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Predatory Advertising and Discriminatory Debt in the For-Profit College Industry 

Disclaimer: Posts are solely the views of the author and do not represent the views of Brandeis University or the Institute for Economic and Racial Equity

Education isn’t “the great equalizer,” as Horace Mann once said.

Over the summer, I had the chance to work with the IERE Modeling Discriminatory Debt team as part of a larger initiative studying the impact of predatory marketing practices on current and former students’ debt following attendance at for-profit colleges. The ultimate goal of this project is to assist in closing the racial wealth gap by ensuring that all students, especially low-income students and students of color, can attend and matriculate from reputable post-secondary schools that will provide them with the knowledge, experiences, and social networks necessary to achieve their life goals, including long-term wealth building.

When President Johnson signed the Higher Education Act of 1965, which included setting up the Pell Grant, he made college a possibility for low-income students. That dream, however, has been upended in the space of a generation. According to political scientist Suzanne Mettler, outdated policies, political partisanship, and the corporate interests of for-profit colleges have combined to falsely advertise these same colleges as pathways to the American Dream.[i] Along with high student debt, this falsehood has exacerbated rather than mitigated societal inequalities.

Many Americans cling to the notion that higher education provides social mobility for all. However, education isn’t “the great equalizer” as Horace Mann once said, despite an increase in higher education spending, college attendance, and graduation rates. Colleges offer unequal academic experiences and social capital—the value of a degree often depends on the school’s name and prestige, impacting social and economic mobility. Students from lower socioeconomic backgrounds who do manage to enter college frequently find themselves woefully underprepared for the rigors of college academic life. The rising costs of college, often paid for with student loans, disproportionately affect first generation students. Any system that only allows social mobility for certain races while excluding others in a democracy is antithetical to the ideals of a democracy.

Discriminatory debt is debt that is unfairly burdensome to low-income communities or communities of color.

The cost of college has been rising faster than the rate of inflation over the past two decades. Student loan debt as of August 2021 totals $1.73 trillion dollars and is growing six times faster than the U.S economy. Discriminatory debt is debt that is unfairly burdensome to low-income communities or communities of color. Black borrowers possess less family wealth entering college, meaning they must take on more college loans. As a result, more of their income is diverted to loan repayment instead of wealth generation.

For-profit education and training providers play a key role in the nation’s workforce development system. Not all for-profit institutions are necessarily predatory. However, the policy landscape of available federal funding, lack of oversight, and dearth of alternative pathways for economic mobility mean that there is a spectrum of private institutions that range from effective to predatory. Through our research, we hope to more clearly articulate what makes an institution predatory.

For-profit higher education institutions have been known to aggressively target communities of color and low-income neighborhoods through the use of selective advertising.[ii] For-profit schools target lower-income potential students through making misleading claims and downplaying burdensome debt. These for-profit institutions stand ready to promise a better future to unsuspecting students by offering useless degrees and compounding that further with egregious student loans. Because for-profit schools’ primary purpose is to maximize shareholder value—not to teach students—they recruit students as if they were customers using targeted, predatory marketing techniques.

Predatory for-profit higher education institutions exploit billions of dollars of taxpayer funds annually by persuading low-income students to take out loans so they incur large amounts of debt.[iii] A sizable percentage of for-profit colleges receive between 80 percent to 90 percent of their revenue from federal financial aid such as Pell Grants and the GI Bill. Students of color bear the discriminatory burden of this debt, as do their families, their communities, and ultimately, taxpayers. This is a form of wealth extraction that perpetuates and deepens racial wealth inequalities.

Students who enroll in for-profit colleges are often unable to complete their degree programs due to employment or family obligations. Those who do graduate sometimes succumb to pressurized tactics to enroll in even more degree programs. Eventually, upon graduation, the newly minted graduates find that their degrees are worth little more than the paper they are printed upon due to prospective employers’ views of these institutions.[iv]

Research shows that returns on education for people of color who attend non-predatory institutions are worse than those for white people who attend the same institutions.[v] Black students owe an average of $25,000 more than their white counterparts.[vi] They also owe more than they originally borrowed, struggle financially, and have high monthly loan repayments.[vii] When predatory institutions target students of color and leave them with worse outcomes, these negative impacts compound to seriously harm asset accumulation for both students and their children. These racialized impacts on asset accumulation include a greater student debt burden, lost income and career advancement potential, devaluing of credentials in the market, delay in homeownership, and long-term wealth extraction. Interconnected, these impacts accumulate across generations and affect the well-being of entire communities.

Public education was and should again be a public good.

Because for-profit schools cost more than non-profit community colleges, students incur higher debt loads. Graduates of for-profit schools are less likely to be employed and have lower earnings.[viii] Upon graduation, Black students are routinely offered lower salaries than white students, which makes loan repayment even more difficult. Black students who have either attended or graduated from for-profit institutions are more than twice as likely to have made late loan payments on their student loans. With default rates being higher among for-profit school graduates,[ix] this discriminatory debt has reverberating effects on an individual’s financial well-being. Impacted credit scores affect activities such as home-buying, which leads to further impacts on wealth-building over the life course.

Through our study, we hope to identify and further delineate the harm caused by for-profit colleges and spur increased oversight and enforcement. When a school makes empty promises of lucrative careers, and then the student cannot find a job, the student receives this knowledge on a deeply personal level. They attribute their failures as outcomes resulting from personal failings rather than recognizing that the systems designed to protect them are in fact exploiting them. We hope to serve as a resource for policymakers to advance racial and economic justice with specific policy proposals, such as student debt forgiveness.

The work I have contributed to over the summer has been a source of immense gratitude for me as a scholar researcher. The student loan debt burden affects the entirety of American society. The economy shrinks in size in direct proportion to the amount of GDP that is consumed by student loan payments. I had my own struggles with paying my undergraduate student loan debt of $25,000 and my looming graduate student loans upon my matriculation in 2022. The government response to COVID-19 and the freezing of interest accumulation alongside the discharge of millions of dollars of student loans is a step in the right direction by the federal government. More needs to be done.

Public education was and should again be a public good. Policy redesign is sorely needed in this area as we contemplate how all of society benefits from an educated citizenry. Education must be re-examined and re-imagined through an intersectional lens of race, gender, income, and region, alongside a review of financial lending practices that deny opportunity to those of us who need a helping hand the most. Finally, both for-profit and nonprofit colleges must be willing to open their budgetary processes to understand what is driving the spiraling costs of education with a future that is promised but not guaranteed. Affordable post-secondary higher education that can provide a lifetime of benefits can be achieved, especially as it relates to creating a more equal and just society for all of us.

Endnotes

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[i] Mettler, S. (2014). Degrees of inequality: How the politics of higher education sabotaged the American dream. Basic Books.

[ii] Gelbgiser, D. (2018). College for all, degrees for few: For-profit colleges and socioeconomic differences in degree attainment. Social Forces, 96(4), 1785-1824.

[iii] Since Congress appropriates money each year to fund federal financial aid programs, taxpayers directly fund student financial aid.

[iv] Mettler, S. (2014). Degrees of inequality: How the politics of higher education sabotaged the American dream. Basic Books.

[v]  Traub, A., Sullivan, L., Meschede, T., & Shapiro, T. (2017). The asset value of whiteness: Understanding the racial wealth gap. https://www.demos.org/research/asset-value-whiteness-understanding-racial-wealth-gap

[vi] Hanson, M. (July 10, 2021). Student loan debt by race. Education Data. https://educationdata.org/student-loan-debt-by-race

[vii] Hanson, M. (April 29, 2021). Economic effects of student loan debt. Education Data. https://educationdata.org/student-loan-debt-economic-impact

[viii] Cellini, S. R., & Turner, N. (2016). Gainfully employed? Assessing the employment and earnings of for-profit college students using administrative data (Report No. 22287) [Working Paper]. National Bureau of Economic Research. https://www.nber.org/papers/w22287.pdf

[ix] Gelbgiser, D. (2018). College for all, degrees for few: For-profit colleges and socioeconomic differences in degree attainment. Social Forces, 96(4), 1785-1824.

[1] Mettler, S. (2014). Degrees of inequality: How the politics of higher education sabotaged the American dream. Basic Books.

[1] Gelbgiser, D. (2018). College for all, degrees for few: For-profit colleges and socioeconomic differences in degree attainment. Social Forces, 96(4), 1785-1824.

[1] Since Congress appropriates money each year to fund federal financial aid programs, taxpayers directly fund student financial aid.

[1] Mettler, S. (2014). Degrees of inequality: How the politics of higher education sabotaged the American dream. Basic Books.

[1]  Traub, A., Sullivan, L., Meschede, T., & Shapiro, T. (2017). The asset value of whiteness: Understanding the racial wealth gap. https://www.demos.org/research/asset-value-whiteness-understanding-racial-wealth-gap

[1] Hanson, M. (July 10, 2021). Student loan debt by race. Education Data. https://educationdata.org/student-loan-debt-by-race

[1] Hanson, M. (April 29, 2021). Economic effects of student loan debt. Education Data. https://educationdata.org/student-loan-debt-economic-impact

[1] Cellini, S. R., & Turner, N. (2016). Gainfully employed? Assessing the employment and earnings of for-profit college students using administrative data (Report No. 22287) [Working Paper]. National Bureau of Economic Research. https://www.nber.org/papers/w22287.pdf

[1] Gelbgiser, D. (2018). College for all, degrees for few: For-profit colleges and socioeconomic differences in degree attainment. Social Forces, 96(4), 1785-1824.

By Vandita Wilson, MPP ‘22