For-Profit Colleges in the US: A Morally Bankrupt Sector?

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Case Details:

Case Code : BECG117
Case Length : 19 Pages
Period : 2008-2010
Organization : -
Pub Date : 2011
Teaching Note : Not Available
Countries : US
Industry : Education

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task."¹

- Steve Eisman (Eisman), hedge fund manager, FrontPoint Partners LLC² , in 2010.

"In focusing only on for-profits, we are not being objective, and we are ignoring the bigger picture of what is happening across all of higher education....The for-profit sector should not be examined in a vacuum."³

- Mike Enzi, a US Senator from Wyoming, in 2010.

Putting Profits over Public Good?

In August 2010, a report released by the US Government Accountability Office⁴ (GAO) on for-profit institutions stated that some for-profit colleges in the US were encouraging fraudulent practices and making misleading statements to prospective students. Investigators from the GAO who posed as students and applied for admission at 15 for-profit colleges across the US found that 4 colleges encouraged fraudulent practices and that all 15 schools had made deceptive statements such as not providing clear information about their graduation rate, applicant's likely salary after graduation, accreditation of the schools, and the duration and costs of the programs offered by the schools.

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1] Steve Eisman, "Subprime Goes to College," www.nypost.com, June 6, 2010.

2] FrontPoint Partners LLC, which operates as a subsidiary of Morgan Stanley Investment Management Inc., is a privately owned hedge fund sponsor.

3] Mary Beth Marklein, "Probe Finds Fraud, Deception at For-Profit Colleges," www.usatoday.com, August 4, 2010.

4] Founded in 1921, The Government Accountability Office (GAO) is the audit, evaluation, and investigative arm of Congress, which investigates how the federal government spends taxpayer dollars. GAO examines the use of public funds, evaluates federal programs and policies, and provides analyses, recommendations, and other assistance to the congress.

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