A Times Story Bodes Ill for the Washington Post

An investigation shows how Kaplan used predatory tactics to get students and government money

The for-profit college business just looks worse and worse, and a New York Times investigation this morning paints a disturbing picture of what’s going on at The Washington Post Company’s cash cow, Kaplan.

The Times relies on four whistleblower suits filed by ex-employees, but it backs them up with interviews with dozens of current and former Kaplan workers, as well as interviews with dozens of students. That’s a lot! We assume when you say dozens that means at least 24 and hopefully more like at least thirty-six. So the Times interviewed at least 50 people for this story.

And it’s a good one. The paper shows how Kaplan Higher Education has used predatory tactics to keep customers (students) enrolling and to keep the profits flowing.

While the Washington Post was afflicting the comfortable (on a good day!), its sister company Kaplan preyed on the weak. One training manual counseled recruiters to target people who have “low self-esteem, reliance on public assistance, being fired, laid off, incarcerated, or physically or mentally abused.”

That would be fine if Kaplan were giving these people a leg up with a good education. But it clearly doesn’t in many or most cases. This, for instance, implies that most of its students aren’t getting good enough jobs to pay off their Kaplan bills (emphasis mine):

According to 2009 data released this summer by the Department of Education, only 28 percent of Kaplan’s students were repaying their student loans. That figure is well below the 45 percent threshold that most programs will need to remain fully eligible for the federal aid on which they rely. By comparison, 44 percent of students at the largest for-profit, the University of Phoenix, were repaying their loans.

It’s not a good thing if you’re doing markedly worse than the University of Phoenix.

To make matters worse, virtually all (92 percent) of Kaplan Higher Ed’s revenue comes from the federal government, in the form of grants and student loans. The government is none too happy about this and changes may be coming that would hurt The Washington Post Company and the paper itself, whose losses have been shored up by Kaplan’s rich profits. Kaplan basically ran boiler rooms to get at all that federal cash:

Kaplan is facing several legal challenges. The Florida attorney general is investigating eight for-profit colleges, including Kaplan, for alleged misrepresentation of financial aid and deceptive practices regarding recruitment, enrollment, accreditation, placement and graduation rates.

Kaplan is also facing several federal whistle-blower lawsuits whose accusations dovetail with the findings of an undercover federal investigation of the for-profit industry this summer, including video of high-pressure recruiting and unrealistic salary promises.

Those videos include ones from two Kaplan campuses showing recruiters promising $100 an hour massage therapy jobs and saying you don’t have to pay back your student loans. And this is where the depth and breadth of the Times reporting here comes in very handy. Here’s the spin from the Post Company, followed immediately by the calling of bull on it (emphasis):

Mr. Graham said the two locations included in the G.A.O. investigation were outliers, and not typical of what occurs at other Kaplan locations.

But dozens of current and former Kaplan employees said the videos painted a representative picture.

“They are not outliers; they are in the middle of the field, the middle of the bell curve,” said William Wratten, a former Kaplan admissions adviser in Chicago, who resigned after a year and a half because he disagreed with company practices.

No he said, she said there!

The Times also points out that the Washington Post’s chairman, Don Graham, who was the paper’s publisher until a couple of years ago, “has emerged as the highest-profile defender of for-profit education,” which is somewhat problematic for somebody who controls one of the most important newspapers in the country.

Together, Kaplan and the Post Company spent $350,000 on lobbying in the third quarter of this year, more than any other higher-education company. And Mr. Graham has gone to Capitol Hill to argue against the regulations in private visits with lawmakers, the first time he has lobbied directly on a federal issue in a dozen years.

And the Post itself has campaigned against regulating its cash cow in its own editorial pages, while the news side hasn’t exactly done much on this significant story.

I was glad to see print ad revenue actually rise (!) at the Post in the third quarter. It was up 3 percent and newspaper’s overall revenues were up a nice 5 percent. It better keep going up because it’s looking less and less likely that its Kaplan cash cow is going to be able to support the whole enterprise quite like it has been.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,