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March 05, 2010 7:19 PM Buying Legitimacy

By Daniel Luzer

The latest issue of the Monthly features a piece by Kevin Carey, “Asleep at the Seal,” about how college accreditation fails to ensure that American colleges are any good. More on that: There was a fascinating item by Daniel Golden in Bloomberg News yesterday about another part of the accreditation game. Ever wonder how online schools get accreditation? Increasingly, they buy it. According to the article:

ITT Educational Services Inc. paid $20.8 million for debt-ridden Daniel Webster College in June. In return, the company obtained an academic credential that may generate a taxpayer-funded bonanza worth as much as $1 billion.
Key to tapping that money is Webster’s regional accreditation…. Daniel Webster’s accreditation was its “most attractive” feature to ITT Educational, said Michael Goldstein, an attorney at Dow Lohnes, a Washington law firm that has represented the company.

By purchasing Daniel Webster College, a tiny New Hampshire school next to the Nashua Municipal Airport, ITT also bought the school’s accreditation. So now ITT is accredited by the New England Association of Schools and Colleges and can now potentially enroll thousands of new students only able to continue their education through federal loans.

While online, proprietary schools make some money enrolling students who pay out-of pocket, the key to making big money is enrolling lots of students with federal financial aid, the student loans subsidized and guaranteed by U.S. taxpayers. Only students enrolled in accredited schools can access federal financial aid. According to the Golden article:

The nation’s for-profit higher education companies have tripled enrollment to 1.4 million students and revenue to $26 billion in the past decade, in part through the recruitment of low-income students and active-duty military. Now they’re taking a new tack in their quest to expand. By exploiting loopholes in government regulation and an accreditation system that wasn’t designed to evaluate for-profit takeovers, they’re acquiring struggling nonprofit and religious colleges — and their coveted accreditation. Typically, the goal is to transform the schools into online behemoths at taxpayer expense.

It didn’t used to work this way. Before 2006 colleges that enrolled more than 50 percent of their students in online programs couldn’t use federal financial aid. But then regulation changed the rule and colleges only needed to be accredited to get federal financial aid cash. And so in the last six years for-profit education companies have bought almost 20 traditional colleges to take advantage of regional accreditation.

Just because they’re accredited doesn’t mean they’re doing very well, however. “When these institutions are bought, they are not at the moment successful in the financial sense or they wouldn’t be for sale,” said Barbara Brittingham, director of the Commission on Institutions of Higher Education.

Which is actually precisely what makes situations like Daniel Webster College and ITT so odd. If the school was so struggling that it had to merge with proprietary institution, why was it good enough to be accredited?

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

Comments

  • surlybastard on March 06, 2010 10:23 AM:

    Doesn't ITT advertise on match books? Maybe that was Apex Tech.

  • S. M. Waybright on March 08, 2010 6:19 PM:

    The big secret behind the for-profits is that they're moving toward outsourcing their faculty positions. That's where the big money is; paying instructors pennies on the dollar to replace real professors. And---it's not just the post-secondary online schools that are doing it....

  • Crissa on March 08, 2010 7:39 PM:

    Well, admittedly accreditation has nothing to do with being in the black; at least, it's supposed to be about the quality of education. If they spent too much upon each student and took in less per student...

    ...But I really don't see how accreditation should spread from one tiny campus to dozens of others as if Webster actually ran them. That makes no sense. It would be like a chain of hospitals having one hospital with a board certified surgeon and then saying all their hospitals had board certified surgeons, wouldn't it?

  • rather not say on March 09, 2010 7:57 AM:

    Is there a complete list somewhere of these transactions?

    Have you looked at Heald (converted from nonprofit to for-profit then sold to bigger for-profit Corinthian)?

    Anything on success rates of graduates say 1, 5, 10 years after getting credential? Or their success rates at paying back student loans, which presumably affect profitability?

    (Or does quality of education affect profitability at all? Do they profit from the loan money regardless of whether their graduates can pay it back? If so this outcome could be worth adjusting like bank loan profits, make them held back and tie them to performance over time, eh?)