Showing posts with label University of Phoenix. Show all posts
Showing posts with label University of Phoenix. Show all posts

Sunday, July 29, 2018

Divorce, birth rates and home ownership: All are negatively affected by crushing student-loan debt

According to Student Loan Hero, about 1 out 8 divorcees queried in a recent survey said that the student loans they took out before getting married eventually led to their divorce.  And the survey also found that more than a third of couples with student debt delayed their divorce because they couldn't afford the expense.

Apparently, student loans are now such a significant marital problem that one New York attorney recommends couples sign a prenuptial agreement specifying that the person helping to pay off the spouse's student loans gets reimbursed in case of a divorce. How romantic!

Experts have long agreed that money problems put a strain on marriages, but student loans are a particularly nasty form of debt. No wonder so many divorcees cited student loans specifically as a major cause of their marital split. Unlike car loans, credit card debt and home mortgages, student-loan debt is almost impossible to discharge in bankruptcy. Moreover, student-loan borrowers have huge penalties slapped on their college-loan debt if they default--25 percent of the amount owed, including unpaid interest.

The Student Loan Hero survey is only the most recent evidence of the pain Americans are suffering from student loans. Earlier this month, the New York Times reported that Americans are having fewer babies; and college loans are one of the reasons.

The Times conducted a survey of men and women in the 20-to-45 age group, and almost two thirds said they planned to have fewer children than their ideal because of financial concerns.  Among people who said they planned to have no children, 13 percent cited student debt.

And the Federal Reserve Bank of New York documented last year that student debt was negatively affecting the housing market. A 2017 Federal Reserve Bank report observed that home ownership among young people declined by 8 percent over an 8-year period (2007 to 2015);  and the Feds concluded that a substantial reason for this decline is rising levels of student-loan debt.

The Fed report also observed that more young Americans are living with their parents than in previous years. In 2004, about one third of 23-25-year-olds lived with their parents. In 2015, 45 percent of people in this age bracket were living with mom and dad--a big increase.

None of this bad news should be surprising as Americans borrow more and more money to go to college. In 2002, only 20 percent of student borrowers owed $20,000 or more. Last year, 40 percent of student debtors owed that much or more. And borrowers owing $50,000 or more jumped from 5 percent to 16 percent during the same time period.

Remarkably, almost no one in the higher education industry even acknowledges a problem with soaring student-loan debt. If there is a problem, the industry flacks tell us, the easy solution is extended repayment terms. Simply force Americans to pay back their loans over 20 years or even 25 years, university insiders insist.

Do you suppose Betsy DeVos thinks about distressed student borrowers when she sips her martinis on her $40 million yacht, the Seaquest? I doubt it. Based on the way she's running the Department of Education, my guess is that she worries more about protecting the predatory for-profit colleges than the students who got swindled by them.

And who do you suppose Betsy is more likely to invite for drinks on the Seaquest--a single mom who defaulted on a loan she took out to attend the University of Phoenix or an equity-fund manager who owns part of the University of Phoenix?



Betsy DeVos's $40 million yacht--193 feet long!


References

Moriah Balingit. Someone untied Betsy DeVos's yacht in Ohio. Damage EnsuedWashington Post, July 26, 2018.

Jessica Dickler. 1 in 8 divorces is caused by student loans. CNBC.com., July 27, 2018.

Ben Luthi. Survey: Student Loan Borrowers Wait Longer and Pay More to Get Divorced. Student Debt Hero, July 24, 2018.

Claire Cain Miller. Americans Are Having Fewer Babies. They Told Us Why. New York Times, July 5, 2018.

Rick Seltzer. Percentage of Borrowers Owing $20,000 or More Doubled Since 2002. Inside Higher Ed, August 17, 2017.

Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.

Steve Rhode. Student Loan Debt Hurts Economy, Consumers, and Retirement SavingsPersonal Finance Syndication Network, September 2017.

Sunday, June 11, 2017

The for-profit college industry is shrinking: It's time to shut this sleazy sector down

We've known for a long time that the for-profit college industry is a cancer infecting the higher education community. Senator Tom Harkin's committee report, published in 2012, told us that.

The cost of attending a for-profit college is far higher than the cost of enrolling at a public college. Completion rates are low, job prospects for attendees are often bleak. Some for-profits spend more on recruiting than they do on instruction.

 And student-loan default rates at the for-profits are quite high. Forty-seven percent of the 2009 cohort of for-profit college borrowers defaulted on their loans within five years.

Here are the 5-year cohort default rates for selected for-profit colleges, as reported by a 2015 Brookings Institute paper:
  • University of Phoenix-Phoenix campus: 45 percent
  • DeVry University-Illinois: 43 percent
  • Ashford University: 47 percent
  • Kaplan University-Davenport campus: 53 percent
And of course these figures understate the number of for-profit college students who are not repaying their loans because many non-defaulters have their loans in deferment or forbearance and are not making their monthly loan payments.

But the good news is this: the for-profit college industry is shrinking. When the Harkin report came out five years ago, for-profit colleges enrolled 13 percent of all college and university students. In the spring semester of 2017, that figure had dropped to 5 percent. For the industry as a whole, for-profit enrollments dropped 10 percent between spring 2016 and spring 2017.

Part of this drop can be attributed to aggressive enforcement of consumer protection laws by state attorneys general and better regulation by the U.S. Department of Education. In the last two years alone, Corinthian Colleges and ITT Tech closed and went bankrupt. Together these institutions had a half million former students.

Moreover,  potential students are becoming more wary of aggressive for-profit college recruiters. This may explain why enrollments are plummeting at several well-established for-profit colleges, such as University of Phoenix and DeVry.

Now, while the for-profit college sector is shrinking, is the time to shut this sleazy industry down. I think the for-profits are hoping the Trump administration will be friendly to their interests, allowing them to get back on their feet.

But let's  hope the industry is wrong. If President Trump implements policies that reinvigorate the for-profit college industry, it will be the biggest mistake of his administration--far bigger than his goofy dinner conversation with FBI Director James Comey.


The for-profits are shrinking, shrinking!


References

Associated Press. Enrollment is tanking at University of Phoenix, DeVry, and other for-profit colleges, Los Angeles Times, September 22, 2016.

Paul Fain. Enrollments Continue to Slide at For-Profits and Community Colleges. Inside Higher Ed, May 24, 2017.

Tamar Lewin. Senate Committee Report on For-Profit Colleges Condemns Costs and Practices. New York Times, July 29, 2012.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015).

U.S. Senate Committee on Health, Education, Labor and Pensions. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012.






Thursday, May 18, 2017

University of Phoenix graduate got her student loans discharged on the grounds that Phoenix falsely certified she was eligible to receive the loans

 As the Department of Education attests on its own web site, DOE will forgive or cancel student loans under certain circumstances. For example, students are entitled to have their loans forgiven if the school they were attending closes while they were enrolled or shortly after that.   Students can also obtain a discharge if they can show they were induced to take out student loans through fraud. And students are also entitled to have their student loans discharged if the school they attended falsely certified that they were eligible to receive a federal student loan.

Unfortunately, the administrative process for obtaining a loan discharge is not easy to navigate. In fact, one might conclude that DOE sets up roadblocks to prevent student borrowers from getting the releases to which they are legally entitled. Price v. U.S. Department of Education, decided last year, illustrates just how difficult it can be to obtain a loan discharge even when a student is clearly qualified for relief.

Price v. U.S. Department of Education: The facts

Phyllis Price graduated with a degree from the University of Phoenix in 2005. She paid for her studies by taking out student loans, which she consolidated into a single loan for $36,868 bearing interest at 5.3 percent.

Price was 52 years old when she began her studies at the University of Phoenix and had not graduated from high school. A university counselor "instructed her to state on the [admission] application that she had actually finished school and to fill in the year she 'should have graduated.'" Price filled out the forms as she was directed.

Apparently, Price's degree from Phoenix did not benefit her financially. She was working as a contract administrator at the time she began her studies, and she was still doing substantially the same work ten years after obtaining her degree.

Price's first payment on her consolidated loan was due in August 2006. She did not make payments on the loan, and the Department of Education (DOE) declared her in default in October 2007.

In March 2008, Price filed a "False Certification (Ability to Benefit) Loan Discharge Application" in an effort to get her loans discharged. Essentially, she argued that her student loans should be canceled because the University of Phoenix had falsely certified that she was eligible to receive federal student loans for her studies.

American Student Assistance (ASA), DOE's loan servicer, denied Price's application and told her to produce evidence that she did not have a high school diploma. Price produced her high school transcript, which was prominently stamped "DID NOT GRADUATE" and asked for a hearing.

On June 24, 2009, more than a year after Price produced her high school transcript, DOE affirmed ASA's original decision denying her a loan discharge.  On October 1, 2014--more than six years after she filed her discharge application, DOE issued its final decision denying Price's "false certification discharge application."  A short time later, Price received notice that her wages were subject to being garnished for failure to pay back her student loan. Price then brought suit in federal court.

Statutory and Regulatory Issues Pertinent to Price's case


Under the Federal Family Education Loan Program (FFELP), private lenders make loans to "eligible borrowers" to finance postsecondary studies. The loans are insured by student loan guaranty agencies and reinsured by DOE. Generally, an eligible borrower is someone who has a high school diploma or a GED. 

"However, a 'student who does not have a certificate of graduation from a school providing secondary education, or the recognized equivalent of such certificate,' may qualify for a loan if the school certifies that she has the ability to  benefit from the education it provides." Price v. U.S. Dep't of Educ., 209 F. Supp. 3d 925, 930 (S.D. Tex. 2016) (quoting 20 U.S.C. sec. 1091(d)). 

A school can certify that a student has the ability to benefit from its programs if the student passes an independently administered ATB ("ability to benefit") test.  However, the University of Phoenix did not require Price to take an ATB test.

What is the purpose of the "ability to benefit" rule? Congress adopted "ability to benefit" legislation in 1992, "spurred by public concern over unscrupulous schools exploiting student borrowers who received no benefit from expensive classes of little use." Id. Under federal law (20 U.S.C. sec. 1087(c) (1)), the Department of Education is required to discharge loans taken out by people who were falsely certified as being eligible to receive federal loans by the schools they attended. 

A federal magistrate rules in Price's favor

Price filled out an application to have her loans discharged in 2008, asserting under oath that she did not have a high school diploma at the time she took out federal loans and had not been given an ATB test. End of story, right?

No, DOE refused to discharge her student loans on the grounds that it had no evidence that the University of Phoenix had systematically violated the "ability to benefit" rules. In refusing to forgive Price's loans, a federal magistrate found, DOE violated federal law and DOE's own regulations. In essence, the Magistrate observed, DOE's decision-making process "amounted to a cursory glance at the forest, with no attempt to spot the only tree that mattered."

DOE attempted to defend its decision by offering post hoc rationalizations. In particular, the Department argued that Price obtained a degree from the University of Phoenix and should not be allowed to benefit from that degree without paying for it. But the federal Magistrate rejected that argument, pointing out that Price was entitled to have her loans forgiven whether or not she obtained a degree. 

Furthermore, the Magistrate noted, Price apparently had not benefited from her studies at the University of Phoenix. "Price is doing essentially the same job as before she enrolled, and any psychic benefit from achieving a degree is more than offset by eight years of fending off debt collectors." In any event,  the Magistrate continued, "Congress did not see fit to condition student loan relief upon a showing that the student ultimately failed to graduate." Id. at 934.

Why did DOE deny Price the relief to which she was legally entitled?

Clearly, Price was ill-treated by DOE, which dragged her through a tedious administrative process for six years before ultimately denying her claim.  And, as a federal magistrate concluded, Price was clearly entitled to have her student loans forgiven under federal law and DOE's own regulations.

Why did DOE take the position it did? I can think of only one reason--DOE is so desperate to keep people from getting their loans forgiven that it is willing to ignore federal law. 

DOE is like the fabled Dutch boy with his thumb in the dike. Once a few people are granted relief from their student loans, it will be apparent that millions are entitled to relief. That will lead to a torrent of loan forgiveness, which will cause the federal student loan program to collapse.



References

Price v. U.S. Dep't of Education, 209 Fed. Supp. 3d 925 (S.D. Tex. 2016).

Monday, September 26, 2016

Department of Education strips the Accrediting Council for Independent Colleges and Schools (ACIS) of its accrediting authority

DOE drops the hammer on ACICS

Last week, the U.S. Department of Education announced that it is stripping the Accrediting Council for Independent Colleges and Schools (ACICS) of its accrediting authority. As Donald Trump might put it, this is a HUUGE deal.

ACICS is the biggest accrediting body for the for-profit college industry. As of last June, ACICS accredited 245 schools enrolling about 800,000 students. All those schools must be credentialed by an accreditation agency approved by DOE in order to obtain federal student aid money. So when DOE decertified ACICS, it put more than 200 for-profit institutions at extreme risk of closing.

Why did DOE take such drastic action against ACICS?

Why did DOE take this drastic action? DOE accuses ACICS of lax oversight of the  for-profit college industry. Two large for-profits filed for bankruptcy recently--Corinthian Colleges and ITT Tech; both companies were accredited by ACICS. Other for-profits have been investigated for fraud, misrepresentation, and high-pressure recruiting tactics.

The industry as a whole has notoriously high student-loan default rates. According to a Brookings Institution report, almost half of a recent cohort of for-profit students defaulted on their student loans within five years of beginning repayment. Ben Miller, a senior spokesperson for the Center for American Progress, approved of DOE's action: "With its lengthy track record of shoddy oversight--that has led to billions of dollars squandered--ACICS had abused the public's trust and could not be allowed to continue granting access to federal dollars."

What will happen to the 200 plus colleges and schools that were accredited by ACICS?

What will happen to the 200 plus for-profit colleges that are no longer accredited by a DOE-approved accrediting body? Assuming ACICS loses its appeal of DOE's decision, which seems likely, for-profit colleges will have 18 months to obtain accreditation by another DOE-approved accreditor.  That will be very difficult to do--especially for small for--profit colleges,  As one West Virginia educator explained: "There aren't thousands of accreditors that schools can go to, there's really just a handful. They all have very specific niches to fill." And those accrediting bodies will likely be deluged with applications from colleges that were formerly accredited by ACICS.

In short, the fall of ACICS will inevitably have a domino effect on for-profit colleges. Those that don't quickly become re-accredited by a DOE-approved agency will lose access to federal student-aid money and will collapse. When the colleges collapse, their students' studies will be disrupted. The vast majority of all for-profit students took out federal student loans to finance their tuition. If their college closes, they will have just two choices:  They can transfer to another institution that will take their former college's credits or they can apply to DOE to have their loans  forgiven under DOE's"closed school" exemption process.

Does DOE have a sinister motive in disrupting the for-profit college industry?

The Obama administration will say its drastic action against ACICS is a justified response to the accreditor's shoddy oversight of the for-profit college industry. And maybe that explanation is sincere.

But why did DOE wait until the waning days of President Obama's second term in office to act? I wonder whether DOE might be intentionally disrupting the for-profit college industry so that inside players can step in and scoop up some faltering for-profit colleges in order to reap huge profits.

When Corinthian Colleges filed for bankruptcy last year, DOE engineered a deal for a subsidiary of Educational Credit Management Corporation to buy some of Corinthian's operations. ECMC's unit bought 56 of Corinthian's campuses for only $24 million. Who benefited financially from that deal?

And Apollo Education Group, owner of the University of Phoenix, is being bought out by a consortium of equity groups led by Martin Nesbitt, President Obama's former campaign manager and president of the Obama Foundation.  Tony Miller, a former Deputy Secretary of Education,  will run the University of Phoenix. Cozy!

Time will tell us what is going on here. The for--profit college industry is a sleazy business, and I have argued repeatedly that DOE should shut it down. DOE's decision last week to strip ACICS of its accrediting authority is a big step toward doing just that.

But if we see more political insiders come in and buy struggling for-profits as Martin Nesbitt is doing with the University of Phoenix, that may be an indication, that DOE's death sentence for ACICS is nothing more than a calculated play to drive down the value of for-profit colleges so that powerful financial interests can scoop them up.

One thing we know for sure: Bill and Hillary Clinton are very close to the for-profit college racket. Bill, we remember, got paid nearly $18 million to serve as "Honorary Chancellor" of Laureate Education Group; and Hillary is tight with Goldman Sachs, which has an ownership interest in a for-profit education company.

Image result for bill clinton and laureate education

References

Lauren Camera. Education Department Strips Authority of Largest For-Profit Accreditor. U.S. New & World Report, September 2, 2016. Accessible at http://www.usnews.com/news/articles/2016-09-22/education-department-strips-authority-of-acics-the-largest-for-profit-college-accreditor

Paul Fain. Federal panel votes to terminate ACICS and tightens screws on other accreditors. Inside Higher Ed, June 24, 2016. Accessible at https://www.insidehighered.com/news/2016/06/24/federal-panel-votes-terminate-acics-and-tightens-screws-other-accreditors

Jake Jarvis. In wake of ACIS decision, a crisis for WV's for profit schools. Charleston Gazette-Mail, September 25, 2016. Accessible at http://www.wvgazettemail.com/news-education/20160925/in-wake-of-acics-decision-a-crisis-for-wvs-for-profit-schools

Ronald Hansen. Apollo Education sale 'golden parachute' could be worth $22 million to executives. Arizona Republic, March 8, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/03/08/apollo-education-sale-executives-payout-22-million/81483912/

Rosiland S. Helderman and Michelle Ye He Lee. Inside Bill Clinton's nearly $18 million job as 'honary chancellor' ofr a for-profit college. Washington Post, September 5,  2016. Accessible at https://www.washingtonpost.com/politics/inside-bill-clintons-nearly-18-million-job-as-honorary-chancellor-of-a-for-profit-college/2016/09/05/8496db42-655b-11e6-be4e-23fc4d4d12b4_story.html

Abby Jackson. An embattled for profit education company partly owned by Goldman Sachs keeps downsizing. Business Insider, June 13, 2016. Accessible at http://www.businessinsider.com/for-profit-brown-mackie-shutting-down-2016-6

Patria Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, Will Be Taken Private. New York Times, February 8, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html

John Sandman. Debt Collector ECMC Closes Deal for Corninthian College Campuses. Mainstreet.com, February 9, 2015. Accessible at https://www.mainstreet.com/article/debt-collector-ecmc-closes-deal-for-corinthian-college-campuses

Soyong Kim. Apollo teams with Washington insider for education deal. Reuters, January 12, 2016. Accessible at http://www.reuters.com/article/us-apollo-education-m-a-apollo-global-idUSKCN0UQ23W20160112




Wednesday, September 14, 2016

The Department of Education shuts down ITT Tech: No lifeboats for ITT's former students

In one of Patrick O'Brian's novels on life in the 19th century British Navy, a British fleet attacks a flotilla of Barbary pirates, who are in armed galleys rowed by Christian slaves. A British ship sails into the galleys at full speed, ramming one galley and cutting it in half.

The galley slaves are chained to their oars and cry out for help as their galley begins to sink. But the British ship sails on, leaving the slaves to drown. One of the British officers is so upset by the incident that he commits suicide.

Which brings me to the Department of Education's recent decision to cut off federal student-aid funding for all students enrolled on the campuses of ITT Educational Services. ITT had been subjected to a number of state and federal investigations, but DOE's decision to shut off the spigot of federal money was a death sentence for ITT. Within a few days after DOE's action, ITT shut its doors.

If all the allegations against ITT are true, this for-profit institution deserved to be shut down. But what about ITT's 45,000 current students, most of whom took out loans to pay their ITT tuition? What about the thousands of former ITT students who are trying to pay back their student loans? Will DOE offer these poor folks any relief?

Apparently not. DOE Secretary of Education John B. King Jr., issued a letter to ITT students offering them two options, which I quote:
1. If you are currently or were recently enrolled at ITT, you may be eligible to have your federal student loans for your program at ITT discharged. Your federal loan debt will be wiped away and you will have the option of restarting your education somewhere new. . . .
2. If you wish to continue to complete your program at a different school--especially if you are close to graduating--you may be eligible to transfer your credits. It is important to note that transferring your credits may limit your ability to have your federal loans discharged. Closed school discharge may be an option if you enroll in a different program that does not accept your ITT credits.
In short, King gave ITT students two choices: Current ITT students or students who recently withdrew from ITT (within 120 days before ITT closed) can apply to have their loans discharged. Other students can try to transfer their ITT credits to other institutions, which may or may not accept them.

In my view, King's letter is very much like sinking a pirate galley and allowing the poor galley slaves to drown.

Let's face facts. Most of the students who attended for-profit colleges got a substandard educational experience. Many former students claim to be victims of high-pressure recruiting tactics and misrepresentations about the quality of the programs that were offered. Almost half of a recent cohort of for-profit college students defaulted on their loans within 5 years of beginning repayment. All the problems in the for-profit college sector were plainly laid out in Senator Tom Harkin's Senate Committee report that was released several years ago.

The for-profit college sector is collapsing. Corinthian Colleges filed for bankruptcy, University of Phoenix has seen its enrollments drop by half, Stock prices in the for-profit college industry have plummeted.

There is only one fair thing for DOE to do. All students who attended a for-profit college that closed or has been found guilty of widespread fraud or misrepresentation should have their student loans discharged. I repeat--all students. And these discharges should be administered en masse without requiring for-profit students to go through a burdensome administrative process.

This won't happen of course, because releasing  for-profit college students from their student loans would cost the federal government tens of billions of dollars. But again I say, let's face facts. Most of these students were ripped off by the for-profit college industry and most will never pay back their loans anyway.

But Secretary King prefers to behave like the nineteenth century British Navy. DOE is sinking the bad guys but allowing innocent victims to drown, chained down like galley slaves by massive student-loan debt.




References

Patrick Gillespie. University of Phoenix has lost half its students. CNN Money, March 25, 2015. Accessible at http://money.cnn.com/2015/03/25/investing/university-of-phoenix-apollo-earnings-tank/

Secretary of Education John B. King Jr. A Message from the Secretary of Education to ITT Students. Accessible at http://blog.ed.gov/2016/09/message-secretary-education-itt-students/

Brian Stoffel.  Stocks to Watch in For-Profit Colleges. Motley Fool, June 9, 2015. Accessible at http://www.fool.com/investing/general/2015/06/09/stocks-to-watch-in-for-profit-colleges.aspx

United States Department of Education. Increased Oversight of ITT and the Impact on Students.  Accessible at http://blog.ed.gov/2016/08/increased-oversight-of-itt-and-the-impact-on-students/

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf

Thursday, April 28, 2016

University of Phoenix to be sold to private equity groups: Insiders float away on golden parachutes

Earlier this year, Apollo Education Group, owner of University of Phoenix, announced that it was in negotiations with three private equity funds to sell out for a little more than $1 billion.

Vistria, one of the potential buyers, is run by Martin Nesbitt, widely described as President Obama's best friend.  And that label is probably not hyperbole. Nesbitt was Obama's campaign manager for both his 2008 and 2012 presidential campaigns, and Nesbitt now heads the Obama Foundation, which will oversee the construction of Obama's Presidential Library. Yes, Nesbitt may really be Obama's best friend.

Why is Apollo Education Group, a publicly traded company, selling out to three private equity groups? Perhaps because things aren't going well with the University of Phoenix, Apollo's principal asset.

In its heyday, UP enrolled almost half a million students and raked in more than a billion dollars a year in federal student aid money. UP's parent company was worth $16 billion, and its stock soared to $95 a share.

But times have changes. UP's enrollment has plummeted to less than 200,000, forcing it to close some campuses. In 2015, the Federal Trade Commission began investigating. Today the stock is trading at below $8 a share, and the company is worth less than 1/16 its peak value.

So the big boys decided  it was time to put some lipstick on their pig and sell it.  

And if the sale goes through, Apollo's insiders will do very well. According to a story appearing last month in the Arizona Republic, the sale would provide gold parachutes to several top executives:
  • Greg Cappelli, Apollo Education's CEO, would get $4.2 million in cash and $3.1 million in equity and other benefits.
  • Sean Martin, Apollo Education's General Counsel, would get $1.4 million in cash and $4.2 million in stock.
  • J. Mitchell Bowling, Chief Operating Officer, would get $1.5 million in cash and $1.8 million in stock.
  • Timothy Slottow, president of University of Phoenix, would get $2 million case and $717,000 in stock.
  • Gregory Iverson, Apollo Education's chief financial officer, would get almost a million in cash and $1.7 million in stock.
Not bad compensation for the guys who ran the University of Phoenix into the ground!

And who are the potential buyers? Three private equity groups are partnering to buy Apollo Education Group: Phoenix-based Najafi Companies; Apollo General Management (not affiliated with Apollo Education Group); and Chicago-based Vistria Group, founded and run by Obama's good friend, Martin Nesbitt. Tony Miller, who served as President Obama's Deputy Secretary of Education from 2009 to 2013, has been tapped to run the University of Phoenix operations.

But the deal may not go through. First of all, shareholders may not approve the sale. Schroders Global Recovery Fund, a British equity group, is Apollo Education's biggest shareholder. Schroders bought its stock when Apollo was worth about $3 billion, probably thinking Apollo's stock price would rise and it would make a killing.

Schroder doesn't want to sell to the private equity groups because it would suffer a huge loss.  The Schroders team said this: "We see the potential for multiple hundreds of percent of upside in Apollo’s stock from current levels over a period of years."  And Andrew Lyddon, Schroders' fund manager, said last January that Apollo Education has "had everything thrown at it, but we think it would be terrible for shareholders at this point if management were to capitulate.”

Earlier this week, the Apollo Education board issued a statement stating that a sale to the consortium "is in the best interests of shareholders" and indicated that it would explore the possibility of selling the University of Phoenix if the sale of Apollo Education doesn't go through. (Apparently, the board can sell the University of Phoenix without shareholder approval.)

I am not a "master of the universe" financial wizard. I can hardly balance my own checkbook. Nevertheless, I doubt whether this sale will ever be finalized. The opposition of the Schroders group may stop it--the folks would take a big haircut if Apollo Education sold out for only about $1 billion.

But apart from this challenge, I think there is a growing awareness that the for-profit college industry is ceasing to be a good investment for private equity groups. People made a killing in this racket a few years ago, but students are becoming more sophisticated than they once were and enrollments are dropping. Moreover, public universities now offer an array of online degree programs that once made the University of Phoenix distinctive; and the public universities usually offer online programs at much more affordable prices than the for-profits.

It would not surprise me if Martin Nesbit and his rich hedge-fund cronies decided to back out of their tentative deal to buy Apollo Education Group. And that would be a shame, because that would suck all the air out of a bunch of golden parachutes.

References

Ronald Hansen. Apollo Education sale 'golden parachute' could be worth $22 million to executives. Arizona Republic, March 8, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/03/08/apollo-education-sale-executives-payout-22-million/81483912/

Sarah Jones. Top Apollo Education Investor Urges Board to Resist Takeover. Bloomberg News, January 29, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-01-29/top-apollo-education-investor-urges-board-to-resist-takeover

Patria Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, Will Be Taken Private. New York Times, February 8, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html

Soyong Kim. Apollo teams with Washington insider for education deal. Reuters, January 12, 2016. Accessible at http://www.reuters.com/article/us-apollo-education-m-a-apollo-global-idUSKCN0UQ23W20160112



 

Tuesday, April 12, 2016

Henry Fernandez of Fox Business News says 40% of students aren't paying back their student loans. Is Fernandez correct? Does it matter?

Henry Fernandez of Fox Business News published a story last week reporting that 40 percent of college borrowers aren't paying back their student loans.  Here's what he said:
There's new concern over student loans as more than 40% of people who borrow from the government are not making their payments. That's nine million of the 22 million people with student loans who may never be able to pay their loans.
Is Hernandez correct?

Is Hernandez's analysis correct? And if so, does it matter?

Although the Fernandez did not cite a source for  his 40 percent statement, I think he's right. Looking at data from multiple sources, here's how I get to a 40 percent nonpayment rate.

First of all, 43 million people have outstanding student loans. As the New York Times accurately observed last year, 10 million student borrowers have either defaulted on their loans or are delinquent.  It is true that some people with delinquent loans will eventually bring their loans current, but a lot of them won't because unpaid interest will accrue during the delinquency period, making the loans grow larger and more difficult to repay.  Theoretically, defaulters can also bring their loans current, but the penalties assessed against defaulting borrowers are unbelievably onerous; and once defaulters have penalties attached to their loan balances they are doomed.

Then we have 4.6 million people who have entered income-based repayment plans (IBRPs) that extend loan repayment periods out to 20 or even 25 years. Most of these borrowers are making payments so low that interest will continue to accrue, which means a very high percentage of borrowers in IBRPs will never pay off their loan principal.  And this number grew by 140 percent in just due two years! I think it is safe to predict that within a year, at least 5 million people will be in IBRPs of some sort. So let's add 5 million to the 10 million people whose loans are delinquent or in default.

Finally, there are about 9 million people who are in economic-hardship deferment programs or loan forbearance programs of some kind that excuse them from making loan payments.  Again, interest is accruing on these loans.

When we consider this data together, we can understand why more than half of college-loan borrowers are seeing their loan balances go up within two years of beginning the repayment stage (as reported by the Brookings Institution). This is a clear sign that a lot of borrowers are either not making any payments or are making payments so low that they are not paying down their loan balances.

Based on the analysis I just outlined, it is clear that Mr. Hernandez is right and that at least 40 percent of student borrowers are not repaying their loans, and most never will.

Does it matter?

From the perspective of society as a whole, does it matter whether students pay back their college loans? Yes it does. Steve Hayward, a professor at Pepperdine University, who was interviewed for Fernandez's story, said that colleges are delivering an inferior product, "and I think there is a bubble coming." In fact, Hayward went further and said if colleges were publicly traded, he would short them.

Hayward has it right.  Let's look at Apollo Education Group, the owner of the University of Phoenix. Apollo once traded at $80 a share and now trades for about $8.  If you had shorted Apollo, you would have made some money.

Basically, I think what Hayward was suggesting is this: The government cannot go on forever loaning billions of dollars a year to college students when a high percentage of college borrowers are receiving inferior educational experiences and aren't paying back their loans.

In fact, higher education is in a bubble right now. Hundreds of private liberal arts colleges and for-profit colleges are struggling to survive and could not survive 30 days without federal student aid money. They are like drug addicts who must have federal dollars flooding into their coffers just to survive from month to month.

But the government cannot keep loaning more than $150 billion a year in student-loan money if 40 percent of the borrowers don't pay back their loans.

The Obama administration and the entire bloated college industry are relying on a single strategy to keep the gravy train rolling: long-term income-based repayment plans.  If they can force the kiddies into 20-year or 25-year repayment plans with lower monthly payments than the standard 10-year repayment period, they think the party will go on forever and the bubble will never burst.

But the party won't go on forever, and the bubble is about to burst. Within five years, we will see dozens of colleges close their doors because more and more students will simply refuse to pay outrageous tuition prices for degree programs that don't lead to good jobs. And we will see nonpayment rates go higher than they are now, and they already pretty damn high.

In fact, the student-loan bubble is already causing more suffering than the home-mortgage bubble. According to the text at the end of the movie The Big Short, about six million people lost their homes during the home-mortgage crisis of 2008  But those people could file for bankruptcy and get a fresh start. More than 20 million people are burdened by unmanageable student-loan debt, and most of them cannot get relief in the bankruptcy courts..

References

Henry Fernandez. 40% of Students Aren't Paying Back the Government. Foxbusiness.com, April 8, 2016. Accessible at http://www.foxbusiness.com/features/2016/04/08/40-students-arent-paying-back-government.html



Thursday, April 7, 2016

4.6 million student debtors are in long-term repayment plans, default rates are up, and President Obama's "best friend" is buying University of Phoenix: "Things fall apart; the centre cannot hold."

Things fall apart; the centre cannot hold


The Second Coming
William Butler Yeats

As William Butler Yeats put it, "Things fall apart; the centre cannot hold." Everywhere, we see signs that the federal student-loan program is on the verge of collapse. And when the loan program collapses, so will American higher education.

Here are some portents of the coming disaster:

Student borrowers are enrolling in long-term repayment plans in record numbers

First, the U.S. Department of Education recently announced that 4.6 million student debtors are enrolled in Income-Driven Repayment plans (IDRs) to pay off their college loans. This is a 48 percent increase since December 2014 and a 140 percent increase since December 2013. 

People in IDRs are obligated to pay on their student loans for 20 or even 25 years, and most are making payments so small that their loan balances are going up, not down, due to unpaid accumulating interest. In other words, most people in IDRs will never pay off their college loans.

Yet lenient income-based plans are President Obama's chief strategy for addressing the student-loan crisis. As the DOE blog put it," President Obama has fought hard to make college more affordable and to help borrowers keep their student loan payments manageable." And thanks to those efforts, DOE continues, students in the new IDRs never have to pay more than 10 percent of their monthly income on your federal student loans."   Indeed, borrowers who are  "temporarily unemployed" don't have to pay anything. "After all, as DOE cheerily pointed out, "10 percent of zero dollars is zero dollars."

But of course, 20-year and 25-year repayment plans are crazy, especially when we consider that most people don't sign up for these plans until their backs are against the wall. Remember Brenda Butler, who entered a 25-year repayment plan 20 years after graduating from college? She won't be finished with her student loans until 2037, 42 years after acquiring her degree!

The Feds are garnishing wages and Social Security Checks, and default rates are rising

Meanwhile, the government garnished $176 million in wages from student-loan defaulters during the last three months of 2015. And the government garnishes Social Security checks of 155,000 elderly student-loan defaulters. 

And despite governmental assurances to the contrary, student-loan default rates are rising. According to a recent analysis by Jason Deslisle, 20 percent of all borrowers with loans due are in default. A Brookings Institution report noted that almost half of  a recent cohort of student borrowers who attended for-profit colleges defaulted within 5 years

And let's not forget the nine million people in the repayment phase of their loans who aren't making payments because they've obtained economic hardship deferments or some other deferment from making loan payments.  Those folks are counted as defaulters, but in reality, most of them will never pay back their loans. 

Law schools are in trouble

And then there are the law schools, some of which are in real trouble. Over the last few years, law schools began behaving like pirates, raising tuition rates to insane levels even as the market for lawyers imploded. Now they are seeing  a 20 percent decline in enrollment applications; and many have lowered their admission standards just to get warm bodies in their classrooms. A typical law student now graduates with $140,000 in debt; and many have almost no prospect of getting jobs in the legal field.

The for-profit college sector: The barbarians are at the gates

Finally, in the private sector, the barbarians are at the gates. Corinthian College, which had 350,000 students or former students as of last year, filed for bankruptcy; and thousands of its victims have filed claims to have their student loans forgiven. The Department of Education brokered a sale of some Corinthian campuses to a company affiliated with Educational Credit Management Corporation, the rapacious college-loan debt collector, just to maintain some semblance of order in the chaos of the Corinthian collapse.

Apollo Education Group, owner of the University of Phoenix, is in real trouble. Enrollments at UP dropped from a a peak of 475,000 in 2010 to less than half that number in 2015. Apollo's stock, which once sold for more than $80 a share, is now trading below 8 bucks.

Apollo is in negotiations to sell out to a group of private equity firms, including Visteria Group. Visteria was founded by Martin Nesbitt, described as President Obama's "best friend." In fact, Nesbitt was treasurer for both of Obama presidential campaigns; and he heads the Obama Foundation that is planning the Obama Presidential Library. 

If the deal goes through, Tony Miller, former Deputy Secretary of Education in the Obama administration and Martin Nesbitt's business partner will become Apollo Education Group's new Board Chairman.  Very cozy!

"The ceremony of innocence is drowned."

To borrow a phrase from Yeats, "The ceremony of innocence is drowned" in American higher education.  Colleges and universities were once honored as the guardians of our civilization's ideals, the places where young people came to grow and learn, and to develop the civic and moral values that are indispensable to maintaining a healthy and vibrant society.

No more.  Arrogant college presidents, greedy profiteers, and mindless bureaucrats now control our once beloved universities. The best of these characters "lack all conviction, while the worst are full of passionate intensity." 

All of this craziness is paid for by federal student-loan money. And millions of college-loan borrowers are strangling in debt they can never pay off. This cannot go on forever.

President Obama and Martin Nesbitt



Anthony W. Miller official portrait.jpg
Tony Miller, former Deputy Secretary of Education
and soon-to-be Board Chairman of Apollo Education Group
References

Jillian Berman. Americans just had $17 million in wages garnished by the government due to unpaid student loans. Marketwatch.com, March 22, 2016. Accessible at http://www.marketwatch.com/story/the-government-just-garnished-176-million-in-wages-because-of-unpaid-student-loans-2016-03-21

Ronald J. Hansen. Apollo Education, parent company of University of Phoenix, to go prvate at $1.1 billion deal. Arizona Republic, February 9, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/02/08/apollo-education-to-go-private-in-11b-deal/79998782/

Jason Delisle. @usedgov latest data out today shows student loan defaults just hit another record high, 20% of those w/ loans due. Mhttps://twitter.com/delislealleges/status/710539989256429568

Matt Sessa. Student Aid Posts Updated Reports to FSA Data Center. Department of Education, March 17, 2016. Accessible at https://www.nasfaa.org/news-item/7943/3-17_Federal_Student_Aid_Posts_Updated_Reports_to_FSA_Data_Center

Dan Primack. Obama's 'best friend' raises millions for private equity fund. Fortune Magazine, August 11, 2014. Accessible at http://fortune.com/2014/08/11/obamas-best-friend-raises-millions-for-private-equity-fund/

Patricia Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, To Be Taken Private. New York Times, February 9, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html?

No, You Won't Be Arrested for Falling Behind On Your Student Loans. US. Department of Eduation Official Bog, April, 2016. Accessible at http://blog.ed.gov/2016/04/no-you-wont-be-arrested-for-falling-behind-on-your-student-loans/

Saturday, October 24, 2015

The Department of Defense Suspends University of Phoenix from Military Tuition Benefits Program: Senators John McCain, Jeff Flake and Lamar Alexander Ask DOD to Reconsider

The Department of Defense recently sanctioned the University of Phoenix by suspending it from participation in the U.S.  Military's tuition benefits program. Why? Allegedly, Phoenix sponsored improper recruiting events and inappropriately used the DOD's seal.

Senators John McCain, Jeff Flake and Lamar Alexander got involved in this matter on behalf of whom? Soldiers? No--they came to the aid of the University of Phoenix. The senators argued that the university had only committed "vague, technical violations" that UP had already fixed or promised to fix.

According to the senators, "The University of Phoenix has a long history of serving working adults and others for whom traditional university schooling is unavailable" and noted that the university had more than 200,000 students in 17 states. But the senators neglected to note that almost 1.2 million University of Phoenix students have accumulated $35 billion in student-loan debt and that UP's five-year default rate is 45 percent!

Why do you suppose these old croakers came to the aid of the University of Phoenix? It is headquartered in Arizona, which might explain Senators McCain and Flake's intervention. But even so, don't these guys have an obligation to protect the University of Phoenix's students--not the university itself? And doesn't the Department of Education deserve support when it tries to rein in abuses to the federal student aid program?

The reason the for-profit college industry is out of control is because this rapacious sector of higher education makes strategic campaign contributions and hires lobbyists to protect its interests in Washington. I couldn't find any evidence that the University of Phoenix has made campaign contributions to Senator John McCain, but I did find evidence that McCain's biggest contributors include Goldman Sachs, which owns a stake in a for-profit college, and Bank of America, one of the biggest players in the private student-loan market.

If you want to better understand how the for-profit colleges have ripped off American taxpayers, you should read David Halperin's article in The Nation.  "Many of America's for-profit colleges have proven themselves a bad deal for the students lured by their enticing promises--as well as for US taxpayers, who subsidize these institutions with tens of billions annually in federal student aid," Halperin wrote.

As Halperin explained, more than half of the students who enroll in for-profit colleges drop out within about four months.  Many of these colleges have been caught using deceptive advertising and misleading information about job placement rates.  And although the for-profits only enroll about 13 percent of postsecondary students, they account for nearly half of student-loan defaults.

How do they get away with this? By hiring lobbyists and making  campaign contributions to powerful federal legislators. According to Halperin, the industry's lobbyists include past Senate majority leader Trent Lott and Penny Lee, a former aid to Senate majority leader (now minority leader) Harry Reid.  In fact, as Senator Dick Durbin put it, the for-profits "own every lobbyist in town" (as quoted in Halperin's article).

And why, you might ask, haven't supposedly independent voices in the higher-education policy world spoken out more forthrightly about the abuses in the for-profit college industry? Why hasn't Chronicle of Higher Education taken a stand? Why hasn't the National Urban League been more aggressive in its policy recommendations for higher education? Perhaps it is because the for-profits advertise in the Chronicle and  Corinthian Colleges (now bankrupt) gave $1 million to the National Urban League.

As Halperin summarized at the end of his lengthy article, "There's a word for this state of affairs: corruption." And knowingly or unknowingly, Senators McCain, Flake and Alexander came to the aid of one of the for-profit industry's worst actors: University of Phoenix.  Senator McCain deserves this nation's respect for his heroism in the Vietnam War. How sad and how shameful to observe him in his dotage serving as a shill for the for-profit college industry.

References

Adam Looney & Constantine Yanellis.  A Crisis in student loans? Brookings Institution, September 10, 2015. Accessible at: http://www.brookings.edu/~/media/projects/bpea/fall-2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf

David Halperin. The Perfect Lobby: How One Industry Captured Washington, DC. The Nation, April 3, 2014. Accessible at:  https://www.thenation.com/article/perfect-lobby-how-one-industry-captured-washington-dc/

Senator John McCain Press Release. Senators McCain, Flake & Alexander Question DOD's Probation Decision Regarding the University of Phoenix's Participation in the Military Tuition Assistance Program. October 22, 2015. Accessible at: http://www.mccain.senate.gov/public/index.cfm/press-releases?ID=d7d2b065-3df2-42ce-9763-82ed0310a6e6

Senator John McCain's Top Contributors. Center for Responsive Politics. Opensecrets.org. Acessible at: http://www.opensecrets.org/politicians/contrib.php?cycle=Career&cid=n00006424



Tuesday, August 27, 2013

The For-Profits "Are Making Out Like a Bandit": Will Sheriff Obama Round Up those Bad Boys?

In a question-and-answer session with college students at SUNY at Binghamton, President Obama made clear that he understands what's wrong with the for-profit colleges.

 [T]here have been some schools that are notorious for getting students in, getting a bunch of grant money, having those students take out a lot of loans, making big profits, but having really low graduation rates. Students aren’t getting what they need to be prepared for a particular field. They get out of these for-profit schools loaded down with enormous debt. They can’t find a job. They default. The taxpayer ends up holding the bag. Their credit is ruined, and the for-profit institution is making out like a bandit. That’s a problem.
President Obama also said he understands that some for-profits are exploiting our military veterans:
[T]hey’ve been preyed upon very badly by some of these for-profit institutions.... Because what happened was these for-profit schools saw this Post-9/11 GI Bill, that there was a whole bunch of money that the federal government was committed to making sure that our veterans got a good education, and they started advertising to these young people, signing them up, getting them to take a bunch of loans, but they weren’t delivering a good product.
 Indeed, Senator Tom Harkin's Senate Committee report on the for-profits found that the for-profits soaked up a huge share of the money made available to military veterans under the Post-9/11 GI Bill, a law designed to extend educational benefits to veterans of the Afghanistan and Iraq wars.

Some for-profits are "making out like a bandit"
According to the report, the for-profits trained 25 percent of the participating veterans but received 37 percent of the Post-9/11 GI Bill money during the first two years the program was in place.  Eight of the top 10 education providers during that two-year period were for-profits, including the owners of the University of Phoenix, DeVry University, and Kaplan University (pages 27-28 of Harkin report).

Among the top ten participating institutions in this veterans program, the eight for-profits had the highest student withdrawal rates.  Apollo's student withdrawal rates for bachelor's degree programs was more than 50 percent. Kaplan Higher Education Corporation (owner of Kaplan University) had a 68 percent withdrawal rate for its four-year programs (page 29 of the Harkin report).

Will the Obama administration and Arne Duncan's Department of Education rein in these bad boys? I'm not sure. President Obama made it abundantly clear that he is willing for the federal government to continue funding for-profit colleges--the largest of which are publicly traded corporations or institutions owned by private equity groups.

 "For-profit institutions in a lot of sectors of our lives obviously [are] the cornerstone of our economy," President Obama said at the Binghamton gathering. "And we want to encourage entrepreneurship and new ideas and new approaches and new ways of doing things. So I’m not against for-profit institutions, generally."

President Obama's approach to for-profit colleges is basically in harmony with the Harkin Committee's viewpoint.  Like President Obama, the Harkin Committee acknowledged a place for the for-profit sector in higher education.  The Committee expressed the view that the public sector and nonprofit private colleges do not have the capacity to educate all the postsecondary students who want to be educated.

Personally, I disagree.  Why should the federal government pump $30 billion a year into the for-profit colleges in the form of federal student aid, when it is absolutely clear that the for-profit colleges have an overall poor record of performance and catastrophically high student-loan default rates? Shouldn't that money be going to the public institutions--particularly our community colleges?

So far, President Obama has been unwilling to take aggressive action to clean up or close the for-profit college industry.   For the time being at least, the for-profits will continue to "make out like a bandit," and President Obama will continue to critize them but do little or nothing to bring them under control.

References

Paul Fain & Scott Jaschik. Obama on Non-Profits. Inside Higher Education, August 26, 2013. Accessible at: http://www.insidehighered.com/news/2013/08/26/obama-speaks-directly-profit-higher-education-noting-concerns-sector

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf

Note: All quotes come from the Inside Higher Education article cited above.