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Latino Daily News

Saturday July 16, 2011

For-Profit College CEOs Reap Rewards of Weak Regulation

For-Profit College CEOs Reap Rewards of Weak Regulation

Photo: University of Phoenix CEO Cashes Out

Click Here to Enlarge Photo

John Sperling, the CEO of the University of Phoenix, has cashed out $59 million in the company’s stock, according to the Huffington Post. Sperling’s shares have increased in value by almost twenty percent in the six weeks since the Department of Education issued a weaker-than-anticipated “gainful employment” rule governing the for-profit education industry.

While many for-profit colleges promise increased earnings after graduation, evidence shows that students at the institutions default on federal loans at a significantly higher rate than their counterparts at public universities. Student advocates expected that the gainful employment rule would force the worst offenders in the career college industry to reduce their costs and increase their quality of education, or risk the loss of federal student aid dollars.

The final rule is a good first step, as CP’s Executive Director David Halperin said in a statement last month.  But it’s not strong enough. “ A program can systematically fail to provide value to students and still be eligible for federal financial aid. Sixty-five percent of students from a program can fail to pay back their loans, and loan repayment from a school’s graduates can consume 30 percent of their disposable income, and the program will nevertheless remain eligible [PDF] for federal grants and loans,” said Halperin.

After the somewhat watered-down final rule was issued, investors who were initially skittish about increased oversight of the for-profit education industry came flooding back into the market, and CEOs like Sperling have profited in the aftermath. Donald Graham, the main stakeholder in Kaplan University, reaped a gain of $12.5 million over the last month. Andrew Clark, the CEO of Bridgepoint Education, made a $2.5 million profit on his stock holdings. Dennis Keller of Devry University made $27.6 million.

In total, the CEOs of the 15 publicly traded American for-profit colleges have collected $2 billion from selling company stock over the last seven years.

Many for-profit schools have been shown to aggressively recruit low-income and minority students—in some cases providing false information about accreditation and the prospects for salary and job opportunities after graduation—raising the question of whether the recent gains of for-profit CEOs like Sperling are being made on the backs of the most vulnerable students.