Implications of the For-Profit Failures


Education Dive has linked to an article in the New York Times on the chronology of the collapse of ITT Tech and has provided the following “Brief” of the article’s findings:

The New York Times examines the chronology of ITT Technical Institute’s historic collapse, which began in 1999, when a former employee sued the school for paying incentives for predatory recruiting practices.

“Dan Graves helped the federal government to uncover a business plan which had yielded more than $12 billion in revenue between 2000 and 2016, with 70% of its revenue coming from federal student aid amounting to more than $400 million in defaulted student loans.

“The prevalence of the abuse was allowed to go on, thanks in large part to the lobbying power of the for-profit sector. According to the Times, lobbyists hired by ITT received almost $1 million in payment for federal engagement since 1998.”

Certainly, the details highlighted in this “Brief” are very provocative and illuminating.

The “brief” is followed, however, by this “Dive Insight” that seems to me to be very misleading in the ways in which most arguments by analogy are flawed:

“If an authorized corporation went to great lengths to preserve its ability to recruit students, and the government went through great lengths to insure its free market activity in higher education, a logical question stands out: How does it suddenly become a problem because of the prevalence of defaults?

“Perhaps the reality of the housing market crash and predatory activity from banks leading to the 2008 recession became a lesson for the federal government. However, the lesson is one that has not been easy in learning for the entire sector, as many elite and large state institutions are under close watch for amassing billion-dollar endowments under similar tactics of enterprise and raising tuition.”

First, the high level of defaults in the for-profit sector were a symptom of a business model that devoted far more resources to recruitment than to instruction—and, notably, almost no resources to retention: that is, the recruiters knew that they were targeting populations that were academically underprepared, economically vulnerable, and culturally marginalized—in short, very unlikely to complete multiple semesters, never mind degrees. So, the for-profit colleges are being penalized not for the default rates alone but because the default rates exposed the fraudulent educational promises that their lobbyists and political proponents successfully disseminated for over a decade.

Second, the comparison to public and private non-profit institutions is a false analogy. The completion rates at for-profit institutions have generally been far lower and the default rates far higher than those at institutions in the other sectors. There is a danger, of course, that institutions in the other sectors may be trending toward the model exploited by many of the for-profit institutions. But—and this is the key distinction—public institutions are being moved toward that model by the decline in state support for public colleges and universities and not because the principles underlying that model have defined how they have historically operated. Indeed, the corporatization of public higher education has been promoted by many of the same groups who have been the most ardent proponents of the for-profit sector.

Lastly, only the largest public institutions have amassed billion-dollar endowments. Projecting that trend onto the entire spectrum of public colleges and universities is the equivalent of writing about the revenues generated by intercollegiate athletics and looking at only the top 25-50 athletics programs in the country.


The article for Education Dive is available at:



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