Light Shined on Financial Dark Sides of Private and For-Profit Schools

The growth and current state of private and for-profit schools deserves a look under the hood.

Today's Washington Post takes the high road by reporting on itself. For those unaware, the Washington Post, Inc., associated with the august newspaper, in fact is a hybrid enterprise in which its educational arm makes most of the firm's money. Lately, the school side of WP, Inc., through its Kaplan brand, has come under scrutiny for its enrollment tactics. They are in many ways the education world's equivalent of subprime mortgage marketing, as the long Post story makes clear. From Kaplan's perspective, an essential component to its business model was the nearly guaranteed, low-risk funding to which their student pigeons had access. The revenue stream's key driver was Title IV of the Higher Education Act, a federal program designed to aid financially challenged students make their way through the arrogantly expensive world of higher education. One could reasonably characterize Title IV funds as a gift that kept giving to the for-profits such as Kaplan.

The for-profits' cousin, the K-12 private schools, also needs more light cast on its management philosophy and practice. This is a burgeoning market attracting private equity investors, as a recent New York Times story on private school demand in Manhattan south of 96th Street noted. "Executive" compensation is an especially sharp thorn in this tale, as is middle-class aspirational agida.

Meanwhile, the private schools' most recent black eye occurred in southern California. The LA Times reported today on allegations that the director of a private Santa Monica high school "misused" approximately $1 million in school funds. The institution has recently declared bankruptcy and is trying to work with its existing students in what sounds like makeshift facilities. One item of note was the school director's $300K annual salary. For a small, one-school enterprise, that's a hefty reward for services rendered. To put this in some perspective, New Jersey governor Chris Christie demanded public school superintendents who manage districts including thousands of students and multiple schools cap their pay at either $175K or $225K, depending on an individual district's size. Meanwhile, Christie has notably not commented on the pay scales of charter school administrators, some of whom reputedly receive compensation packages rivaling or surpassing those of public school superintendents.

The three articles reveal an educational world where ethical corruption and shameless gaming of the fiscal system is covered in a phony, feel-good veneer. Underlying the drive for this false "progress" is what one Kaplan employee precisely characterized as "FUD" -- fear, uncertainty, doubt. Kaplan and the Santa Monica school are hardly the only two institutions where FUD hovers like a vampire's shadow. The charter school "reform" movement leverages FUD against the perceived (and sometimes quite real) failures of public schools. At times, religious zeal finds a home with FUD tactics in efforts to create charter schools where voucher payments essentially encourage the development of taxpayer subsidized religious education. However, the charter schools generally don't like to talk about compensation packages for its "management" team. They would rather tout its "dedicated," and generally underpaid instructional staff, most of whom are doomed to burnout and employment churn. That tactic happens to be a tried-and-true way to keep salaries down and control high.

The world of higher education at "reputable" four-year colleges and universities isn't much better. In some ways, they are laboratories for corruption, through their shameless leveraging of cheap teaching assistants, an embrace of an irrelevant, profoundly misguided tenure system, and outrageous tuition and fee demands that routinely, dramatically exceed the cost of inflation every year, year after year. Essentially, when students now reach the Promised Land of higher education, the promise is entirely on the students to pay for the privilege or obtain federally guaranteed funding. Keep in mind the NCAA just generated for higher ed an enormous payday from the Final Four men's basketball tournament and its "unpaid" student athletes. Top coaches now expect multi-million dollar contracts and perks. Does the collegiate world, given these scenarios, strike one as "clean"?

Meanwhile, the drumbeat continues for education "reform," except where it is most needed, and least wanted, by those who play education's darker, inside game. With a handful of exceptions, it's all about the money. Mark Zuckerberg, when he made his showy demonstration of faith in education by contributing unvalued Facebook stock to Newark's school "reform" movement, grasped this concept. He knew what money could buy, and so did his media and "reform" backers. He looked under the hood and understood what the purchase was really all about. Then, and only then, did the face of Facebook give funds to the 'hood.