Will Wall Street Cool on Bridgepoint?

Since its purchase by Bridgepoint Education, Iowa’s Mount St. Clare College has gone from spending $5000 per student per year on education to $700. Nearby University of Iowa spends $12,000 per student.
  • Since its purchase by Bridgepoint Education, Iowa’s Mount St. Clare College has gone from spending $5000 per student per year on education to $700. Nearby University of Iowa spends $12,000 per student.

Education and Wall Street are diametrically opposed. Education focuses on the broad horizon over long periods of time. Wall Street slobbers over the fast buck and scoffs at societal values.

But a funny thing is happening. Wall Street is beginning to realize that America’s leadership is wising up to the $35 billion, highly profitable but pedagogically deficient for-profit college industry. Formerly high-flying stocks of for-profit colleges have dropped this year; San Diego’s Bridgepoint Education, two-thirds owned by a Wall Street firm, has receded from a high of $26.94 to $20.34 on Monday.

Red flags are everywhere. Student loans have hit $1 trillion — a sum exceeding credit card debt. Student loans may be the next credit bubble threatening the economy. Feelings are so strong on college campuses that President Obama has taken to the hustings, battling to persuade Congress to keep interest rates on some student loans from doubling on July 1, when a jump is scheduled to take place. Late last month, Obama signed an order protecting military personnel from deceptive recruiting by for-profit colleges. Bridgepoint recruits heavily on military bases.

A stunning 92 percent of students at for-profit institutions take out loans, compared to 28 percent at public colleges, according to the Department of Education. The average tuition at a for-profit school is six times higher than at a community college and twice as high as at a four-year school, according to the United States Senate Committee on Health, Education, Labor, and Pensions. For-profit colleges account for 10 percent of college students but almost 50 percent of loan defaults, says the Department of Education. And rarely can student-loan debt be wiped out through bankruptcy.

As the citizenry gets alarmed, politicians are responding. Democratic senators Tom Harkin of Iowa and Kay Hagan of North Carolina last month introduced a bill that would prohibit colleges from using federal taxpayer money for marketing and promotion. These for-profits get 85 to 90 percent of their revenues from federal government sources such as Pell grants. And the schools use about one-fourth of their budgets on advertising, marketing, and recruiting — generally, high-pressure telephone sales targeting people who really don’t qualify for a college education. Your tax money is paying for ballyhoo.

The Department of Education has tried several times to introduce reforms, only to be thwarted by heavy industry lobbying of Congress. Last year, the department was working on plans that would penalize for-profit institutions whose graduates did not fare well in the job market. But when the regulations came out June 2, they were emasculated, much to the joy of Wall Street. Stocks of two for-profit colleges soared 20 percent that day. Bridgepoint shares jumped 3 percent both June 2 and June 3.

Politics on the issue are hypocritical. Democrats, who generally favor the underprivileged — main targets of for-profit recruiters — are the reformers, led by Harkin. Republicans, self-proclaimed watchdogs of the public purse, applaud the for-profits although they get almost all their funding from the federal government.

In March of last year, Harkin’s committee held a special hearing on Bridgepoint abuses. Data were taken from the Department of Education and Bridgepoint’s own filings with the Securities and Exchange Commission. In 2010, profit accounted for 30.3 percent of Bridgepoint revenue. Marketing was 29.7 percent (a good deal higher than the industry’s high average). The remaining 40 percent was spent on faculty salaries, executive compensation, administration, student services, and — finally — actual instruction.

In 2005, seeking to get accreditation, Bridgepoint bought a tiny, financially ailing college in Iowa, Franciscan University of the Prairies (formerly Mount St. Clare College). In 2004, this school had spent $5034 per student on instruction. By 2009, under Bridgepoint, that number was down to $700 per student. By contrast, in 2009, the University of Iowa was spending $12,000 a year per student on education. Bridgepoint was spending three times more on recruiting students than educating them.

Now, 99 percent of Bridgepoint students go to school online, and Kathleen Tighe, inspector general of the Department of Education, told Harkin’s committee last year that her investigators, who had been doing an audit for several years, question whether people who claim to be online students actually are.

By 2010, almost two-thirds of students in the 2008–2009 Bridgepoint bachelor’s degree programs had dropped out; a stunning 84.4 percent of students in the associate’s (two-year) program had withdrawn.

Tighe’s inspectors found that Bridgepoint disbursed federal aid to ineligible students. Under the law, after students drop out, the school should return certain student-aid funds to the Department of Education or the lender. But, testified Tighe, Bridgepoint did not accurately calculate the funds it should return and then didn’t return them in a timely manner.

The audit, which was completed in January of last year, also concluded that Bridgepoint’s recruiters were, in effect, paid for the numbers of students they wooed into the fold. This had been banned in 1992, with certain exceptions, but Bridgepoint did not qualify for those exceptions.

It’s little wonder that Senator Harkin calls Bridgepoint “a scam, an absolute scam.” Several states also have the company under investigation. But it’s lobbying hard — as of July 2011, it was on the education task force of the highly controversial American Legislative Exchange Council.

On March 7 of this year, Bridgepoint submitted its annual report to the Securities and Exchange Commission. It listed the offenses that Department of Education investigators had found and then admitted that if it failed to change its ways, it could suffer monetary penalties or even lose its access to federal money. If it couldn’t suck on the government teat, the company would die.

Bridgepoint has put similar warnings in previous annual reports to the government, but Wall Street always overlooked them, figuring that lobbyists’ power would make sure that this industry could continue to pick taxpayers’ pockets. However, that may change in the new environment.

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Duncan D. Hunter is a big supporter of for-profit education, as I recall. Pretty shameful that as a veteran he supports an industry which preys on veterans.

Yes, Duncan D. Hunter slobbers all over the for-profits. Actually, most if not all purported conservatives do -- neglecting the fact that these colleges drain the U.S. Treasury, greatly worsen the student debt plague, prey on veterans, provide poor educations, charge high rates, etc. Best, Don Bauder

Indeed it is. As the column states, I do think public opinion is catching up to these for-profit scammers. However, Bridgepoint could defy the market trend, as it has before, because there is such a huge short position. A huge number of investors (speculators) are betting the stock will go down. If there is any good news, the shorts will rush to cover (buy the stock) and send it upwards. This kind of a short squeeze has boosted Bridgepoint stock before. Best, Don Bauder

I think Hunter supports for profit education because it is the only way many veterans can obtain admission to college and obtain benefits under the GI Bill. Most veterans could never hope to get into SDSU: the basic math concepts required for admission are beyond them. Veterans enroll in for profit education in droves because the GI Bill provides a living allowance of between $1,350 and $2,700 per month. Veterans want the living allowance, not the education. Veterans know the education is worthless and so does Hunter. Hunter is not a crook. He supports for profit education solely because it is the only way veterans can obtain the living allowance. Veterans should receive the living allowance as severance pay when the leave the service, without the requirement of having to enroll in college. The government would save billions per year.

Agreed, Hunter is not a crook. He's a legally bought-and-paid-for member of the House of Representatives.

There are choices other than SDSU (and equivalent or better) and for-profit colleges: community colleges. Instead of pumping money into for-profit colleges, prop up the community college system.

I think bought-and-paid-for politicians are crooks, but ours is a definitional disagreement. The community college system might be an alternative, but there are problems there, too. We have to face the fact that a college education is too expensive and student debt is far too high. For-profits are a very heavy contributor to the debt cancer. Best, Don Bauder

What are the problems faced by the community college system, other than under-funding, a problem easily fixed by increased funding?

Except increased funding isn't so easy to come by. Best, Don Bauder

B- why dont they just enroll in a communty college then??? It does not make sense, they could get the same living allowances while attending a JC, and get a decent education that means something. I started out at a JC.

Because conservatives are doing their best to gut free (or nearly so) public education. Their paymasters demand compliance.

Certainly the education offered by JCs is superior to that offered by for-profits. Best, Don Bauder

I would suspect that DeVry and ITT Tech(both for profits) would disagree with your broad contention.

I would suspect that DeVry and ITT would disagree with Don because their primary interest lies in making a profit, not in educating students.

DeVry and ITT have better reputations. But the generalization stands. Best, Don Bauder

For a job as an electrical technician, broadcast engineer etc, DeVry et al, are the places to get training.

Interesting concept, Burwell. If true, that may partially explain the huge dropout rate at Bridgepoint, which more aggressively recruits at military bases. The dropout rates are big at other for-profits, too. However, veterans do not constitute a huge percentage of Bridgepoint students, so this is only a partial explanation of the big dropout rate. Best, Don Bauder

Community colleges are difficult for many students. JCs screen students for math and reading deficiencies, and force them to take remedial courses. Students are subjected to the notorious algebra word problems. Math is an insurmountable barrier for many. It's a lot easier and a lot less stressful to enroll in a for profit college where the requirements are less, especially if Uncle Sam is footing the bill. It is rational for veterans to enroll in for profit colleges under the current system even if they receive a worthless degree.

Another problem is that in online education, the students may not actually be the ones behind that computer, submitting answers to questions. Best, Don Bauder

I find it hard to reconcile your juxtaposition of the words "rational" and "worthless" in this context.

If they need remedial help, they should get remedial help.

Burwell correctly uses rational and worthless together. He is saying it is rational for veterans to sign up for Bridgepoint because they get a living allowance; they are not bothered by the fact that they get a worthless degree. Burwell would probably agree that it is rational for a government employee -- say, a firefighter -- to get a worthless degree from Bridgepoint, because all he/she needs to get to automatic higher pay is a college degree, worthless or not. Best, Don Bauder

I would say that between the two options, "worthwhile degree and living allowance" or "worthless degree and living allowance," making the latter choice is irrational. Only if "worthwhile degree" is not an option does the "worthless" choice make any sense.

And just because a worthless degree from a diploma mill is easier to get, that does not make it a more rational choice. Eating all one's meals at McDonald's is easier than cooking at home, but it's definitely not a more rational choice.

Getting a worthless degree from a degree mill is worth it if you work in a government job and get an automatic pay raise if you have a college degree. Best, Don Bauder

Community colleges are a smart alternative for students especially in San Diego. The tuition is less. Sometimes, one can find instructors at the community colleges who also teach at the four-year schools. The average class size is usually smaller. Textbooks are sometimes the same as those used at the four-year schools. As for those who struggle with subjects like math, smaller class size is an advantage especially when needing help with assignments. If math is a huge challenge, take one course and just focus on that course. Algebra 101 at a community college transfers as Algebra 101 at the four-year schools. If math is a general ed class then there is an advantage to taking the course at a community college as the four-year schools will be more competitive. College isn't for everybody. If one struggles, fight harder. There are no degrees for quitting so don't quit. Going to college at eighteen isn't always a good decision if one isn't ready for school. Conversely, age should not be a reason (or excuse) for not attending or returning to school. I had sixty year-old students in some of my classes. There are enough barriers and rules in life keeping us back, don't use age to limit yourself. As for the "for profits", they are bad news. Avoid these schools. This is no longer news. Become better informed on the options. Don't hurt yourself.

Thanks for the article Don!

One of the biggest problems with the Bridgepoints of this country is that it sells a bill of goods to unsuspecting less educated and poorer students, and then after saddling them with a lousy education and no real job they are stuck with a student loan of $50,000 or so. What a travesty and criminal act! How did our view of Capitalism go so astray that it can allow a true case of the rich stealing from the poor....and it's all legal....so far. These so-called "universities" are the new Robber Barons of the 21st century.

"Our view of capitalism?" When has capitalism ever been about anything other then greed and personal gain? You acknowledge as much yourself your reference to "robber barons." Capitalism only works (to the extent it does work) when government is there to rein it in sufficiently. Unfortunately, ever since Reagan, those reins have been as slack as Ronnie's brain.

You are correct that capitalism's descent into pure greed, and no conscience, began during the Reagan administration. The robber barons of yore at least were contributing something to the economy -- railroads, steel, autos, oil, etc. Today's robber barons are mainly in the financial sector and they actually are a net minus to the economy, particularly employment. Best, Don Bauder

Especially given the 15% tax rate they (that is, today's robber barons) pay on dividend income. Like Gordon Gecko, they produce nothing, they merely own.

They don't even own for long. By and large, they just trade. They are likely to own for a few minutes. (High-frequency trading, in which assets are held for sometimes seconds, dominates the stock market.) Best, Don Bauder

Agreed. Capitalism has become a simple greed machine. There was a time when large corporations had at least a modicum of social conscience. That time is over. Capitalism is the best economic system going, but it desperately needs reform. Best, Don Bauder

Don, Don, Don...the soapbox is groaning under the weight of your hyperbole.

Jeff, if I thought I were spewing hyperbole, I wouldn't post it. But we would be delighted to hear more of your defense of Wall Street. Best, Don Bauder

No defense of Wall Street is necessary. I'm just having issues with your blanket statements that have not been tested. Populist statements like, "There was a time when large corporations had at least a modicum of social conscience. That time is over". I'm sure that Patagonia, Ben and Jerry's, Kenneth Cole, Whole Foods et al could provide evidence to render your statement as ballyhoo.

Disagree strongly. In the 1950s, 1960s, and 1970s, corporations generally held that their boards had several constituencies: the community, the public at large, its employees, its vendors, and of course its shareholders. In the 1980s, the current mentality became inculcated in corporate board culture as well as the law: the corporation has only one constituency -- the shareholder. Old-style multiple-constituency capitalism worked very well. Today's shareholder-only capitalism is one of the major factors that is destroying the middle class, which happens to be a major market for corporations. Also, because corporations only focus on next quarter's earnings, accounting scams have burgeoned. American companies have nobody to blame but themselves. Best, Don Bauder

And let's not forget about the growth in disparity between what the top execs and the average workers make.

When I joined Business Week in 1964, CEOs in the US made about 75 times what the average employee made. Now it's more than 300 times. Best, Don Baudr

But the wage index shows the workers have shown an increase of 9 times since 1964. http://www.ssa.gov/oact/COLA/AWI.html It's not time to cry for the workers just yet.

The numbers look better if the starting point is 1964. But look at the last two decades, compared with the gains of the upper 1 to 10%. Workers are doing poorly; thus, so is the middle class, and that will hit big business hard. See JC Penny earnings today (May 15)? Best, Don Bauder

Not just shareholder capitalism. Day trader capitalism. Decisions are made to appease shareholders who want to make gains in a quarter or less.

Generally, corporations only think about the next quarter. And, generally, Wall Street thinks only about the next few minutes -- at most days. Best, Don Bauder

The statistic is worth repeating: for-profit college students account for 10% of total college students but almost 50% of defaults. Best, Don Bauder

Great reporting as usual Don. Seems Bridgepoint has a pretty basic scam to make tons of money defrauding both students and taxpayers. Great scam if you have absolutely no conscience andt have the political connections to pull it off.

Bridgepoint may well turn out to be considered "ground zero" in the student loan crisis.

I think that the impending student loan meltdown (like the mortgage meltdown) is in part due to an unholy alliance of the worst of liberalism (throwing massive amounts of loan money at a something hoping to make it more affordable) with the worst of conservatism (complete lapse of regulation and any oversight of large institutions - despite obvious fraud and abuse).

You make a good point. Liberals are partly responsible for this student loan mess. Liberals have been the ones screaming for a higher percentage of young people having a college degree. And today, President Obama is criticizing Republicans for wanting to cut Pell grants. Conservatives think anything done by the private sector is good -- even obvious scams. Best, Don Bauder

What is needed is students who are really serious about learning--understanding, really, and teachers who are not required to put up with those who aren't. Everyone who really wants to learn should have all of society's knowledge freely available to them. Although institutions like MIT are trying hard to help to fulfill this via the Internet (reasonably open access), more needs to be done.

Ever try to get a copy of a scientific or academic paper on-line. Paywalls are becoming more and more common. Fifteen or fifty bucks for 24 hour access, more or less.

Nobody is thinking this through, and if anything needs rethinking, it's "education."

Economic motivations have created the problem. Universities and community colleges through the years have gotten more government money with increased enrollments. Ergo, quality education loses. In the for-profit sector, money is the ONLY motivation; the self-professed schools use high-pressure telemarketers to recruit everybody they can, whether or not they are qualified for a college education. That will go on as long as the federal government supplies the bucks and caves in to for-profit lobbyists. So these economic motivations, both in the nonprofit and for-profit sectors, have created this monster. Best, Don Bauder

For reputable universities making money isn't the only motivation - I think leaders at reputable universities care quite a bit about things other than making money. However - call me a cynic if you will - in general I think eventually the main goal of all large organizations is to increase their own wealth and power. Harvard didn't amass a $30B+ endowment by not caring about making money.

Insatiable greed afflicts educational institutions as well as the corporate and Wall Street worlds -- no argument there. Best, Don Buder

Today's (Sunday, May 13) UT carries a story about the debt burden being carried by college grads and its impact on their lives. No, it wasn't written by a local reporter--they don't have enough staff now to cover local news--it came from the New York Times. But it is well-written, covers the main points of this social issue, and ought to be read by everyone impacted by student borrowings to finance their educations. The author accuses many schools and "recruiters" of failing to warn students of what they're getting into. While the piece says that a college degree is still a "good investment" from the standpoint of lifetime income, I'd add that if current trends continue, even that assumption will be faulty. With our economy in the fix it is in now, and with no clear prospects for coming out of this malaise, that assumption should not be made. Higher education never was all about occupation and pay, although many people saw it only in that light. The light is going out.

Even the "good investment" from a standpoint of lifetime income data is questionable. Usually the lifetime income numbers stated ignore the question of "cause vs correlation". Among other things, students who graduate from college tend to be more intelligent, more capable of achieving long-term goals and come from wealthier socioeconomic backgrounds than those who don't gratuate from college. With or without college, on average college graduates would have higher lifetime income than non-graduates. So coming up with a reasonable estimate of the value of college education in purely monetary terms is more complicated than merely comparing lifetime earnings.

Anecdotal evidence is instructive. Look at the college dropouts -- Bill Gates, for one, and other young tech wizards of today. Best, Don Bauder

Good point. But nowadays, with the data all being historic and the present observations as they are, there is plenty of reason to question the whole set of assumptions. "Past performance is not indicative of future results."

Yes, I believe we can challenge the assumptions more today than we could 20 years ago. Another factor: with labor unions being squashed and union wage scales falling, the gap may be wider still. Best, Don Bauder

That's even more so today, Bill, with the more rigid entrance requirements at colleges and state universities. Best, Don Bauder

I haven't read the Times piece yet, but of course will do so. I suspect that the assumption that a college education is a "good investment" is already out of date, at least for many. Best, Don Bauder


You are all over Bridgepoint Education. It is okay to have your opinion, but when you are misleading the public it is not okay. the Department of Education has requirements concerning graduation rates as well as defaulted loans. There is mention from some of your readers about attending community college, which is certainly an option if you have the time. The difficulty with attending a community college is the time. Most adults are too busy to make time for campus. Also, you cannot get a bachelor degree from a community college. Students are encouraged to attend campus if they have that option. Most adults cannot take a full course load and complete their degree in a normal time frame, thus online schools. In regards to "recruiting" and going to military bases you are not correct. The students have gone online and requested information about school and they get calls from many schools including DeVry, Phoenix, Kaplan, etc., and the student has a choice. If you are speaking of defaults then you may want to look at the type of student that is in default. People do not just end up with debt. If there are funds owed then it is a debt that is incurred by the Department of Education guidelines. Ashford University recently had a couple of thousand students go to the Iowa campus to walk across the stage. One student was over 70 years old. There are many positive stories, Don. This is not a conservative vs. democrat issue except that the government wants more of the funds the for profit schools are making. "Conservatives think anything done by the private sector is good -- even obvious scams." Think about the statements you are misleading the public with. Burwell makes a ludicrous statement "Veterans want the living allowance, not the education." which I find offensive as I am a veteran. Bridgepoint has 2 schools that are regionally accredited. Think about that. if you went to SDSU, Purdue, Harvard, Bridgepoint, they are all regionally accredited. You can get your AA degree at a community college but the BA degree comes from a university. I am not sure if you understand the GDP Bridgepoint provides to San Diego. 2-4th highest employer in San Diego, sponsor Holiday Bowl, Symphony, Padres, and is an employer of thousands. These same employees buy gas, houses, groceries, cars, go to restaurants, and buy clothes. Before you spout out hatred look at the reality. There are issues to be ironed out with any new company and Bridgepoint is moving in the right direction. I know nobody that intentionally tries to be unethical. Your article and the responses are not based on the truth or knowledge of what the topic is. President Obama now goes after the colleges because there is more money to be had by the politicians. These students are the ones that are trying to make their lives better and fraudulent articles like this do not help. They may as well just turn on MSNBC or Jerry Springer for solid information.

I think it would be helpful for you to read Bridgepoint's most recent annual report to the Securities and Exchange Commission. It outlines (albeit often in legalese) the findings of the Department of Education, and the risks the company faces as a result of its behavior. As to Bridgepoint's contribution to the local economy: I think you should consider its motivation for sponsoring the Holiday Bowl, symphony, etc. That said, I want to say that we welcome your opinion. Best, Don Bauder

Issues to be ironed out?? I'll say! Sounds like you work at Ashford. I used to as well so I know what goes on there. I remember the 2 week orientation (brainwashing) program, the 100 dials per hour requirements. How I pestered my enrollees to log on to their classes-not til completion, but until the time they could no longer back out and rescind their loans. Its a complete scam, guy, and if you're not smart enought to realize that, then you have no business giving people career advice...As far as their involvment in the community, pul-lease. That's a cost of doing business- just like advertising. Casinos, cigarette companies, anyone? And lastly, if you want to wear your veteran status as a badge of honor, then please do your fellow vets a favor and stop encumbering them with crushing debt for a worthless degree that no hiring manager takes seriously....And although you say no one intentionally tries to be unethical, I know they have you calling on fellow vets exclusively with the 'i'm one of you' scripts they've printed out for you.

I have interviewed a number of former Bridgepoint employees and have generally received the same story: sales are high-pressure, instruction is poor, student costs are very high. Best, Don Bauder

Accusing a specific individual of fraud (a criminal act) in a public forum is called libel (when written). But Bauder has shrugged off countless slanderous lies in the course of his career, so maybe the "mystery" libeler will get away with it this time . . .

However, should he decide, along with Cruise and Travolta, that enough is enough . . . who knows . . .

Some comments reek with the odor of special interest that they come off as a hatchet-job--perhaps paid, but likely not. Delusion is rife.

I am sooo liberal that I think the Reader should refrain from removing posts in violation of its rules--sanitation is bad for the immune system, and the quality of such posts says so much about the author and provides such useful information that the cause of public journalism would best be served by their retention. Useless spam excepted, of course.

Some comments do reek of special interest but that does not mean they should be removed unless, of course, they are blatant ads, which we get once in awhile and remove. Best, don bauder

"Neither a lender nor borrower be" goes the famous line from Hamlet. I wouldn't go that far but I really think the U.S. government really needs to start moving at least a little bit in that direction. Federal aid programs in the form of low-interest loans seem to be getting us in a lot of trouble lately - home buying and student loans being notable recent examples which followed similar patterns. The pattern is short term help in the beginning giving people access to something. This is followed by rising prices, a speculative bubble and bankruptcies at the end. Seems like the low interest loan programs can make all the politicians look good in the short run. Democrats can tell everyone that the government is helping the less fortunate (even though in the long run the loans just drive up prices and don't really help) and the Republicans can tell everyone that they're keeping taxes low (even though they're not becuase all the debt and extra money creates the "hidden tax" of inflation).

Excessive debt -- government, consumer, banking system, etc. -- is the plague not only of the U.S., but of many other countries. You can look at the PIIGS (Portugal, Ireland, Italy, Greece, Spain) as microcosms of the U.S. in the future. Best, Don Bauder

So what about the high-pressure sales techniques? Cool stuff? Even after being told to leave people alone they keep hammering? The Red Cross used to hammer me with phone calls to donate blood. Even after repeated requests to stop hitting me with the annoying phone calls (and hangups), they kept it up. Finally, I snapped at a caller over the phone and I haven't donated in two years. I have donated blood for over thirty years. I knew when 56 days was past so I could donate again. That overly aggressive phone calling has a price. There are very good reasons for do-not-call lists. Learn to back-up and backoff. The stories I heard from friends who used to work for the pushy for-profit schools had to do with UNETHICAL. Libel that. Profit, profit, profit. At any price.

Telemarketing is the bane of most people's existence. Graduates of for-profit colleges may find they can't get a job anywhere -- except in telemarketing. Best, Don Bauder

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