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Yet even bargain-bin accreditation takes several years. So the titans of Wall Street found a way around this by purchasing small, failing schools in order to snatch up pre-owned accreditation.
Take Bridgepoint Education. Its majority stockholder is Warburg Pincus, a New York private equity firm. When it needed accreditation for Ashford University, it bought the 85-year-old Franciscan University of the Prairies, a struggling, 300-student religious college in Clinton, Iowa. Overnight, Franciscan was transformed into the online powerhouse Ashford.
Bridgepoint, which also owns the University of the Rockies, grew from just 12,623 students in 2007 to 77,892 in 2010. Its profits also exploded, going from just $4 million to more than $216 million annually. About 85 percent of its revenue comes directly from the federal treasury.
But if Bridgeport and Warburg Pincus are billing top dollar, they're unrepentant misers when it comes to educating kids. In 2009, Bridgepoint spent less than $700 per student on actual instruction. By comparison, the nearby University of Iowa spends 17 times that figure.
What Bridgeport doesn't short is its marketing, spending $2,714 per student to keep the turnstiles spinning. Overall, the 15 largest for-profit colleges spend nearly $13 billion a year on recruiting and marketing.
Needless to say, it's a terrific business if you don't have to worry about educating kids. Nearly 80 percent of students won't complete their program within six years — almost double the failure rate at traditional schools.
The tactics have become so brazen that even accreditors are taking notice. Last month, Ashford conceded that the Western Association of Schools & Colleges had denied its accreditation renewal, noting that the school had just 50 full-time faculty members to teach 90,000 online students. Within a week, Bridgepoint's stock price had plunged 50 percent.
"It's basically consumer fraud rendered to a business model," Nassirian says. "Over-advertise, oversell, overcharge and under-deliver. They found a system where the pitch goes to one guy and the bill to someone else."
We've got your money. Now beat it.
Mary had been a good student all her life, earning a master's degree in psychology from William & Mary University in Virginia. When the military transferred her husband to Tampa, she chose Argosy University, the only area school offering a psychology doctorate geared toward clinicians rather than researchers. Mary, who doesn't want her real name disclosed, figured it was legit because Argosy was accredited by the American Psychological Association.
She aced her studies with a 3.7 GPA. All she needed was an internship to graduate. That's where her problems began.
Argosy University, with 19 campuses, is owned by Education Management Corporation (EDMC), whose investors include Goldman Sachs and Providence Equity Partners, a Rhode Island private equity firm. To wring out more profit, Argosy began taking on more students than it could handle, says Mary's lawyer, Florida state Rep. Rick Kriseman.
But Argosy didn't have the professional connections to supply enough internships. So, like air traffic controllers, it decided to place students in holding patterns.
Mary was asked to accept a practicum instead. It's like a lesser form of internship, which wouldn't bring her any closer to her doctorate.
She was upset but went along, spending the next eight months volunteering at a mental health facility. But when she finished, Argosy still didn't have enough internships. Her instructors ordered her to take a second practicum.
She didn't have much choice. Mary had already invested four years and more than $100,000. She spent another five months volunteering. By then, her instructors had begun to question her intellectual rigor.
They not only flunked her out of the program but refused to let her defend her work before a board of teachers and peers, then denied her a chance to address administrators before they rejected her appeal. (EDMC refused repeated requests for comment.)
Mary was shocked. "I was an A student," she says. "It was baffling to me how this could happen at the last minute. You have to understand the shame of going to school and being an A student and becoming a flunked-out person. It's so foreign and confusing."
Yet Kriseman would discover a pattern at play, finding three more students who had suffered a fate similar to Mary's. "When the school did not have those [internship] slots, they found reasons to either dismiss the students or to make it so uncomfortable for them that they left of their own accord," he says.
Argosy's problems seemed to be nationwide. Across the country, in the psychology program at Argosy-Seattle, the school had assured its doctoral candidates that accreditation was moments away — since without certification, their degrees would be all but worthless. It wouldn't be until later that administrators confessed that their application had failed — and they were closing the entire program.
Failure at a luxury price
For-profit colleges like to place their alarming failure rates in charitable terms. They claim to disproportionately serve low-income students who struggle in school.