This article was originally published in The Daily Pulp on July 29, 2014.
I recently sat down for an interview with Dan Gorman, in which I discussed my new book,Breaking Point: The College Affordability Crisis and Our Next Financial Bubble. Since then, I have been asked to elaborate on how for-profit colleges differ from traditional, non-profit institutions in higher education, and how these differences harm students in the for-profit market.
For-profit and non-profit colleges are fundamentally different in their core structure. While for-profit colleges are run by private corporations that are generally owned by a larger holding company, traditional non-profit colleges are controlled by a non-profit board of trustees. Think of one of these large for-profit holding companies like you would Virgin Group, which owns a variety of investments that ranges from cell phones to airlines. It would be like Virgin Group opening and operating a college to diversify its business portfolio. A prime example of this is the University of Phoenix, which enrolled over 470,000 students in 2010. The University of Phoenix is owned and operated by a company called Apollo Group, Inc., which controls over a dozen higher education firms alone.
Chasing short-term returns, for-profit colleges are fundamentally flawed in the sense that they use higher education as a means to achieve a greater profit margin, rather than appropriating revenue to create a higher quality of education. Because of specific institutional flaws found in a majority of these colleges, the quality and the market value of degrees from for-profit colleges have been shown to be significantly lower than any of their non-profit competitors. According to the U.S. Department of Education, students at for-profit institutions represent 12 percent of all higher education enrollment, 26 percent of all student loans, and 47 percent of all student loan dollars in default. I suggest that the major factor that promotes these figures is the spending behavior of these institutions. Of the major for-profit companies that were investigated by the Senate Committee on Health, Education, Labor, and Pensions, the industry allocated $4.2 billion, or 22.7 percent of all revenue, towards marketing, advertising, recruiting, and admissions staffing and $3.6 billion or 19.4 percent of all revenue to pre-tax profit. While $7.8 billion, or over 42 percent of the sector’s funds went to profit or investments in future profit-generation like marketing, only $3.2 billion or 17.2 percent of all revenue was spent on instruction. The lack of investment in student performance and retention has led to both significant withdrawal rates and low employment rates upon graduation, since employers view these investments as providing a low quality of education. An example of this serious problem can be found at Bridgepoint Education, Inc., which led the industry at an 84-percent withdrawal rate from students within a four-month period from admittance.
With a business model based entirely upon churn, for-profit colleges have embraced a series of predatory marketing practices to pressure potential students in a way that promotes a continuous flow of enrollment. Prior to any sales process, for-profit colleges conduct a massive contact information-gathering campaign, targeted at prospective students. These “leads” are produced either directly by the for-profit colleges themselves or purchased from third-party firms known as “lead generators.” These lead generators specialize in collecting contact information through a series of websites and then sell that information to for-profit entities for between $10 and $150 per lead, depending on the type and quality of profile provided.
With the personal information of prospective students gathered and organized, for-profit firms deploy tens of thousands of recruiters to enroll students into their programs. From data collected in 2010 on the for-profit colleges that were under investigation by the Senate HELP Committee and GAO, firms employed 35,202 recruiters, compared to 12,452 student support staff and 3,512 career services staff. To put this into more understandable terms, there were an average of 44 students per recruiter, compared to 125 students per student support staff member and 455 students per career services staff member. There is another factor which makes these figures even more troubling. As enrollment soared by more than 700,000 students between 2007 and 2010, the number of recruiters increased by roughly 14,000, or 67 percent from 2007. Compared to this significant increase, student services only grew by approximately 3,000 employees, or 25 percent, and career services did not see any measurable increase at all. These figures demonstrate the association in the upward trend of both recruiters and enrollment, suggesting that, as for-profits continue to allocate more resources to recruitment rather than instruction or career services, they will continue to grow.
With over 35,000 recruiters, for-profit firms engage in a series of predatory recruiting and marketing practices, most notably captured by an image of a “pain funnel” in an ITT Tech recruitment manual. Using the information that is bought from lead generators, for-profit colleges begin to apply the pain funnel by initiating contact with students, often times with a merciless barrage of phone calls. To find out firsthand exactly what this experience is like on behalf of those targeted, the Government Accountability Office (GAO), as part of an undercover investigation, entered an investigator’s name and number into a single lead generation site. Within 5 minutes, the GAO received the first calls from recruiters. Over the course of the subsequent month, the investigator received over 180 calls after logging only a single entry into one lead generation site. This example helps to illustrate exactly how aggressive this entire marketing scheme really is. Within one month’s time following a single entry, the “consumer” received over 180 calls. When broken down, these 180 calls over one month’s time equate to an average of six calls per day. Thinking in these terms makes it easier to now understand how and possibly why hundreds of thousands of people succumb to the pressure applied by the for-profit sector.
Once a prospective student is finally reached, recruiters are usually instructed to grill the lead with a series of questions, which tend to progressively escalate in intensity. This is intended to exploit points of emotional vulnerability, working to pressure thousands of prospective students to sign up immediately. As one ITT manager explains in a memo, “recruiters need to focus on … digging in and getting to the pain of each and every prospective student.”
So how exactly are recruiters instructed to, “find the pain?” We begin with the process of organizing the leads acquired by the lead generators. After reviewing the circumstances surrounding each case, recruiters then know which questions will be the ones to have the greatest effect. For example, if there is a case which includes a young single mother struggling to support her four children, the questions will be tailored much differently than those to a middle-aged man with poor health who is struggling to pay his medical bills because he does not have an insurance policy. Once each case has been reviewed and the important details identified, recruiters then ask questions under the guidelines of a typical sales funnel. However, everything from the substance of the questions right down to the title of the funnel, found on an ITT internal memo to recruiters, makes these funnels not only atypical, but troubling as well.
Under the heading, “Pain Funnel and Pain Puzzle,” follows a four-tiered series of questions. As the supposed sales pitch draws on, the recruiter’s script intensifies with the questions becoming “progressively more hurtful.” These tiers transition from the initial stage of “establishing rapport,” to “digging for the motivation,” to “feeling the pain,” to finally “making the connection between the motivation and getting a degree.” Similar to ITT, Kaplan has implemented their own foundation of “ARTICHOKE,” which deploys a similar method of, “peeling back the layers,” and, “Getting to the PAIN.”
Often times, prospective students continue to be harassed until they finally succumb to the pressure. They enroll in programs that cost tens of thousands of dollars – programs from which they will either withdraw before graduating, or graduate with a degree that is effectively useless in obtaining a job that can pay back their investment. For-profit colleges undoubtedly pose as the most concentrated, yet lethal threat to those enrolled in higher education. Students who leave these institutions generally depart with significant amounts of debt, with little to nothing to show for it, except empty wallets and shattered dreams.
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