011, colleges in which Goldman Sachs was the dominant owner enrolled over 150,000 students, captured over $486 million in federal Pell Grant funds, and netted an operating profit of over $501 million. However, these financial successes were not mirrored in students’ outcomes: among those students enrolled in 2008, over 62 percent had withdrawn two years later without completing a degree. Yet two of EDMC’s Art Institute campuses were among the 10 for-profit colleges that that issued more than $25,000 in student loans per enrolled student in 2012.

… The takeover of the for-profit sector by investors has seen the principles and techniques of “shareholder value maximization” imported wholesale into a major segment of American higher education. This finance-driven model is very efficient at increasing enrollment and generating profits. It has a poor track record, however, when it comes to helping students successfully graduate and preparing them for a competitive labor market. Indeed, graduation rates for all four-year for-profit colleges for cohorts beginning six years earlier fell from 46 percent in 2002 to just 28 percent in 2012.

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UD thanks Dirk.

Margaret Soltan, June 2, 2014 11:30AM
Posted in: CLICK-THRU U.

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