Frauducation and the New Economy

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Transcribed from the 11 March 2017 episode of This is Hell! Radio (Chicago) and printed with permission. Edited for space and readability. Listen to the whole interview:

Up to ninety percent of the revenue that for-profit colleges generate every year comes from the federal student aid system. That is all tax-supported money, just like the money that is flowing to your state college.

Chuck Mertz: I know you are going to find this hard to believe, but for-profit colleges are worse than you thought. Far worse. Not only are they a result of the inequality created by the new economy, but they consistently and constantly reinforce it—while making a fortune.

Here to tell us how for-profit colleges are making a killing off of inequality, Tressie McMillan Cottom is the author of Lower Ed: The Troubling Rise of For-Profit Colleges in the New Economy. Tressie worked in enrollment at two for-profit colleges; after witnessing the kinds of choices students faced, she left the for-profit educational sector to go study the field in graduate school. She is now an assistant professor of sociology at Virginia Commonwealth University.

Welcome to This is Hell!, Tressie.

Tressie McMillan Cottom: Thank you so much, Chuck, for welcoming me to hell. I’m happy to be here.

CM: We are going to be talking a lot about for-profit colleges—but you point out that for-profit colleges have been around for two hundred years. What makes today’s for-profit colleges different from the ones in the past?

TM: We sometimes don’t realize that we’ve always had for-profit colleges. We just thought of them as the secretarial school, or the cosmetology school. But a couple of things happened in what I refer to as the “new economy” in the book, and what other people have called the Wall Street Era of for-profit colleges.

The first thing that happened is financial speculators figured out that this was a really good way to make a lot of money. For-profit colleges—their corporate overlords or the corporations that own them—started to aggressively invest in and take these schools public to generate profit and revenue. There has been an explosion of publicly-traded for-profit colleges, places like the University of Phoenix (though it has now changed its ownership structure—during this recent heyday they were publicly traded), ITT Technical Institute, and Corinthian (which owned Everest and other major name brands).

But something else happened, too. We changed. Meaning: our society changed. How we work and how we do and do not support workers changed dramatically. And because of how that changed, millions of new people (especially beginning in the late 1980s, certainly by the mid-1990s) were feeling a whole lot more economically insecure.

Because that shift happened, and because of our belief that the way to address the problem was to provide more market opportunities instead of more public social safety supports, it was a perfect opportunity for profiteering from the for-profit colleges.

CM: Yesterday I was talking to some people about who is going to be on the radio show today. Every one of these people, when I said that you were going to be talking about for-profit colleges, would say, “All colleges are for-profit.” What makes the place where you worked, Technical College, or University of Phoenix, different from Harvard or Northwestern?

TM: I hear that one all the time. I now actually tell people: “I promise you I’ve heard that joke. You don’t have to do that one for me anymore.” All schools are for-profit. I get it, I do.

What people are feeling is somewhat accurate, which is that no part of higher education is innocent of the things that I talk about as being true of for-profit colleges. For for-profit colleges, though, all of those negative things about higher education that we’re concerned about right now—indebtedness, cost, low returns, predatory behavior, big promises, less on delivery—all of those things that are true in some form for traditional higher education are exceptionally, especially true for for-profit colleges.

But beyond that, what’s different between, say, Northwestern and the University of Phoenix, or the technical school that I worked for and MIT is what they can do with the money that they generate. For sure: a school like Northwestern or Notre Dame and these other schools make tons of money, especially from things like sporting events. We make tons of money off of those things. But our tax designation determines how we can spend that money. In not-for-profit higher education, we can’t pull that money out of the school and distribute it as profit.

What happens in the not-for-profit sector is this: if Northwestern had a particularly good year selling basketball and football tickets and paraphernalia, and they sold a really important patent and made a lot of money, the president of Northwestern doesn’t get a profit-sharing check. That money, theoretically, is reinvested in the school to improve the quality of education for the students. At for-profit colleges, because their tax designation is different (they operate for profit quite literally), they take that money out of the school. To have a good year at a for-profit college means they brought in more revenue than they spent on education, and the difference becomes profit, which they then extract from the school and pay out to owners. That is very different.

CM: When I mentioned this to people, they also said, “No, no, you’re missing what the problem is, what the issue is. The problem is accreditation. These schools just simply shouldn’t have the accreditation that they do.” Is that the issue?

TM: It’s another way that we haven’t managed the problem well—but I won’t say that accreditation is the issue. Accreditation is a really weird thing. People who bring it up don’t always really know how accreditation works. When we say a school is or should not be accredited, we generally mean: is it a good school? Is it high quality? And that’s a little different from what accreditation does in practice.

Accreditation is not some big policing body that has the right to wag its finger at a school and shut it down if it doesn’t do what it should do. Accreditation may not be a strong enough governing body to protect us from the excesses of for-profit colleges. But I do agree that we should revisit whether or not for-profit colleges should have the same kind of accreditation as traditional higher education institutions, and whether that accreditation—and here’s the key part—should qualify them for access to federal student aid programs, as they currently do.

CM: What would happen to the for-profit college sector if they didn’t have access to that taxpayer money?

TM: We wouldn’t be talking about them. There is no for-profit college sector without access to federal student aid money. There simply isn’t. At best, there would be a handful of schools leftover after all the others shuttered, that would offer something like cosmetology or auto mechanics. But to be crystal clear on this issue: without the federal student aid system, there would not be a for-profit college system.

Employers are no longer thinking about the long term development of industry as much as they are thinking about the short term management of profit. And in the short term, training employees is expensive.

CM: How much do you think people realize that they depend that much on taxpayer money? I think when people hear “for-profit,” they think it’s completely within the private sector, that they’re generating those profits from the customers themselves, not from taxpayers.

TM: This is one of the really brilliant moves that the for-profit college sector has done, the sleight of hand of saying “customer” instead of “student.” We understand a “student” as someone we’re all collectively responsible for. We’re responsible for the health, well-being, and development of students. We think of “customers,” however, as being on their own. Buyer beware. And if you make a poor decision, hey, customers have to learn.

When we think of the people who attend for-profit colleges as customers, we’ve already divested ourselves of the public responsibility for for-profit colleges, and that’s unfortunate. Because we are paying for this system. We are supporting it. Up to ninety percent of the revenue that for-profit colleges generate every year comes from the federal student aid system. That is all tax-supported money, just like the money that is flowing to your state college. That means we are invested in ITT, DeVry, and Everest, whether we ever go there or not. The debt and the experiences that students have when they attend these schools are not just a problem for the individual students, they’re a problem for all of us, because we helped create it.

CM: We’re going to be talking a lot about terms like credentials and credentialization, credentialing. I want to make sure that people understand that this means “the process of establishing the qualifications of professionals and assessing their background and legitimacy.”

How has credentialization expanded, and why? Is that the real problem, credentialing? Because without credentialing, how would we know people are qualified professionals?

TM: That is a significant part of it. Talking about credentials is a way to talk about degrees, but it’s a more expansive term. It includes things that aren’t bachelor’s degrees and master’s degrees, but all of those certificates that we sometimes get in the course of our work life.

The short term certificates that aren’t quite a degree are included in credentials. An associate’s degree—we include that in credentials. The licensures that you need to do certain types of work: we include all of that when we say the word credential. So when we talk about credentialism, or the expansion of credentials, I say that this is the consequence of how we now have to work in the new economy.

So your question, Chuck, was how we know that people know what they know. Historically, we knew that people knew what they knew because they worked at an employer long enough for people to get to know their skill set. We trusted that what a credential meant was that a person was capable of learning how to do their specific job, and that an employer would train and develop the specific skills that workers needed. What has happened in the new economy is that employers have become increasingly unwilling to invest that kind of capital development in their own workers, because they think of workers as being expendable. They are now “human capital” and can be downsized and upsized as the company needs it.

When you start to think about workers in that way, you no longer feel the need to invest in their education and in their skill development. But because the worker needs some proof that they know what they know, because they are constantly going to have to prove it to a new employer, credentials become really important. Because how else are we going to be able to show, “I know what I say I know”?

The problem is, credentials don’t always mean that. There are lots of ways around that. We could have a system where employers do testing and development of their potential hires before they hire them. There’s a way to find out whether or not people actually know how to do a job, and the best way is to let them try to do the job. Again, that takes a kind of investment in workers that employers just aren’t as willing to do in the new economy. And that makes credentials very, very powerful.

CM: I want to get to this point of risk-shift in a little bit. But first, do private for-profit schools promise more from the education they offer than traditional colleges do?

TM: I think so. The promises are lofty, no matter where you go. Traditional not-for-profit education promises all kinds of things. “We’ll change your whole life! We will teach you how to be an informed, critical-thinking citizen!” Whether we always manage that depends on who you ask and what data that you like. But with for-profit colleges, the real problem is the nature of the promise that they make. It’s just as lofty, but it’s also more concrete.

For-profit colleges don’t do some of that other stuff that we associate with higher education, things like community development. One of my favorite commercials from a for-profit college says, “We are a for-profit college without all of that time-wasting.” All of the stuff that they talked about being “time-wasting” was stuff that makes traditional higher education really powerful and important.

What they say at for-profit colleges is, “We will only train you for a job, because that’s what matters.” When you say that, though, we have a really concrete way of measuring whether or not you are delivering on what you promised. Do you get your students that job you promised them? That’s the problem that for-profit colleges have. We have a really clear way to measure if they are successful or not.

CM: You write how your supervisor at the for-profit school that you worked at (which is called Technical College—so when people hear me say the words “technical college” it’s not a generic term) held an “impromptu mock session for the whole staff, to guide us in reminding those prospects who were dragging their feet that they had told us that they wanted a better life for themselves, and it was time to put up or shut up and to prove that they really wanted this education. To the enrollment staff, the adviser said, ‘I don’t know about you, but I own stock. I need people working in this economy so my stocks do well and welfare doesn’t drag the economy down.’ In other words, closing helps the economy.”

Closing on a student, closing on a sale. How much did your colleagues believe they were doing the right thing, that they were serving some greater good by pressuring prospective students into going and getting an education?

As it relates to education, the social contract between public education and employers was that we would share the cost of developing workers. Higher education would take on some of that expense, and then we would hand them off to the labor market and employers would take care of the rest. What has increasingly happened is that the labor market says, “We won’t do any of it.”

TM: That’s one of the things that I hope my work does, is shift the conversation away from everybody in these schools being predators preying on vulnerable students. The more disturbing story is the truth, which is that even when the people in these institutions think they’re doing a good thing, because of the way the institutions are set up, they are still preying on people.

Almost all of my colleagues felt they were helping people, even when they were pressuring them, even when they were getting them to sign up for very expensive loans—they thought, and truly believed (almost all of them, truly, except for a handful of exceptions) they were helping students that society had given up on. They thought they were helping people better themselves.

The fact that the way that the school was set up meant that was almost always going to be impossible for us to deliver on doesn’t mean that the people in it were right or wrong. In many ways, the people who were working in the system were as much a victim of it as the students.

CM: You write, “Lower Ed is first and foremost a set of institutions organized to commodify social inequalities, and make no social contributions beyond the assumed indirect effect of greater individual human capital.”

How do private for-profit schools commodify social inequalities? How does for-profit education turn things like poverty into an economic good that can be bought and sold to create a profit?

TM: The for-profit colleges themselves will tell you that’s what they’re doing if you read their own documents. So I did. I read the financial disclosure forms that they file with the Securities and Exchange Commission, for example, and all of their organizational marketing documents. Keep in mind who they’re marketing themselves to at the moment: potential investors. They want people’s money. So how do they encourage people’s faith in their ability to make them money?

They say things like, “This wonderful trend is happening in the United States: we have produced more high school graduates, but because of how we have produced them—through unequal K-12 schools—fewer people are qualified to go to college. And isn’t that great for us? There are people who have graduated from high school who aren’t prepared for college. That’s wonderful. We can enroll those people. That means we’re a good economic investment for you, the potential investor.”

That may be true, but for society that is a horrible thing. That’s horrible for the public. They are saying, “We are a good investment as long as our K-12 school system remains unequal.”

CM: You also write that shareholder for-profit colleges told regulators and investors that they were good investments because “employers were no longer likely to invest in expensive, time-consuming on-the-job training programs that provide entry-level labor market access or training for career promotion.”

Why are employers no longer willing to invest in training? That would seem like it would undercut their own potential profits.

TM: You would think so, except for how one of the consequences of the typical American worker becoming more efficient (which we have become, mostly through developments in technology) is that employers no longer have to rely on the workers’ development of skills to keep them efficient. Workers have become more expendable than they were thirty or forty years ago. If the worker is more expendable, we don’t need to worry about developing their skill set. We need the technology, and we need to train the workers on how to manage that technology on the ground in real time, but we don’t need to develop in our workers the capacity (for example) to develop new technology.

Employers are no longer willing to do that, because the profit horizon is much shorter. They’re not thinking about the long term development of industry as much as they are thinking about the short term management of profit. And in the short term, training employees is expensive. It may be good in the long term, but in the short term it can be expensive. And when you’re managing short term profit horizons, one of the easiest things to cut is employee development and training.

So we see these partnerships emerging. One of my favorites was in North Carolina: a large call center for a multinational bank offered for-profit college classes on their campus so their workers could finish their shift in the call center and then go right there to the University of Phoenix or Strayer. The workers were paying for it partly through some employee tuition assistance (which the employee had to repay if they left the company), but they were mostly using student loans to do it. What we’re seeing is employers relying on the student loan system to train their employees even when they are doing the training right there at work.

CM: That is just amazing.

You write, “Yale political scientist Jacob Hacker says the new economy marks both an economic change and an ideological change, each characterized by the great risk-shift of corporate responsibility to workers and families. Hacker argues that incomes have become spikier—they go up and down as workers experience job losses and more frequent changes in their job arrangements. At the same time, workers are expected to plan and invest for their own retirements (401Ks, IRAs), health costs (healthcare savings accounts), and periods of unemployment (e.g. savings). This risk-shift has created an ascendant new work contract that provides fewer buffers to help workers navigate life shocks.”

How much do you think that risk-shift is what both Trump supporters and Bernie Sanders supporters were actually opposing?

TM: That is exactly it. I should say that I have clearly chosen sides in the Bernie Sanders/Trump debate, and not in favor of our president. Just to put all my cards on the table.

But it is fair to say that this insurgent feeling among voters during this last election was a direct response to exactly that sort of risk-shift. Whether people blamed government for that, or they blamed competition from immigrant workers, was about the preconditions of their political leanings. But really these voters had almost the exact same position, stemming from the exact same social conditions, which was that increasingly the American worker cannot rely on the promised social contract.

What was that contract? As it relates to education, the contract between public education and employers was that we would share the risk and the cost of developing workers. Higher education would take on some of that expense, and then we would hand them off to the labor market and employers would take care of the rest. What has increasingly happened is that the labor market says, “We won’t do any of it. We’ll do less and less of it, and preferably none of it. We want higher education to do all of it.”

And the way that most people pay for higher education is to take on student loan debt. That means the individual is basically financing—through the publicly-supported federal student aid process—the training that employers will not provide.

That’s what workers are feeling, and they’re feeling it at the same time that wages have stagnated, so they have less money to pay for anything, the costs of things like healthcare (which in the short term can seem a little bit more critical than education), and things like taking care of elderly parents and navigating the inevitable cost of living life. Workers are feeling that, and they are angry. And they should be angry. Because our politicians and our political system has not done a good job of protecting us against those changes.

Inequality is expensive no matter how we pay for it. When we move the people around, we move the poverty around, it doesn’t solve the problem. It just moves where we’re paying for it.

CM: You also talk about how so much of the different assistance that families need—for a lot of that, you must be taking some kind of training program or you must have a job in order to receive benefits like TANF. So how much do policies like TANF (which was created during the Welfare Reform Act of 1996) lead to an expansion in for-profit colleges that don’t provide the education that people need and put them into debt they can’t get out of?

TM: Because won’t tackle the real thorny challenges of how the new economy is working for people, instead of fighting for public subsidies or welfare programs (which we know support people when the economy chews them up and spits them out), the political compromise has been to provide tax breaks for people. We do the earned income tax credit, for example, and all these other things in the tax code. The problem with the tax code is it really only works for you if you’re working. That only takes care of people who have some paid employment. And that’s not true for all workers.

That’s one thing. The other thing that has happened is that even when social policy was ostensibly being designed to increase or protect the social safety net (as in the case of the Temporary Assistance to Needy Families act of 1996), provisions said that to qualify or stay eligible for welfare benefits, you had to be working. In 1996 that maybe made a little bit more sense, because we were living in an economic bubble and had historically low unemployment. By 2000, that is over. People now are facing a much more competitive labor market. But we’ve already ended welfare as we know it, so that’s off the table. So people are having a problem qualifying for that part of the benefit.

But we haven’t talked a lot about the second part of that benefit. It said if you aren’t employed, the other way you can stay eligible is you can be in a short term occupational credentialing program. By short term—and there are some variations to how states treat that term—usually what they mean is they’re not going to pay for you to go back to college. They’re not going to pay for you to get an associate’s degree. That’s neither short term nor occupationally-oriented. What they will pay for you to get is a license in something. Or a certificate in something. A-ha! A credential. A workplace credential.

In the states of North Carolina and Georgia, I went through every program that was available in public higher education at the time, trying to identify which of those programs would qualify for this short term occupational certification requirement that would allow someone to go to school and still remain eligible for their welfare benefits. In the state of North Carolina, I found fewer than a dozen. Most of those were in for-profit colleges. A cosmetology certificate. An auto mechanic certificate. An HVAC certificate. The types of certificates that for-profit colleges excel at offering were the ones that poor people had the best shot of enrolling in so that they could stay welfare eligible.

The changes to how we have administered things like welfare (designed to protect poor people in difficult economic conditions in the new economy) are actually making some of those people much more vulnerable to the sales pitch at for-profit colleges.

CM: How much is this the fallout from everybody constantly clamoring for lower taxes? And we’ve had huge cuts to spending on public education, but now we’re paying for bad loans to bad schools?

TM: That’s right. I think the takeaway is this: inequality is expensive no matter how we pay for it. Shutting people off of welfare saves you money (maybe) on administration of welfare, but then you just pay for it in student loan defaults. Shuttling people off of unemployment insurance and telling them to get their butts out there and take whatever low-wage work is available only shifts the costs when we have to then pay for all the emergency healthcare that these people don’t get in the low-paying service economy jobs.

When we move the people around, we move the poverty around, it doesn’t solve the problem. It just moves where we’re paying for it. One of my main takeaways from this work has been that the for-profit college sector, how we finance it, and how we use it, is really just a consequence of us not investing in these other social provisions. And it is far more expensive for us to pay for it the way we’re paying for it now than if we were just to invest in a better social contract.

CM: When it comes to risk-shift, how much is a downturn in labor organizing to blame? I remember people telling me back in the nineties that wages and benefits had increased so much and so many employer abuses were now gone that we didn’t need unions anymore.

TM: Well, hello, welcome to the 2000s!

We want poor people and working class people to have the same relationship to choosing whether or not they go to college—and what college they go to—as the children of wealthy people. If you don’t have wealth to afford you all of the options of higher education, the other option is you can have collective union power. We know we can’t give you the inheritance of wealth, but here’s what we can say: working collectively through unions and worker power, we can provide a better labor arrangement. We can negotiate on your behalf with capital interests to secure you a better employment arrangement so you don’t have to go to the University of Phoenix for the rest of your life to try to keep a job.

Union organizing is extremely important not because it directly impacts higher education, but it affords workers different and better choices. And when workers feel less insecure in their labor arrangements they are much less likely to take on a high risk credential.

CM: Tressie, I want to apologize, because our last question is always the Question from Hell: the question we hate to ask, you might hate to answer, or our audience is going to hate your response.

So: What is the new social contract under the new economy?

TM: The new social contract, as briefly as I can say it, is “You are on your own.”

When somebody gives you that contract, do not sign! That’s what I’m encouraging us to do. Let’s not sign that contract.

CM: Thank you so much for being on our show this week, Tressie.

TM: Thank you for having me.

Featured image: Natasha Hornes, an Everest student debt striker. Source: Debt Collective

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