“AIG’s…actual and expected losses on subprime mortgage-backed securities and credit default swaps on [subprime]… threatened to force it imminently into bankruptcy.”  Later, “AIG built up its concentrated exposure to the subprime mortgage market largely out of the sight of its functional regulators.”

Ben S. Bernanke, Chairman of the Federal Reserve. Prepared Testimony Before the Committee on Financial Services. March 24, 2009


Alliance For Economic Stability

Home Federal Student Loans Alliance for Economic Stability Announces Initiative to Address Abuse of Taxpayer Funds by For-Profit Education Companies.

Alliance for Economic Stability Announces Initiative to Address Abuse of Taxpayer Funds by For-Profit Education Companies.

The Alliance for Economic Stability (“AES”) announces an initiative to address improved oversight of tax-payers’ funds provided to for-profit companies operating online universities (“For-Profits”).

The For-Profits obtain revenues primarily from student loans administered and guaranteed by the federal government.  The For-Profits and their use of tax-payer funds are overseen by the U.S. Department of Education (“DOE”), but the For-Profits’ practices have been the subject of increasing controversy since changes were made during the Bush administration to DOE rules governing the For-Profits’ sales practices.

Recent press coverage has revealed that the For-Profits often engage in practices that appear questionable, particularly for government-funded enterprises. Two articles from Bloomberg News, for instance, have discussed practices of For-Profits sales persons targeting unemployed homeless persons and returning military veterans, including one suffering from brain-damage.

Critics have argued that the For-Profits’ practices seem to enrich their shareholders and executives at the expense of tax-payers and to the detriment of students left with unsustainable debt burdens, and that the For Profits’ sales practices violate the spirit, if not the letter, of the law governing the administration of federal student loans.

The current administration’s appointees to the DOE are considering changes to DOE rules to address the For-Profits’ controversial practices.

The AES welcomed the efforts of the PBS Frontline program, “College Inc.,” aired on May 4th, to expose the problematic relationship between For-Profits, their students, and tax-payers.

The program included an interview with Tami Barker, a former sales person for Bridgepoint Education’s Ashford University, who reported that she was required to make 150 calls a day and enroll at least 12 students a month. Ms. Baker reported on the pressure Bridgepoint Education put on its sales force to meet the quotas. Bridgepoint Education responded by asserting that it does not use quotas.

The DOE under the Bush administration weakened rules that prohibit the use of tax-payer funds to pay commissions based on the number of students enrolled.  The result is that Bridgepoint Education, for example, has approximately 1,300 employees dedicated to making sales calls who are paid with funds obtained from tax-payers.  These sales people are allowed to market an online university with a 60-year-old accreditation that Bridgepoint purchased when it acquired a college with 332 students.  Bridgepoint bought the college and its accreditation with funds obtained from a private equity firm five years ago, and since then, Bridgepoint has grown enrollment to 65,788 students. Bridgepoint Education, which is under investigation by DOE, claims that the sales practices that enabled its aggressive growth are allowed under DOE rules.

The AES is working to aid the DOE in protecting tax-payers from potential abuses.

As part of the AES initiative, the AES will be writing to government officials and legislators to urge improved oversight of the For-Profits. The AES has written two letters to DOE officials detailing problems with the For-Profits,
including the For-Profits spending more on marketing than on instruction, engaging in predatory sales practices, and having sales forces numbering in the thousands.

About the Alliance for Ecomic Stability, Inc:

Alliance for Economic Stability is a non-partisan economic policy organization.  The purpose of the AES is to encourage policies that protect tax payer and their savings and investments, and promote a fair financial marketplace.  AES works with government to foster an understanding that the safety of people's savings and fair allocation of capital are the mainstays of a free and well-functioning society.  The AES maintains a web site at www.eally.org and www.eallies.org



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