It’s not hard to imagine that letting boiler rooms push poor folks into taking out impossible-to-shed federal loans is a really bad idea, particularly when it’s to pay big bucks to attend your crappy for-profit “college.”
The Huffington Post’s Chris Kirkham has a long look today at how one for-profit education company, EDMC, went downhill after Goldman Sachs & Co. took it over, rewiring the corporate culture to emphasize sales tactics seen in the gutter of the subprime-mortgage shops.
Consider this sales brochure the HuffPost got its hands on headlined: “WHY?…WHY?…WHY?: Keep asking! WHY? WHY? WHY?”
Its first three bullet points:
1. Build Em Up!
2. Break Em Down! Find the PAIN!
3. Build Em UP!
Standard sales tactic in the subprime culture, for sure, but appallingly manipulative all the same, as this former rep says:
Suzanne Lawrence, who worked in admissions at Argosy University online in 2009 and 2010, remembered recruiting a woman for online classes who had never used the Internet and had no email address. She thought the student wasn’t a good match, but she was instead instructed to help the woman set up a Gmail account and get enrolled.
“The scales are so tipped; these people have no way of possibly making a good decision,” Lawrence said. “It was like we were used car salesmen. We would basically psychologically manipulate people into doing this. My master’s was in clinical psychology, and it was like I was using my powers for evil.”
Companies like Goldman-owned EDMC found the perfect poverty business. Payday loans and NINJA mortgages might not be paid back, but these things are backstopped by Uncle Sam. And the government prevents its student loans from being discharged even in bankruptcy. This is 19th century stuff, with the federal government as enforcer. Kirkham captures that in his kicker:
“The financial brilliance behind these schools is that unlike the mortgage industry, when this bubble bursts, these loans are guaranteed to these companies,” said Lawrence, the former Argosy University recruiter. “They’re backed by the government, so it’s not them that’s going to go under.”
The sordid state of the for-profit education industry has been spilling out for a while now, though. What’s smart about the HuffPost’s angle is that while it reports plenty of new things here, it also zeroes in on how Wall Street financed the activities, just as it did with the subprime predatory lenders. And it makes a good case that finance’s richest company not only financed it, but stepped on the gas when it bought EDMC in 2006.
The company’s board was all but replaced within a year of the sale to Goldman and Providence Equity Partners. It hired as CEO Todd S. Nelson, who ran the University of Phoenix when it engaged in predatory practices that resulted in a $10 million settlement with the Bush administration. The HuffPost interviewed “more than a dozen” former employees, a fair number of whom go on the record to talk about how the culture shifted once the Goldman group bought the firm.
Good work.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 email@example.com. Follow him on Twitter at @ryanchittum. Tags: Boiler Room, EDMC, For-Profit Education, Goldman Sachs, The Huffington Post