Interview: Barmak Nassirian

What is AACRAO?

Our organization is a nonprofit, Washington-based association of about 9,000 campus administrative professionals from about 2,300 institutions of higher education.

And broadly, public? Private?

We have publics, privates, for-profits. We have two-year, four-year, graduate, theological. We are a very broad tent, very ecumenical in terms of the composition of our membership. But I think it's fair to say that most of our members are traditional collegiate institutions.

So not community colleges?

Yes, we do have community colleges. We have about 94 percent of our four-year institutions, about a third of all community colleges, so there's a significant participation from the community college sector.

And the college registrar -- help me understand that.

Our membership is composed of admissions folks whom I would characterize as almost consumers of credentials. We have a thread of interest in integrity of institutions and integrity of academic programs, because we ourselves are consumers of those credentials. When you admit somebody into grad school, when you take somebody as a transfer student, it is very critical that whatever prior work they come to you with be of high quality and be reliable for purposes of preparing them to succeed in whatever next step they take.

As consumers of academic credentials, we are interested in integrity clear across the board. As far as registrars are concerned, registrars are the institutional officials who are most directly in charge of producing reliable credentials with academic integrity. They are the ones who conduct the re-audits, which is to say account courses to make sure that everybody who earns a credential has satisfied all of the various academic requirements for that credential.

They are also the institutional officials most directly involved in identifying legitimate institutions and separating, at the very least, diploma mills, out-and-out illegal diploma mills, from those institutions that at least are operating under the color of law. So we have an interest in these issues of integrity both as producers and as consumers of credentials.

You're guardians of quality in higher [education]?

We are guardians of academic integrity and quality, yes.

And what does that mean? We speak to many people who work in higher ed or observe higher ed, and one of the things that you hear across the board is it's just incredibly hard to measure quality. It's incredibly hard to compare institutions -- a degree from University A with a degree from College B.

Absolutely. That statement is certainly true in the sense that we all intuitively understand what a baccalaureate degree sort of adds up to. But we also intuitively, in a fuzzy human way, not in a mathematical sort of way, but we also understand that some institutions are vastly better than other institutions, and we walk around with somewhat subjective views as to what these definitions mean.

Now, you can certainly make the argument that the matter is so subjective that you can't really draw a bright enough line to separate really legitimate offerings from offerings that don't quite qualify as such. I'm not one of those people; I think there is enormous variety and variability in terms of the intensity, robustness, caliber of different programs.

But surely we have ways of figuring out if somebody really received four years' worth of education or its equivalent, or they didn't. And drawing that kind of bright line as a floor on quality I believe is highly doable. It's that we can't really define it as one paradigm for everybody. But certainly we can define low quality much more successfully than high quality.

And the landscape is changing incredibly rapidly.

Sure.

So we're in the middle of a recession. Record demand for postsecondary education, am I right? And just the massive growth of for-profits. I mean, those would be the sort of saving features of what we're seeing now.

Well, there's one important additional dimension that makes all of that toxic, which I have a hard time communicating to people without being a little sort of colorful.

We live in a society that most transactions for goods and services involve the profit motive, and we're used to that. There's nothing wrong with it. But we're also living in an advanced post-industrialist society where there are fundamental assumptions about consumer protection that we all walk around with. I walked into this room without examining the building, without any engineering drawings, on the assumptions that surely it was somebody's job to make sure it's not going to collapse on my head, despite the fact that it might have been built by a for-profit builder who might have had profit maximization as their primary incentive.

So what I try to explain to people, when you begin to shop for higher ed and as you contemplate the higher ed market as it is emerging with all these profit-maximizing firms now entering it, leave whatever tacit assumptions you make about consumer protection behind. You are on your own. Nobody else has really vetted them. There is no minimum guarantee of serviceability. Nobody's really vouching for them with their own money. There are rubber stamps and various kinds of decorative seals of approval, but that's all they are. At the end of the day, you are on your own.

Now, that ought to scare people. ... In higher ed, as a result of a very gradual historical evolution, we have made the, I suspect unconscious, decision to let the system take care of itself.

And you know what? The system does take care of itself. It just doesn't take care of some students. And those students tend to be disproportionately low-income, minority students who are targeted by the profit-maximizing firms, which place much higher priority on the bottom line than on edifying the outcomes for their former students.

Let's unpack some of what you were saying a little bit. You talk to people from the for-profit industry, and they say it's highly regulated. You've got the Department of Education. You've got accrediting bodies, be they regional or national. You've got Wall Street institutions looking at the moment, so the SEC [Securities and Exchange Commission] would be looking at them. In some cases, they even are subject to FBI investigations. And then that's not to mention other state and local bodies which are occasionally looking at them. So they say, "Highly regulated is what we are, in fact."

They are very highly regulated, true, but in purely procedural, and not substantive, ways. Yes, it is certainly very arduous to become eligible to participate in the multibillion-dollar financing system. It's not easy. But it's hard in the sense that you have enough resources and enough consultants and enough lawyers on the payroll, and you know how to fill out forms the right way. One salient, central fact that you would think somebody would be interested in -- namely, whether what happens in the classroom results in the student's advancing at least their economic ability to earn a living a little bit -- that salient fact is never really fundamentally questioned.

So we have the appearance of excessive regulations without any kind of substantive outcome. When it comes to participating in the federal financial aid system, for decades now we have had the so-called triad, this three-legged stool of state licensure, federal recognition and voluntary accreditation. The triad is supposed to take care of quality assurance. The triad is supposed to perform consumer protection. The triad is supposed to keep the bad apples out of eligibility.

So, OK. Let's unpack the triad.

State licensure in this country is as varied as the 50 states are from each other. In some states, it is very robust and very effective. There are other states where the guy selling hot dogs on the street corner has undergone a much more rigorous review to sell hot dogs than the guy hanging a shingle offering a university program that awards, allegedly, doctorates.

In fact, some of our more populous, more important states are among the least regulated places to incorporate the university. So state licensure really doesn't do a whole lot to protect students.

The next issue becomes, "Oh, well, how about federal recognition?" That sounds draconian and official and significant. It is, in the sense that yes, there will be reams of very obscure, extremely byzantine forms to navigate that you have to fill out very correctly. And it is costly to do. And it's difficult to do in the sense of procedural difficulty. But again, nobody pauses to ponder some of the more basic questions: Is this place generating good enough outcomes in light of the consequences that attending it bring about for students -- the amount of borrowing they have to do, the kind of tuition it charges, the kinds of student loan defaults? ...

Finally, the third leg of the triad, accreditation, is a fairly anachronistic relic of a much more genteel era, when you didn't really have to worry about fraud, because this was not a lucrative line of work. It was a bunch of mendicant orders and a group of people for whom education and teaching was a calling and a vocation, whom you never suspected of fraud, of all things, because there wasn't enough money to defraud anybody of. So most of the attention of accreditors was focused on qualifications and weeding out unorthodox, extremely irregular offerings. It was a fairly academic exercise. So accreditation would theoretically be where people would look at the thing itself. Accreditation would be where you would have some assurance that what is being taught in the classroom is in fact what it's labeled to be.

Sadly, it is just completely unequipped to wrap its head around the very possibility that there may be an organized attempt by entities it has never run into before, that have vastly more by way of resources than any accreditor has in this country, to gain access to a financing system that they intend to bilk. That's just not a function that accreditors ever had until fairly recently, and it's a function they're not prepared for.

So accreditors are fundamentally, first of all, unprepared to do the job. Secondly, they have themselves been somewhat compromised, it seems to me, because in this confrontation, this very asymmetrical, unequal confrontation between dinky little accreditors, which are a bunch of nonprofits, one-shoe operations with barely enough resources to cover their expenses, and multibillion-dollar corporations with friends in high places and teams of lawyers and consultants; in this confrontation, it very quickly becomes obvious which side your bread is buttered on, because yes, you can take a valiant stand, and you can say no to people who go through the motions of setting up at least the facade of being legitimate operations.

You know, I want to be emphatic here. There is a difference between a diploma mill and a Title IV mill. A diploma mill is an operation that operates completely outside the context of even attempting to act as if it's a university. It's an out-and-out collusion with the buyer, with the student, to defraud some other third party of whatever it is that they seek, be it a job or money or whatever.

The Title IV mills sort of go through the motions of setting up what could pass for schools, right? There are buildings; there are Web sites; there are people called faculty. Events called class sessions take place; some content changes hands.

So when you look at the behavioral dimension as an accreditor, you very quickly realize that it's not a trick problem you're solving, that there is no such thing as a mathematical proof that cannot be contested and litigated as to whether what you're looking at is legitimate or not. It sure could be legitimate. It's a matter of opinion with enough -- it never surprises me that there are at least two lawyers on any contested proposition in the courtroom.

You know what's coming. Here you are as a nonprofit attempting to police a multibillion-dollar corporation which has gone to the trouble of granting office space, classroom space; they have faculty. They look like a university from the outside. And the tendency is understandable as to why your natural instinct is not to engage in some act of beau geste, of just fighting over some theoretical objection but to kind of shrug your shoulders and, if there's ambiguity, if there is a gray area, that it's in your interest to say yes, and let the chips fall where they may, because they will fall many years down the line. It's not going to happen on your watch. It's over the horizon for you.

You say "no," and you know what's going to happen the next day? You're going to get a letter from a white-shoe law firm in New York that represents them, and you're going to be bombarded with all kinds of bad consequence.

So accreditation, first of all, was never really contemplated as a device to regulate this kind of money swishing about the system. And more importantly, accreditors have figured out that you've got to go along to get along, and because, unlike other quality assurance regulators who have skin in the game, right, if you're an auditor and you rubber-stamp somebody's financial statement, bad things could happen to you, as Arthur Andersen found out. But if you're an accreditor and you rubber-stamp somebody's application, you accredit them, it will be years before enough evidence of some nefarious activity such is going on will even surface. And more importantly, none of it is going to be material to you because you have no skin in the game. You simply rubber-stamp them, and should the school be found to have been not of the kind of quality that justified its participation in Title IV and federal financing, so be it. You were wrong. Oops. And you move on.

And what happens if they say "no"? Are there consequences?

You could be sued.

Do people move?

That's been known to happen. What we have under the rubric of accreditation in this country is a fairly complicated Rube Goldberg device by which we have a number of regional accreditors, and then there are a number of national accreditors. And in general, the regionals have been viewed as more collegiate. ... Nothing I say, by the way, is absolutely true, because there are always exceptions. But in general, for-profits tended to be accredited by national accreditors, which had their roots in vocational and technical training but which have somehow crept up the food chain over the years to now be deemed authorities on purely academic programs, all the way up to doctoral offerings.

But in general, even the regionals, which used to be disproportionately collegiate accreditors, have been compromised into absorbing some for-profit participation, partially because, of course, higher ed is so easily accused of elitism that you almost need to show that sort of ecumenism just so that you can inoculate yourself against charges of random elitism.

There have been some very disturbing recent allegations with regard to forum shopping, which we should all be aware of from the financial crisis. In a system where you have multiple venues, where you might get regulatory approval -- understandably as a corporate entity in particular -- you have an internal incentive to go to the least rigorous one, right? Very rarely does somebody want to subject themselves to the most draconian set of conditions before they become eligible. So yes, institutions have been known to move, I suspect because those moves come out of the jurisdiction of one regional and place them squarely under the jurisdiction of another regional accreditor which has, over time, almost become a magnet for those for-profits that want to move from the national accredited status to regional accredited status.

The circumstantial conclusion is readily apparent that there must be a reason why everybody seems to choose the same regional accreditor and why they try to create a geographic nexus so that they can be accredited by that accreditor as opposed to some other one.

Just in simple terms, how do we understand accreditation when you see it on all the ads for for-profits who mention accreditation? We've called up salespeople. We've called up enrollment counselors, essentially salespeople from for-profits, and they'll say, "We're accredited like the Ivy League schools." What do we make from accreditation?

One answer is that accreditation is supposed to be that sort of seal of [approval by] Good Housekeeping, that third-party reliability assurance that relieves you as the consumer, who doesn't have the expertise, the time and the energy to sift through every aspect of every possible institution you may consider, from the kind of due diligence you would otherwise have to engage in. Accreditation is supposed to be your assurance that some responsible third party has checked the place out and that it is of sufficient quality for you to reliably take advantage of their offerings. That's the theoretical value.

But you're saying it's not?

Oh, no, it's not. Sadly, I believe that the primary difference between an institution that is accredited and an institution that is not accredited is that the appearance, the facade of a university operation, has been verified by the accreditor, but that the substance has been verified by question.

So the big difference between an institution that chooses to operate with no accreditation and one that is accredited and therefore eligible for receipt of federal financing, really cannot with any degree of accuracy be described as the one is definitely an illegitimate institution and the other is absolutely above whatever the minimum standard of quality you want to choose, that you will absolutely get a quality education. That is not the case.

Why is that? They look at the wrong things? You hear they look at faculty number, full-time faculty, libraries. Are they looking at the wrong things?

Just because accreditation is a weak process doesn't mean that you don't have a lot of very strong programs that for reasons of their own have standards of the minimal requirements of accreditation. So you have this very odd system in which maybe the line is drawn too low in the first place, but that a disproportionate number of participants are voluntarily way above that line for reasons of their own.

The Ivy [League], to just take an easy case, goes well beyond anything any accreditor could demand in terms of their selectivity on the front end, the qualifications of the faculty, their library holdings, the amount of ... expenditures. I mean, if we even pose that level of operational requirement on everybody, all but the Ivys would go under. So we have a disproportionate number of good actors who are accredited.

Now the issue becomes, are there some entities that just really stick as close to that bright-line threshold, to that very low threshold that accreditors put in place solely to gain access to financing? If you buy my observation, the answer to that is yes.

And if that is so, one of the consequences of accreditation and one of the failings of accreditation is that it misleads the public into thinking that just because a disproportionate number of the entities that are accredited are of such high quality, that that high quality maps to the requirement it imposes on everybody when in fact it doesn't.

A disproportionate number of these entities are very high quality having nothing to do with accreditation. They're just high quality because they're high quality. And accreditors are, in a weird way -- and you see this increasingly, frankly, in advertising now -- accreditors have become a mechanism by which entities that use it solely to gain access to federal eligibility advertise as sort of co-branded with these spectacularly reputable operations that are spectacularly reputable regardless of their accreditation. They're spectacularly reputable for reasons of their own. So that's one of the failings of accreditation.

But to answer your question again -- and I am now beginning to get Hegelian -- you say, are they looking at the wrong things? They probably are looking at some of the right things and some of the wrong things. But most importantly, they're doing so with a level of detachment and a lack of due diligence that would be catastrophic in every other line of work I can think of. The reason that is so is because getting overexcited on these kinds of issues would be unnecessary. The incentives are just not in place.

... They control the transcription process. Who's to say that the course being transcribed as calculus is actually calculus and not remedial algebra? There's, by the way, strong reason to believe it's much more likely to be remedial algebra than calculus. What is that evidence? The evidence is the admissions criteria. What's the magic here? If you're taking 100 percent of your applicants and then chasing them with heavy-handed recruiters lest they get cold feet, how are you coming up with so many people ready to do calculus? Because we are not finding them, by the way.

This country doesn't have a problem of overpreparation. It's a problem of underpreparation. How are you running a university, a quarter of whose enrollments don't even have a high school diploma? What magic has been discovered that allows you to run a university as good as, take the Ivy League institution of your choice, which has not only no admissions selectivity, it actually kind of dips below the threshold of a high school diploma for a quarter of its enrollments?

So there's plenty of circumstantial evidence that something is rotten in the state of Denmark. You just have to want to sniff it. And you can choose not to, right? I mean, you can be a person of strong fortitude and go to the campus. There is a campus. It may be an office building above a transmission shop. But, you know, whatever. There's no law that says you have to have an impeccable quad or 200-year-old buildings.

So you go. There are classrooms, desks, tables, a blackboard or a whiteboard, PowerPoint. An anthropologist would say the external behavioral markers of teaching and learning are arguably in place. It's just that the content doesn't have the intensity it should. And it's your job as the accreditor to make sure the intensity maps accurately to the transcripts that are put out, that intensity maps accurately to the credentials that are being awarded. And that's not such a scientific, easy thing to do the way making sure that the bottom line of Enron corresponds to money in the bank. That's much easier, right? So that's the reason accreditation is so problematic.

So they should be auditors, but they're not auditors?

They should be auditors, and they're not treated as such. It is on their say that we allow these corporations to access billions of dollars of federal financing.

And the consequences are that there's no consumer protection. Students think that there is consumer protection, but there's none. They're on their own.

Correct. Frankly, it's from a macro point of view, as you look at the billions of dollars that are changing hands here, we have set up a very problematic paradigm for corporate welfare here, because one of the points that we really need to begin to contemplate is that this is a sector whose very existence presupposes the availability of third-party financing. And that third-party financing is almost entirely federal financial assistance, because it really would not be a particularly profitable scheme to attempt to rip very low-income people off. Why? Because they don't have money.

So we've set up a system in which we stuff their pockets full of thousands of dollars of federal eligibility, the bulk of it allegedly loans, not grants.

[So federal loans are key. ...]

As a business model, as a scheme, it would be vacuous and completely nonsensical to set up a whole edifice whose purpose was to victimize low-income people to take their money. They don't have money. So, stupid, stupid business model.

Now, refine that business model. Render them eligible for tens of thousands of dollars of federal financing, and now chase after them. Grab them through a giant sort of vacuum cleaner of a marketing mechanism, which is what many of these companies are. Pull them in with promises that really tug at the heartstrings; they push all the right buttons about the American dream: "You've been marginalized. Here's your chance to better yourself."

If you watch the excessive advertising, particularly television advertising they do, it's really quite obvious how they manage to recruit by promising a transformational, mostly economic, future. It's very focused. You can get out of your current, presumably desperate financial [situation] -- the economy going sour being very relevant here, because there are lots more people who are, in fact, out of the labor force and desperately trying to figure out what they're going to do.

So they dangle this reward of a better economic future. They very often mention taking care of your family, making a better life for your entire family. They really so very, very skillfully appeal to all of those emotions and all of those assumptions. And the purpose is to get students to come in. One of the fundamental points of ethics for admissions purposes is that you should not place students in programs that they cannot succeed in; that is, that we're not just gatekeepers who say no to people, but rather -- particularly because so much of the financial cost of most postsecondary education programs is borne through borrowing -- that we have an ethical obligation to make sure that anybody that we invite in, anybody to whom we dispense the advice, "Come on in; this program is right for you," is at least minimally qualified to succeed.

We can't assure that everybody will graduate. That's highly dependent on their own efforts. But we have an obligation to not place absolutely unqualified people who are almost guaranteed to fail into programs that cost tens of thousands of dollars in some instances, that can leave them worse off.

The business model is very much one of targeting precisely those people, perhaps, who really are so underqualified that we need to plug them through some other mechanism for remediation, other things, before we even sort of credibly suggest postsecondary work to them.

Let's go back to the colleges before we get to the students. On the colleges, you say they basically exist to bring federal financial aid in?

Yes. If anybody contests that, I'm candidly kind of stunned. And in general, by the way, most of these corporations don't contest that. They contest it in the kind of soft marketing venues where policy discussions are had. They are very candid and forthright and direct about their profit-maximizing obligations to their shareholders when they talk to the investment community and when they talk to analysts. So I certainly don't mean it in any kind of pejorative way. It is their job to maximize profits.

It is nobody's job, unfortunately, and it ought to be somebody's job, to make sure that that profit motive is framed by regulatory incentives that, at the very least, incentivize some minimal outcomes for the students and the taxpayers. And sadly, that kind of oversight and that kind of a counterincentive just doesn't exist right now. So students are on their own.

They say that they're maximizing profits, yes. But the only surefire way for them to succeed is by satisfying consumers; 2.8 million students can't all be dumb, and it's only by having satisfied students that they're actually going to pay off their recruitment costs and build value for their shareholders. It doesn't make any sense for them to just recruit randomly and have everyone drop out after a week or two.

Well, a couple of points. One, having everyone drop out, it's an interesting issue, because when it comes to abusive or arguably outright illegal and fraudulent practices, one of the typical patterns that we have noticed over the years has been extremely heavy-handed sales tactics on the front end and extremely arduous exit mechanisms when the student gets there.

So what we see is not only vast sums of money -- probably in excess of $3 billion or $4 billion a year, just the part of it that I can document in marketing expenses -- but beyond that, the kind of prospect hunting and the kind of follow-up that we just don't see in traditional higher ed to get people to sign up.

It's very typical when you look at recent cases, most of the slaps on the back of the wrists that they might have received have been focused on their front-end recruiting practices. Then the next one withdraws, because you can actually sell people a bill of goods, and no matter how unsophisticated they are, a subset of people wise up -- they show up, and in fact they do want to exit within a week or two. And we see lots and lots of roadblocks, very conscious roadblocks, to prevent that.

The reason it's prevented is because Title IV money, federal financial aid money, has to be earned over a certain length of time. So if they enroll students and those students drop out within a week, they really have, in fact, as you point out, they incurred more marketing costs than the student brings in in tuition. So one of their tactics ends up being prolonging the time that the student stays enrolled precisely because every day that the student delays exiting is a day that they earn more of their tuition through federal financial aid.

There is a broader point that you make which is the kind of point that I would resonate to in terms of reputation: that if you want to build a business, of course the profit motive has to take a longer-term view, because if you develop a reputation as low quality, people may not buy another car from you, or they may not purchase another widget from you because they bought one and got burned and now you developed this terrible reputation.

You have to realize higher ed is not a cyclical purchase. You come in; you really purchase it once, typically, and you leave. And the numbers kind of speak for themselves. It's very easy to just assert that of course satisfying students is my first and top priority, but look at the numbers.

The numbers are available. We know what percentage because the Department of Education actually forces institutions to publish their grades. We know what percentage of first-time students at all institutions, including some for-profits, actually earn credentials within six years, for baccalaureate degrees -- 150 percent of the standard term -- three years for associate's degrees. And the numbers are abysmal. I mean, they're horrifically low. So if there is some amazing attention being paid to retaining people in order to graduate them, it is not being very successful.

But on the other hand, if my assertion [is] that profits are the top priority, I think there is plenty of evidence, in terms of 20 and 30 percent return per year, that indicates that seems to be something they're paying attention to, because they're succeeding on that front.

So it's a very peculiar suggestion that the thing that they care the most about is actually metered at such a horribly low rate of output, and the thing that they allegedly don't care about is in fact out of this world, because in terms of profitability, these companies today are probably in the top 2 percent most profitable sectors in the United States. There are not really that many other ways of making this kind of margin in this country right now.

Most of the statistics just capture first-time students, and that's unfair, because most people that they are teaching are not first-time students. They're people who have done some credits, life has happened, but they want to go back and complete a degree, complete an associate's. Is that fair? I mean, is there a big part of what they're doing that we're missing?

There is certainly some truth to that. I don't contest that. But we have the metrics we have. The metrics I have are the official metrics that the Department [of Education] imposes on everybody. And I have the metric of defaults, which are the lagging indicator. We can all debate on the front end whether this is a wise course of action, but we can certainly retroactively look back with a fairly sort of defensible understanding of, well, you know, I'm not going to delve into the choices the student made were the right choices, whether what you did was at fault or where the student came from was the primary motivation.

At the end of the day, as a citizen, as a taxpayer, as a co-signer for every one of those ... notes that you handed to the students to sign, which you then cashed out in the form of tuition, you took to the bank and you got 30 percent return on the investment as a consequence, I think retroactively I have every right to say, "So what happened to them?"

Increasingly what we see is, again, evidence that comports completely with the suggestion that short-term profit trumps every other consideration; that students are overborrowing; that they are left in many instances significantly worse off than they would have been without any of that kind of education at that kind of cost. And how do we know that? We know that because their default numbers are out of this world. And these are default numbers that are highly manipulated.

Before the numbers, let's just stick with completion. The other argument that you hear when you talk to people in the for-profit industry is that yeah, it's low, yeah, we want to do better. They argue that it's around 40 percent, I think, across the sector. I don't know quite how they get that number, but they argue that it's that. And anyway, community colleges, it's far worse. I mean, we're dealing with a similar population, but we do far better in terms of completion than community colleges.

A couple of points about completion rates, which gets really complicated. ... My retort to the comparison to the community colleges, of course, is that they may have a lower completion rate for some of the very reasons that [pertain to the] for-profit side: They reach a nontraditional population; they lose track of some of their successes because they transfer without telling them -- actually everything is fine; they transferred out, they have degrees; it's just that the institution received no credit since it can't verify that.

So all of that is true. But the one thing that is also true is that whatever failure rate we have with community colleges comes at very minimal cost to me as the co-signer of their loan paper.

When you say that, it's you as a taxpayer?

Yes. These things are inextricably linked to each other. You can't have it both ways. You can't charge tuition that rivals that of the Ivys and then plead a community college population to me as the reason why 44 percent of all defaults come from your sector.

If high defaults and low completion rates are not really your fault, and it's just really an attribute of the population that you recruit, maybe you shouldn't be recruiting them. Maybe we should let community colleges, which apparently can deal with that population with far fewer adverse consequences for them and for us a nation as taxpayers, maybe we should leave those people to community colleges to teach. Maybe you ought to up your game. Maybe you ought to go -- since you charge like the Ivys do, maybe you ought not to be in that business; maybe you should go after a population that is more able to afford your cost.

I'm going to play devil's advocate again. The cost to the taxpayer isn't fully reflected in what you're paying at a community college. A community college is subsidized to a massive amount through local taxes from cities and states.

Absolutely.

So we're paying.

But those are different decisions made in different capacities by us as [citizens]. So I pay as a local taxpayer; I may pay into different levels of subsidy for different tiers of higher ed. But at the end of the day --

But for-profits are paying taxes. In a sense they're good corporate citizens. They're providing a service, and they're paying tax.

Bank robbery wouldn't be any more appealing if we simply legislated that you tax the proceeds, right? I mean, if an activity is a nonproductive activity, the fact that you pay taxes on what you earn through it hardly makes it any more defensible.

The real issue here is, should this purely federally financed activity be tolerated as it is? Be curtailed? Be expanded, for all I know? I'm sure there are people who think it's actually not being sufficiently supported by the feds. And from a federal taxpayer point of view -- because my focus here is with regard to what the impact of these institutions is on the federal financial aid system -- from that perspective, they really, in many instances, fall short. And the sector as a whole generally represents a drag.

This isn't to say -- and I know the politically correct thing to say right now is to say, "The vast majority of them are very good; it's just a handful of bad apples." I'm going to break that orthodoxy and suggest to you that the vast majority of them are not so good; that there are some that are actually quite legitimate, that provide a value, that do so at a reasonable price, that leave their students in a better place, and they do so purely voluntarily, not because we force them to, but because they happen to be owned and operated by people who have other values. They got into this line of work for the very same reason as the Franciscan order might have gotten into it, and it just so happens that they didn't want to join a Catholic order, so they decided to set it up as a business. They run it with integrity and they produce good outcomes.

Yes, that exists in the for-profit sector. It exists disproportionately, by the way, in those venues where the states in particular have put their foot down that they are going to demand better protection, better outcome for their citizens. So it does happen that there are some good for-profit providers.

But in general, that is an endangered species, in light of the fact that easy money is kind of irresistible, and they are sort of sucking the oxygen out of the air for those people who actually, perhaps irrationally, want to spend money unnecessarily on things like teaching, because why incur that cost if nobody forces you to do it? Why incur those costs if it's really not necessary to sustain the business model? Because the business model is one of a revolving door. It is simply a matter of getting cohort after cohort of fresh, warm bodies through the door.

But the challenge I think the sector faces is that it has grown like most other bubbles. There is a growth path; they look fabulous; they get bigger and bigger, but at some point it's not sustainable. We are increasingly running out of warm bodies.

Now, the godsend here from that perspective was, of course, the Internet, because in the old days you had to be within physical reach of those warm bodies to even putatively enroll them. Now, with the magic of the Internet, you can enroll people clear across the country.

And the magic of the Internet, by the way, liberates you from the kinds of even secondary measures of legitimacy, like how quickly can somebody earn a degree? In the old days it took 120 credits to earn a baccalaureate degree. Each credit roughly mapped to an hour, which is to say 50 minutes in classroom-seat-time terms, of attendance in some kind of academic setting, with three hours of corresponding homework for each hour of classroom time. Then comes the Internet, and you no longer have sustained face-to-face classroom sessions necessarily. That is at once great, because there may well be some kind of a math whiz somewhere who can sail through all of calculus in two months and learn it at their own pace and zip through it and move on to do other things.

But it also opens the way for Father Guido Sarducci's joke about the five-minute university, where you come in, and on the strength of the fact that it's possible for somebody to sail through every course at the speed of light, that you end up with an associate's degree being earned as quickly as, I kid you not, five weeks. It's possible. I have no doubt that Einstein could zip through physics, undergraduate, in a few months' time. Most of us aren't Einstein, though.

And the notion that an outlier then becomes the norm on the strength of the Internet and distance ed ought to be troubling. But in any case, it has liberated the business model from the inconvenience of actually having to set up physical brick-and-mortar venues to capture volume.

They say that success isn't due to that. It's due to the fact that traditional higher ed hasn't changed in 500 years; that traditional higher ed neglected working adults and is very, very slow to the Internet and new forms of teaching. Traditional higher ed is basically in the pockets of faculty who don't necessarily have teaching as their first interest.

And much of that critique I subscribe to. Certainly traditional higher ed is still stuck in the medieval age. We're still committed to a delivery model that frankly the assembly line already invalidated. Every professor is a program designer, is a curriculum designer, is a syllabus designer. In the old days, every watch was an act of magnificent craftsmanship, and of course a watch factory produces more accurate watches much more rapidly and at lower cost.

So I don't contest that that critique can be hurled at higher ed with some credibility. My objection is that what the for-profit sector has generally put forth has been a very mixed bag -- that where most of the improvements that I do credit them for, and there [are] a lot of them, have been with regard to customer service.

And the sector has been amazing by offering around-the-clock services. Their recruitment, obviously, is extremely user-friendly in the sense that they will call you, they will hound you, until they get their message to you.

In those ways I certainly think higher ed has a lot to be grateful for. One little problem, of course, is that those things are generally peripheral to the main purpose of most institutions, which is -- to just take research off the table -- teaching. Most of the costs we incur are associated with teaching, so we end up with requirements that may strike some people as anachronistic. Some of them I would defend. For example, we end up hiring people who have doctoral degrees. Even if it involves teaching Physics 101, we still think you need a doctoral degree, in most cases, and you are judged by the percentage of your faculty who do have terminal degrees like that.

The for-profits and their accreditors, by the way, the national, very generally don't. In fact, it's very possible and not at all infrequent that a student who was taking the course a mere two years ago finds him- or herself teaching that same course down the road.

When you say, "Well, how can that be?," they actually tout that as real-world experience. And it's very strongly suggested in their advertising that instead of a bunch of absentminded professors who don't really know which way is up, we put people with real-world experience in front of you. You can do that, but I really do have to question whether somebody with all of a whopping two years of experience has the theoretical wherewithal to communicate the field adequately enough, in a sufficiently robust way to make it stick, so that you don't just walk out of there with an understanding of how today's Windows works, but rather with an understanding of how operating systems in general work, so that today's Windows, tomorrow's Windows and five other operating systems are all sort of interchangeable for you.

So there is that issue. I think some of their critique is actually reasonable, and I don't contest it. But the critique that I have to contend with, which is really the ultimate measure, is, do they produce good outcomes in view of the cost?

Look, if you offered what they offer for free, what's the harm, right? It's free. You could argue the harm is you're distracting people, you're taking them out of the more direct path. But you could also argue, well, these are people who may not go do higher ed, and therefore, on balance, they're providing service.

I'm sure there is some price level at which these offerings may have some value. The way the business is structured right now, because of the incentive system, because of the lack of oversight, because of the way access to money is engineered right now, the net result that I think we justify the expenditure of these dollars is not at hand. You can give me a piece of paper that isn't worth the paper. You can give me a worthless credential and dub me a baccalaureate degree holder. It doesn't mean I can actually do the job.

What we hear, and by the way, it's our impression that ... not even the target population that the sector disproportionately goes after -- the real low-income, generally underprepared students -- not even they are sufficiently unsophisticated not to know that the degrees these folks produce are not particularly desirable.

The way many of their prospects contemplate it, and the way it's very strongly communicated to them, is that you can actually zip through the first two years very quickly and then transfer the stuff out and get a degree from a school that somebody has actually heard of. And of course that's where the matter becomes really critical, because we in more traditional institutions are confronted by a demand, essentially, to produce credentials with subpar components; that somebody shows up from an institution we never heard of, whose coursework we can't vouch for, that we can't necessarily take whatever remnants you bring to us and somehow construct one of our degrees on the basis of that kind of prior work.

That's been one of the real damaging consequences of a lack of oversight: Lots of people are misled into thinking they actually have finished two years of collegiate-level work that we would actually deem, frankly in some instances, as not even satisfying what we think a high school program should satisfy.

Is that elitism?

It's not if, at the end of the day, you contemplate that these degrees qualify people actually to do certain things. It's very easy to accuse traditional higher ed of elitism if you take medieval philosophy that I'm talking about. If it's nursing, you may be a lot more grateful that we do impose these standards. If it's engineering, you may be very grateful that we do impose these standards. If it's teaching, and it's your kid who's going to be instructed by our graduate, I think you're going to care that we impose these standards, because these are the standards we can vouch for.

Whether you may believe that it's hoity-toity of higher ed to suggest that your anatomy course ought to have been taught by somebody with a Ph.D. in the field as opposed to at a former dog-grooming school, and you could accuse us of elitism on the strength of not being able to produce medical degrees with dog-grooming anatomy courses -- but we can't. ... We actually federalized transfer-of-credits rules. I mean, who would even imagine such a scheme, that because the federal government paid for it, good enough for the federal government ought to be good enough for all of you. I took English 101 once, or I took Calculus I, and because the federal government paid for it, it has to be accepted.

You could put a gun to our heads, and you know what? We'll accept it. But I've got news for you. We'll put you in the following course, and you will fail it, because just somebody mislabeling something "calculus" doesn't mean you actually know calculus. Calculus is actually knowable. And it's sort of like playing the fiddle: You either know it or you don't.

Elitism is a very easy charge if you think of higher ed in purely decorative terms. The minute you take two steps back and think about [the fact that] higher ed actually has to do with people's health and safety, that there are very significant acts of reliance on credentials that you do care about, and it's then that you realize simply mandating that anybody can dub anybody a graduate may not work out in practice.

Your critics and critics of traditional higher ed would say there's money behind that as well. Traditional higher ed is a business like the for-profit sector. And frankly, they have an interest in keeping out some of the 101 courses because they're pretty profitable. I mean, you can get several hundred students in a classroom, teach English 101. Very little investment is needed to make that a very, very lucrative course that can then cross-subsidize other things.

There is no denying that we are creatures of this world, that we don't occupy some other ephemeral dimension, yes. It takes money to run a nonprofit. It takes money to run a public institution.

A couple of observations. One, you know the old saying, "You can't lose money on every deal and make it up in volume." It's not exactly like traditional institutions right now are short of students, and it's not exactly that we're actually making a net on them. So the allegation that somehow this is nothing but territorialism, economic territorialism is, frankly, false, because look at how many students we, sadly, deny admission to, because we have to, because we don't think they can do the work at whatever institution you're looking at.

So that allegation is, on its face, problematic. But more importantly, with regard to traditional higher ed, yes, all of those accusations of money, it's big business, it's a multibillion-dollar business, no question about it. But there is one little factoid that is getting lost and very consciously mischaracterized.

Traditional higher ed and traditional institutions, be they private, not-for-profit or be they public, pass a certain market viability test by the very fact that multiple partners hold hands together to make them exist -- the fact that we are accountable to the state, the fact that people actually donate money to us. That's just about as counterintuitive, when you think about it, if the allegation is that all institutions are is just a big money business. I don't know of anybody who left money for GM.

But the fact that multiple entities pay in to traditional higher ed gives you some assurance that different people are putting their wallets on the table because they have judged these institutions to be value-added organizations that actually make things better from their perspective.

So the allegation that somehow institutions that pass that market viability test are being criticized by institutions that are really sort of feeding at the federal trough, that can sell their wares to only one buyer, federal financial aid. Again, let's not get draconian. I wouldn't want to be accused of being excessive and suggesting maybe 10 cents on the dollar should be private money, heaven forbid, which is the ultimate test of market viability, since people tend to count their own dollars a little differently than other people's dollars. So not only do we not say they should have 10 cents on the dollar coming from anybody's private funds, we say you can be a creature of the public sector altogether, as they are, in fact. You just ask, maybe 10 cents on the dollar should come from some other program than these programs.

And these are entities that are really chafing under the absolutely minimum requirement, that have actually lobbied Congress -- and shame on Congress for being silly enough to accept this -- to label federal dollars private so that they could pass that minimal test. That these entities are the ones that accuse higher ed of having an ulterior monetary motive I find a little disingenuous.

... Help me understand some basic facts about default. What does default tell us?

Default is, to be very technical about it, a non-repayment of a debt that is due. That's the way that any other consumer credit would measure default, whether, at any point when you still have an outstanding balance, you fail to repay it. And it wouldn't really matter to the financier, to the lender, the date of your non-repayment; they want to be made whole. They are not in the business of social programming here. They loaned you money, and they want to be paid back.

In federal financial aid, however, because of the heavy lobbying by institutions, default is defined as non-repayment within a very narrow window of currently only two years, to be extended to three years, from the first date that you enter repayment. So we only measure those defaults that occur within this very narrow window as official defaults.

So the issue is, what happens if you default inside the window, and what happens if you default after the window is closed? Well, from a personal point of view, there really is no difference. If you default on a federal student loan, you will be hounded for life. It is the most collectable kind of debt there is. It is nondischargeable in bankruptcy. They will garnish your wages; they will intercept your tax refunds; they will sue you in court. You become ineligible for federal employment; you become ineligible for any other kind of federal benefit. Increasingly, many states piggyback those prohibitions, so it ruins you, and it makes no difference whatever as to when you default.

From the taxpayer's point of view, it makes no difference when you default. The taxpayer is the co-signer of that paper, so if you default, whether it be nine months after you go into repayment or nine years after you go into repayment, the taxpayer has to make up for that loss. And of course there is offsetting collections, as I mentioned, that they hound you for. In general, defaults cost the taxpayers dearly.

But it makes a huge difference from the institutional perspective as to whether you default inside the official window or outside.

This is true for all participating schools, for-profit, nonprofit, all institutions. No matter when the student, the borrower, defaults, they are ruined. No matter when the borrower defaults, the taxpayer is on the hook. But it makes a huge difference to the school as to whether the default is recorded within that narrow official cohort default rate window or whether they can push it right outside that edge.

Why? Because if you can push defaults outside of that window, they go away. They don't exist; they don't count. So we constantly hear declarations of good news from all of the official stakeholders. Congress and the Department of Education and schools themselves often tout what strikes one as amazingly, impressively low default rates.

Credit card default rates are vastly higher, and, when you think about it, this is a loan program with no collateral, no credit check. And boy, wouldn't it be heaven that only, let's say, 10 percent of people default; 5 percent, at some point when we had really historically low rates, interest rates and unemployment rates? Defaults almost looked nonexistent, as if we had eliminated them. Well, of course the reason is because we're not counting all of them, and the reason is because a whole set of consequences ensue if you end up triggering default rate thresholds where you could actually be pushed out of eligibility for federal financing.

Pushed out of business, basically.

Which is tantamount for the for-profit, certainly, as being pushed out of business, because a disproportionate component of their revenues come from student loan proceeds.

So they have every incentive to --

Minimize default.

Keep it out of the window.

Right. But here comes the catch-22. On the one hand, obviously, if most of your revenues are in fact proceeds of student loans, you have an incentive to jack up prices and maximize borrowing because these people don't have money to pay you. The only way they can pay you is through more borrowing.

On the other hand -- and, by the way, if you're doing this and not putting value on the table, because it's OK, it is very logical, if you're going to be an orthopedic surgeon, I've got news for you: Borrow. It's OK to be 100 grand in debt, because you're going to be OK. You're going to have an offsetting stream of revenue that's going to take care of you.

On the other hand, if you're going to be a photographer with $100,000 of debt, you may be in trouble. If you're going to be a security guard sitting at a desk at a lobby in some corporate headquarters for 10, 11 bucks an hour, and you have $60,000, $70,000, $80,000 in debt, you're going to be in trouble.

So here comes the game of three-card monte that we play. The basic incentive is to maximize revenues and profits, and the only way to do that is maximize borrowing. On the other hand, you really don't want to get caught with above 25 percent default rates, because they will boot you out of the program altogether. So what do you do? You come up with every evasive maneuver known to mankind and hire consultants who actually advertise themselves on the Internet as default managers.

Default management, when you think about it, is actually a completely untenable activity if somebody is deeply in debt and really never going to be in position to repay. But default management -- if by default management you mean pushing the default outside of that narrow window -- suddenly begins to look like a craft, and like a very valuable, value-added service. And the sector certainly takes advantage of it.

The bulk of their defaults, of course, are shoved outside of the official cohort default window, which makes them look good on the record even though a full-scale horror story is unfolding for the students and the taxpayers who, together, foot the bill.

You call it a horror story. Have you got a sense of numbers? How big is this?

One of the more interesting aspects of this line of work is that even though the taxpayers have to pick up every dollar of default, we have never managed to obtain bottom-line figures from the Department of Education.

Now, you have to remember, the Bush administration was very friendly to the sector and extremely supportive of the sector. And their reluctance, I can certainly understand. And I can't fault the Obama administration even now because they just got here, by Washington standards, and their hands are full. So we'll see whether we can actually extract the official default numbers from them.

Lots of circumstantial data suggests that defaults in the sector may be as high as 50 percent and that you're looking at a very clear example of subprime lending with the ironic twist that the entity facilitating the lending is the federal government itself. ...

You see, the problem is, first of all, the Department of Education has the numbers. This is highly knowable. There's nothing obscure or complicated about it, because they have to pay off the defaults. They absolutely have the numbers.

And we've asked them for them but got nowhere.

That's the problem. It's one of those things that you wonder, why isn't something so obvious available? You would think that, again, as a matter of good government, as a matter of sound stewardship of public funds, that this is a readily answerable question that they have the data for. And they have the data, but they've never answered the question.

You think they don't want to answer it?

Well, look: Administration after administration owns these dysfunctions very quickly, right? I mean, you get credit for being the newcomer for so long, and at some point this disaster that the sector really is, it begins to look like your problem. It begins to look like you kind of get co-opted into this conspiracy of silence because it will reflect very poorly on you to actually document the scale of waste, fraud and abuse that is so rampant.

So I certainly don't think that about the Obama administration, which actually has taken some fairly decisive steps to attempt to at least curb some of the most outrageous practices that are out there. But I worry about it, because there's a certain level of strategic thinking on the part of perfectly well-intentioned, decent people who have nothing to do with any sort of sector-based concerns, that basically sort of induces people to be quiet because they worry that public support for all of these programs may erode if you actually uncover the severity of the problem, even within one of its darker corners.

I'm not one of those people. I feel like as a supporter of these programs, it's my obligation to make sure every dime that they spend is spent in a responsible and accountable way and that it is better that we, the supporters of these programs, clean them up as opposed to cover things up and then have some third party, who may not necessarily buy into the whole construct, come in and use waste, fraud and abuse in one sector [to] just tar and feather the whole activity.

I think federal financial aid is very critical for not just low-income but ordinary people. Working people, middle-income, upper-middle-income people can't afford to send their kids to college unless these programs are in place. We'd better make sure that they are run with absolutely impeccable accountability.

So how do we get to 50 [percent default rate]?

We get to 50 because we have had anecdotal studies. For example, I think there was a December '93 inspector general's report that posited that as a likely number. We get to 50 by talking, for example, to legal aid people who actually deal with lots of low-income people, not necessarily with regard to student loans, but these things come in clusters.

You have housing issues. You have health care bills. Not coincidentally, you see how many people are in default. So when I talk to those kinds of folks, candidly 50 percent may well underestimate the severity of the problem we're currently creating, because the 50 percent that I'm citing to you is the tally for practices from almost 10, 15 years ago. That was a different era. The amount of borrowing has just exploded. ...

And you said subprime. Like how do you mean?

Subprime in the sense that if you define subprime lending as economically irrational and untenable lending and [as] the act of giving somebody a loan that you know perfectly well they're unlikely to repay. It's really hard with at least a distinct subset of these borrowers not to define them as subprime borrowers and the loans as subprime loans. These are loans that are headed for default because the conditions of repayment are just not in place.

And the conditions being what? A job?

The conditions are wage enhancement that justifies the amount of borrowing.

And so help me understand that. Why is it so out of whack in some cases?

It's out of whack because if you put somebody in a hole and [don't] give them some way of digging their way out, you're leaving them worse off.

The logic of student lending has always been, I'm loaning you this money to invest in yourself and not to spend, and this investment will put you in a place where you can service this debt; that this amount of borrowing is actually logical, because by borrowing this money and investing in your education, you're going to just jump up by several notches in terms of how much debt you can carry, what kind of income you can earn.

That has always been the basic logic of student lending. Now, again, you don't really need to be a genius to figure out that if you break one of these premises -- namely that the money that you're borrowing is actually being invested in wage enhancement -- the whole thing falls apart. This is not just a theoretical objection; it's an actual fact that we can see. We see people who are actually walking around with tens of thousands of dollars of debt who either never completed the program or completed the program and find it to be economically worthless.

And if that is so, we have created conditions that are definitely only described as subprime credit transactions, because these are borrowers that we could, on the front end, figure out shouldn't be borrowing this money to buy this kind of education.

Can you help me out and establish some examples of the kinds of courses you're thinking of?

You really have to hearken back to an earlier era to fully grasp what the game, what the sales environment looks like.

There was a Department of Education report about the sales practices of one of the more prominent corporations here that actually sort of has a little bit of a Glengarry Glen Ross feel to it. There was a boiler-room environment where recruiters/salespeople who hadn't met their quotas were grilled and trained and intimidated into making cold calls, yada, yada, yada.

So you see examples of people who are sucked into, say, culinary programs and then end up with $40,000, $50,000, $60,000, $80,000 of student loan debt with, under the best of circumstances, a sous chef's salary, working 60 hours a week and making in the low $30s in some instances.

That amount of income simply doesn't comport with that level of debt, and you very quickly run out of steam to service the debt, and the path to default is almost predictable.

There are now programs that you can watch advertisements for that describe themselves as counterterrorism homeland security programs that are presumably very appealing to younger folks who need the adrenaline. Then you sign up for one of them, and you will end up, again, tens of thousands of dollars in debt, not doing anything remotely resembling those activities which, by the way, you could sign up for the Armed Forces and do while drawing a salary. But rather [you'll be] serving as an unarmed security guard for fairly low wages in most office buildings.

We see programs advertised as campaign programming, baccalaureate and master's degree programs that generally strike us as almost sort of application usage courses that we typically don't even award credit for.

What? Learning Microsoft Word?

Keyboarding, Microsoft Word, Microsoft Access -- those kinds of things. So that's the challenge. How do you make sure that this amount of federally guaranteed borrowing comports with a reasonable likelihood of wages that can service that debt?

And the government is trying to rewrite the rules on this now?

The Obama administration has taken baby steps in the direction of putting a little bit more substance behind the department's regulatory requirements. I have to tell you, by no means are the department's proposals adequate. I don't want to fool anybody into thinking that just because a department, even if they're wildly successful and they've managed to kind of write the rules as they see, this doesn't really clean up the system.

The system has structural flaws with regard to consumer protection. It has structural flaws in terms of the requirements that it imposes on providers, a whole series of issues that can only be addressed through a major legislative overhaul which I am confident I won't see in my lifetime, so I don't think that's in the cards.

But the administration's attempting to take at least some minor steps in the direction of improving the environment. And one of those requirements that they have floated has been connecting various programs and their likely average salaries to the average indebtedness of borrowers.

So saying to the school, in effect: "You can't charge more than this for that kind of program, because the wages in it just aren't enough to pay for it."

Right. The sector has very astutely mischaracterized this as price controls. "It's your price control. How dare you? This is free enterprise. How dare you impose federal price caps." And I agree. Federal price caps are not only a bad idea, they're not going to work. They're ineffective. We know this.

But this isn't price caps. This is simply a test of likely repayment. It is not that the federal government is telling anybody, "Don't charge X, Y or Z." You should be free to charge what you want, as long as you can convince ordinary customers to pay what you ask. That's the way the system is supposed to work.

If you're trying to force the federal government to co-sign the paper, that's the point at which the federal government has every obligation to the citizens who have to write these checks, ultimately, that it is engaging in due diligence to make sure that crazy counterintuitive stuff doesn't happen.

What we are doing here is we are trying to eliminate the educational equivalent of $600 toilet seats. You don't want to be caught buying with federal dollars something that nobody in their right mind would purchase. That's as mild as these requirements are. It's not exactly any kind of a particularly onerous, rigorous requirement that things be reasonably priced. It's just that the most exorbitantly irrational pricing practices will just not be eligible for federal financing. I think that's reasonable.

It caused a furor, it seems, among the for-profits and the for-profit sector.

That's true, but that furor is primarily due to the joyful ride they have had, particularly when the Bush administration ran the department.

So how do they respond to that?

Oh, they're responding with Chicken Little arguments that the sky is going to fall; that they're all going to go out of business; that this is, as I said, price controls. So you have research analysts who are really sort of cheerleaders and boosters for the sector who overinterpret every little comment and every head movement of a federal official with very ominous and very colorful descriptions of what it really means for the final regulatory outcome, etc. It's quite absurd and quite odd, frankly. But there is obviously a fairly well-orchestrated effort by the sector and its allies to intimidate the administration to back off.

Going to put money behind it? Real dollars?

Are they putting real money behind it? Look, this is capitalism, but you have to understand, this is crony capitalism; this isn't real capitalism. Real money isn't changing hands among private parties. The genesis of the system is the big premise which somehow sort of evades people, namely that this is all set in motion only if you assume that billions of [dollars in] federal money are available for the taking. Once you make that assumption, then everything else follows.

Now, for that assumption to be true, though, you need to grease the right kinds of palms, have the right kind of presence, pay the right kind of attention to people who write our laws. And the sector absolutely does that. It is astonishingly good at that. They have extensive and intensive contact with every tier of our government from the federal government, from Congress to administration to state government to various semi-governmental organizations. So the sector understands this is a heavily subsidized business. This is not Main Street activity. This is really Washington activity.

It shouldn't surprise anybody that a disproportionate amount of attention and a tremendous amount of money goes into lobbying here. And that's how the die is cast, because the one requirement here for all of the rest of their practices to ensue is that billions of dollars of federal money flow with no accountability, no oversight and minimal regulations. And for that to happen, they need to pay attention to Washington. And they do.

They say the reason why they're able to grow fast in nursing is because the traditional sector is failing. Community colleges, sort of the logical place for many people to go for at least basic nursing training, are largely inaccessible. We talked to one in New York: 300 in every year, 1,000 on the waiting list. Is that a failure on the part of traditionals? Is it the market working?

No. What it is is the manufacturing of scarcity. It is the way you create a need that you can then step in to satisfy, allegedly, at vastly greater cost than would otherwise be the case. Nursing is a perfect example. ...

Nursing programs have faced this particular issue now for a number of years. On the one hand, we all know that there is a nursing shortage in this country. On the other hand, we have slashed the budgets of the very programs that could most quickly and most efficiently produce the right number of qualified nurses. And we have done so in the name of lack of funding, right? We've done so because we are cutting budgets left, right and center, and institutions simply can't meet the demand that is out there.

So on the one hand we plead poverty and limit the number of quality programs that can be offered. On the other hand, we take our wallets and our checkbooks and hand them to somebody who steps in and manages to supply the seats that some other community college can't supply at vastly greater cost.

So what you have is a sleight of hand again. You have an example of, again, crony capitalism. It almost links to itself, because the very same forces that create the underfunding of the community college programs are the forces that then benefit from the scarcity that is created there, because they can now step in and essentially offer something that we think in many instances is vastly lower quality at vastly higher prices.

I don't understand the linkage --

The linkage is the three-card monte. You cut the state budget --

But that's not them cutting it. I mean, that's not in their power.

Well, it's not in their power in a technical way, but we as a public, we the policy community, the stakeholders, our political leaders at the state level, are confronted with budget shortfalls that just naturally result in budget cuts at the state and local level. And then in comes this industry that actually, when you look at the per FTE [full-time equivalent] cost to students is actually --

You have to explain that to me.

-- that has a significantly higher tuition cost, somehow making seats available magically that the community college couldn't. Well, they're not doing it magically. They're doing it at the expense of you, the federal taxpayer. You, the same guy whose state taxes are insufficient to actually make this thing happen at 2,000 bucks a year somehow find the wherewithal to facilitate it at $20,000 a year. Now, of course you're not fully aware because it doesn't look like it's $20,000 to you. It looks like the student is picking up.

But guess what? It's $20,000 of loans. They will default. You will pick up the tab. It's very difficult to explain it in simple enough terms, it seems to me, but the process is that of making reasonable choices disappear.

But they would say that the $2,000 isn't a real cost either, that it's vastly subsidized.

It may be, but it actually is a lot less than 20 grand. It may well be that the state could chip in, that we either chip in 5 grand per nursing student at the community college level and subsidize that or we can fool ourselves and say: "You know, I don't have the $5,000. You go over here to this for-profit, and it's a private [transaction]." But guess what? It's going to cost you 20 grand per student because those students, a lot of them will borrow. They weren't qualified to go into nursing; they will fail; they will drop out; they may not pass licensure. And consequently they'll default, and we, the public, will pick up the tab.

But that's really the irony, because unlike a lot of other activities, our system has capacity enough to provide services at whatever level our citizens need. We make these very complex choices to underfund some venues and fool ourselves into thinking that the market is actually taking care of whatever excess demand is out there, but we're fooling ourselves precisely because the market isn't doing it. We are doing it. We're financing this alleged private transaction and are on the hook for the consequences it brings about. And we're so silly that we don't even impose any quality requirement. Consequently, the outcomes are very highly predictable.

So the structure's broken, you think? Higher ed is broken, or a large part of higher ed is broken?

I think that statement is true with regard to traditional colleges. There's plenty of sins and shortcomings and wrinkles and complexities there.

You're not calling for an overhaul of the traditional center?

We need to be mindful that as the world's most affluent society, we have been able to afford the sloppiness of so many of our practices and that we can no longer simply go on the basis of what happened to be workable or convenient for us 10 years ago, 20 years ago, 30 years ago; that the rest of the world hasn't been sleeping; that the rest of the world is quickly catching up; and that it is a matter of dire national urgency for us to be as efficient and as sensible with everything we do, frankly, given the mess we're in. Consequently, I think there are lots of areas of improvement, even in traditional higher ed.

There are all kinds of issues with regard to financing of traditional higher [ed] where there's not necessarily fraud but that there's a lot of waste and inefficiency that ought to be rooted out. So we need an overhaul. But you ought to go with the easy, no-brainer stuff first. If there's outright fraud, as I believe there is, if there are outright abusive and wasteful practices that produce not only no good outcome but that produce doubly harmful outcome in the sense that their intended beneficiaries end up worse off and we as the stakeholders, as the co-signers, as the financiers end up being worse off, let's start there. Let's first and foremost take the easy stuff that I think most people, if they took 10 minutes, could figure out and eliminate those redundancies and those kinds of excessively stupid practices. And once we fix those, we can overhaul the rest of the system.

But the fact is, higher ed is an intensely personal purchase. There are all kinds of preferences and personal decisions involved in higher ed, and that makes it hard enough to pick a place. When you add my suggestion that, as you do, you can assume no minimal level of quality, you can assume nothing about whether this entity is a legitimate venue or whether this entity is going to rip you off, when you add that horrible additional factor in, it becomes really high stakes and extremely nerve-racking. And it should be, because boy, you pick the wrong place, you have ruined yourself for life. It's going to be one of those mistakes that you will literally pay for for the rest of your life.

I wanted to go back to something you said about credits. Your contention is that a B.A. at a for-profit and a B.A. at a four-year institution is qualitatively different and that one of the ways you can tell that is that you are just getting far fewer hours at the for-profit. Is that right?

Well, a couple of things. First of all, I don't know that it's true, by the way, clear across the board. There are plenty of nonprofits whose B.A.s are equally as worthless, so who's kidding whom? But in general, ... there's a huge difference between taking a student through the necessary coursework that leads to a bachelor's degree at one venue versus another. We all know that. Different schools have different sort of characteristics. Some are tougher; some are more demanding; some are easier.

Frankly, within the same school, people have views that certain fields are harder fields than others. We all understand that. So I'm not sure that ... I would draw a big line that would put all the traditionals on the side of the good and all the for-profits on the side of the bad.

But I am suggesting that one of the really distinctive features of some of the for-profits and of the sector in general has been that if you pay up and if you show up, however that is defined, they will shepherd you through, and you will get a credential.

Now, the issue then becomes, is a credential that is earned that way likely to be on par with a credential that actually involves a fairly intensive amount of gatekeeping on a course-by-course basis by professors who fail people? And my answer is no. If there are two engineers and one of them sailed through a for-profit program, despite the fact that he or she was recruited without a whole lot of academic review and despite the fact they actually kind of hounded them throughout their career at the place, and particularly if I find out that the person got that baccalaureate degree in two and a half years, now I have to wonder: Either they have invented something that we should steal from them if they can really manufacture legitimate baccalaureate programs in two and a half years out of unqualified pools of applicants, or something much more likely is going on, which is if you have a pulse and you're eligible for federal financial aid and you occasionally show up, you will sail through and you will get your degree.

And in fact, the challenge is hounding enough people to stay on long enough so that that happens. So one of the challenges for us is quality. Quality. Are these credentials, all of them federally financed, is this what the American economy is going to go up against China with? Are we going to have engineers with those credentials compete with the Chinese engineers?

Are for-profits actually teaching engineers?

Absolutely. We had a law put on the books in 2006. You want to look this up, because it's breathtaking. This was an act of Republican generosity in the middle of the budget reconciliation -- the last budget reconciliation that the Republican-controlled Congress did in 2006.

[Sen.] Bill Frist [R-Tenn.], the physician, he was leaving [as] Senate majority leader. As a kind of parting gift, because he was very worried about American competitiveness in science, engineering, math and stem fields, he put into a budget-cutting bill something on the order of $4.5 billion of entitlement money. Imagine that: For a bunch of Republicans to put entitlement money into, [of] all things, education -- really laserlike focus on production of science, math, engineering graduates. And the program went into just rapid implementation, and the money began to flow.

And year after year after year, you would think it's Caltech; you would hope it's MIT. You would think it's some of our big-name technical polytechnic institutions that would rank in the disproportionate number of the top 10 participants. Recipients are for-profit institutions.

And your contention is that the quality of what the country's getting there for its dollars is not --

You know why? Because it's all tied to G.P.A. Now, which do you think is harder: getting a 3.2 at M.I.T. or getting at 3.2 at blank for-profit institution? So we are, in fact, misplacing what little money we have with which we're attempting to dig our way out of the trouble we're in internationally in terms of competitiveness, in terms of national security.

It's not all ninja-clad commandos. It's also a bunch of engineers who are developing defense technologies for tomorrow. Even where we have the wherewithal to come up with enough funding and have enough focus to identify where we should spend it, we get sidetracked and the money goes into less than ideal venues that I think most Americans would find counterintuitive.