Guest Post: John Sperling, Founder of the University of Phoenix, Forgets One Important Stakeholder -- Students

By Craig Smith

Anyone working on Capitol Hill these days knows that the for-profit higher education industry is spending millions of dollars on lobbying in an effort to defeat, delay or weaken the Department of Education’s proposed regulations on gainful employment. This should come as no surprise -- like bankers swarming House and Senate offices in an effort to weaken proposed financial reforms in response to the sub-prime meltdown, for-profit colleges are businesses lobbying to protect their main revenue stream. In this case that is federal tax dollars in the form of federal student aid. Nor is it a surprise that the for-profit college sector is enlisting their employees to write comments opposing the regulations or paying for high profile education summits in an effort to change people’s minds about recent reports of fraud and abuse in their sector.

Recently, however, the University of Phoenix has ratcheted up the lobbying blitz with the help of a recent report issued from the NEXUS Research and Policy Center. Now, as The Chronicle of Higher Education and CNBC have reported, this report entitled "For-Profit Colleges and Universities: America's Least Costly and Most Efficient System of Higher Education,” has raised some eyebrows. NEXUS is funded by in-kind support from University of Phoenix’s parent company the Apollo Group and grants from the John G. Sperling Foundation -- the foundation set up by the founder of the University of Phoenix and the head of the Apollo Group. Furthermore, the report is authored by Jorge Klor de Alva, President of NEXUS and coincidentally a past-executive of University of Phoenix and an Apollo board member.

In an effort to maintain a position of independence for the Center and avoid charges of astroturfing, Klor de Alva tried to distance the Center and its report from current lobbying efforts around gainful employment. According to Chronicle coverage:

Nexus sees its business as advocacy but "not lobbying," and Mr. Klor de Alva said he has no plans to distribute the report to members of Congress, where lawmakers are continuing to hold hearings on the for-profit sector. But that doesn't mean the report won't become another piece of fodder in the debate. "I suspect," he said, "that it will get distributed over there."

Well how prescient of him. Any takers on who would have sent this report to all Congressional officers? Why, John Sperling, of course. 

The report arrived in Congressional staffers’ email boxes as a PowerPoint presentation along with a message from Sperling and a sample letter members of Congress could send to Education Secretary Arne Duncan opposing the gainful employment regulations. Says Sperling:

The attached power point has been prepared by NEXUS, a research and policy institute whose primary focus is the for-profit sector of higher education. Given its commitment to fact based research, not special pleading, the power point presents a rationale for the need to rethink the reforms proposed by the Education Department and the HELP Committee using as an example the case of the University of Phoenix, whose massive database on its operations and its academics has been made available to NEXUS researchers. 

It is unclear how a policy center whose only report is a piece of  blatant advocacy for the organization that funds the center is committed to “fact based research” and not “special pleading,” but that is not the most outlandish claim in the package. No, that comes in a broad finding of the report, which Sperling highlights in his letter:

Perhaps the most important finding of the case study is the fact that for-profit institutions operate at no cost to taxpayers because the interest students pay on their federal loans plus the taxes paid by the institutions is greater than the Pell Grants and all of the other state and federal subsidies received by the students and the institutions. Further, the study shows that not only will the proposed reforms require a major increase in Department of Education oversight staff, they will greatly lower the efficiency and raise the costs of the institutions in the sector -- all at the expense of taxpayers.

Let’s work through that. According to the Department of Education’s proposed rule for Gainful Employment:

In 2009, the five largest for-profit institutions received 77 percent of their revenues from the Federal student aid programs. This figure that does not include revenue received from certain Federal student loans (not authorized by the Higher Education Act) that are exempted under the so-called 90/10 rule, or other revenue derived from government sources including Federal Veterans' education benefits, Federal job training programs, and State student financial aid programs. A recent study completed for the Florida legislature concluded that for-profit institutions were more expensive for taxpayers on a per-student basis due to their high prices and large subsidies.

Let’s be clear. For-profit colleges receive the vast majority of their revenue and their profit from taxpayer money. They generate this flow by charging high tuition, which results in their students receiving a disproportionate amount of Pell Grant money and borrowing more on average and therefore carrying higher debt burdens. This leads to more significant interest on those loans and overall loan repayments. To argue that this model is better because it is “revenue-neutral” for the federal government is to turn the equation on its head.

Yes, the for-profit sector pays corporate taxes which means they must budget for that expenditure. How do they do that?  By making sure they generate enough revenue and that means making sure tuitions are high enough which means more federal student aid dollars flowing to the institution. In short, to make sure they have enough money to pay the federal government, they have to get more money from the federal government on the front end.  I believe that is what we call a zero-sum game. But to even enter into that argument is to miss the real point. Students.

To defend a business model of education in which it is okay for students to take on excessive loan debt (and, in too many cases, default on those loans) while companies like Apollo make millions of dollars by arguing that it doesn’t cost the federal government anything is ludicrous if not immoral.

The goal of our federal financial aid system is not for the federal government and business to make money with the welfare of students—particularly low-income and minority students—as an afterthought. The financial aid system envisioned in the Higher Ed Act is supposed to use the economies of scale at the federal government’s disposal to help all students get an affordable and equivalent education that will improve their economic and social well-being. If the for-profit sector wants to convince Congress and the public that they are not the next sub-prime mortgage crisis waiting to happen and that they are vital to the effort of strengthening our system of higher education, perhaps they should remember that helping students succeed without unmanageable loan debt, and not milking the federal student aid system to improve their bottom-line, is the key.

Craig Smith is the Deputy Director of Higher Education for the American Federation of Teachers where his primary responsibilities are field services and communications with an emphasis on political and legislative action. Prior to joining the AFT’s national staff, he was a full-time faculty member and local union president at Salt Lake Community College. Craig blogs regularly on AFT’s Faculty and College Excellence website. His views are his own and not necessarily those of the New America Foundation.