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September 11, 2010

Facing heavy-handed government regulation, America's for-profit colleges are reforming themselves

The Economist:

"EGREGIOUS, outrageous, violated everything we stand for": Don Graham's denunciation of recent activities by some employees of his own firm is stark. On August 4th a report by the Government Accountability Office (GAO) found evidence of deceptive recruitment tactics by 15 of America's leading for-profit colleges, including one operated by Kaplan, which accounts for the bulk of the profits of Mr Graham's Washington Post Company. Some of the colleges, which also included the giant University of Phoenix, insisted that the incidents--which ranged from misleading potential students about tuition costs and likely post-graduation salaries to encouraging them to file fraudulent loan applications--were isolated. But the mood is turning against them.

For-profit colleges, which range from beauty schools to institutions that resemble traditional universities, were already under attack. In June Steve Eisman, a hedge-fund manager who made a lot of money during the financial crisis by shorting bank shares, told Congress that the for-profit education business was as destructive as the subprime mortgage industry. Congress already seems eager to add to regulations that the government plans to introduce in November.

The markets sense weakness in the industry. Shares in Apollo Group, which owns the University of Phoenix, are worth half what they were at the start of 2009. The Washington Post Company has lost nearly one-third of its value since April. Shares in Corinthian Colleges have fallen 70% in the same spell.

Posted by Jim Zellmer at September 11, 2010 1:14 AM
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