Saturday, August 4, 2012

Pillaging and Predation in the Privatization of Public Education

Majia here: I am very, very alarmed about the privatization of public schools. Over the years I've known many students who worked for and attended for-profit universities, including two major ones based in Phoenix.

The quality of education at these schools is most definitely not up to par with what our major public universities in the state provide (ASU, NAU, UofA).

The for-profits also cost A LOT MORE than the public universities do.

The for-profits target working class populations and recruit them VERY AGGRESSIVELY.  I know because I've known a number of people who have worked for the two biggest for-profit universities in Phoenix.

The outcome is that students graduate less prepared with a less prestigious university degree and a lot more debt. That is, if they graduate at all.

The move to transform public k-12 schools into FOR PROFIT CHARTER SCHOOLS is even more alarming.

I understand that public schools have problems but these problems are minimal in regard to the problems that will be created by for-profit public schools.

There is a direct conflict of interest between investors and students in for-profit schools.

Research has already established that charter schools are often unwilling to accept and/or accommodate kids with disabilities, as illustrated by a new report out by the Government Accountability Office, described here in the Wall Street Journal: Charter Schools Fall Short on Disabled

In a separate article, The Wall Street Journal reported that charter schools can issue bonds and these bonds provide high yields.

Taxpayers have to pay for these bonds issued by charter schools. Since the charter schools lack the authority to raise taxes, the risk of default is much greater than on bonds issued from public schools. That is why the interest rates on charter school bonds are higher (hence the interest that tax payers must pay is higher).

"Investors Go to School on Charters: Bonds Issued by the Educational Institutions Offer Rare High Yields at a Time of Near-Zero Rates"

[Excerpted] Bond offerings of $30 million or more accounted for nearly 12% of all charter-school bond sales last year, compared to 5% in 2007...

...Charter-school bonds on average have yielded 3.41 percentage points more than top-rated general-obligation bonds since the beginning of 2011, according to Ms. Berry....

...3.91% of charter-school bonds are in default, drawing on emergency support or in violation of bond contracts. In contrast, 0.22% of higher-education bonds, 0.07% of general-obligation bonds and 0.03% of school-district bonds are in trouble....
[end excerpt]

Majia here: This is a recipe for disaster.

Can you imagine the amount of corruption that is likely to occur as charters (especially for-profits) issue bonds, paying shareholders and school administrators high dividends and salaries, while running the school into the ground because of a lack of oversight.

Now a city in Michigan is outsourcing all of its schools to a for-profit charter corporation:

Michigan City Outsources All of Its Schools: Highland Park Turns Over Troubled Operations to For-Profit Charter Firm August 2, 2012 by S. Banchero and M. Dolan

[Excerpted] Highland Park School District, one of the state's lowest-performing academically, says it will turn over its three schools and nearly 1,000 students to a private, for-profit charter school company—the second district in Michigan to take such a drastic step to avert financial collapse....

...Phoenix-based Leona will receive $7,110 per pupil in state funding, plus an as-yet-undetermined amount of federal funds for low-income and special education students. In addition, the Highland Park district will pay Leona a $780,000 annual management fee...

....Leona runs 54 schools in five states. Students in almost half of them fail state academic benchmarks. But of its 22 Michigan schools, 19 meet the mark, Leona officials said. Leona Chief Executive William Coats said the company had no incentive to cut corners in Highland Park....

Majia here: This move to privatize schools while ensuring their funding through public tax dollars is a recipe for disaster.

We have seen what happens when public dollars go to contractors without much oversight in the rampant fraud that occurred in the wake of Hurricane Katrina and in Afghanistan:

Contractor fraud a growing problem 14 months after Hurricane Katrina
Report: U.S. wasted $60 billion in contracting fraud, abuse. Stars and Stripes (2011, August 31)

Public purpose - such as education - gets subordinated to the contractor's profiteering. 

In 2008, James Galbraith defined a “predator state” as “a coalition of relentless opponents of the regulatory framework on which public purpose depends, with enterprises whose major lines of business compete with or encroach on the principal public functions of the enduring New Deal” (p. 131). Predatory corporations dictate and “poach” upon public purpose and have no loyalties for nations or populations (p. 131).

Galbraith is describing a phenomenon that occurs when public dollars are made available to ruthless for-profits whose only motive is financial and therefore public purpose is subordinated.

We have already seen what happens with for-profit universities. I described above how lower-income students are targeted and end up with high debt that they were able to acquire because of government guaranteed student loans. Here is a discussion of a recent report documenting this problem.

Report finds for-profit colleges serve shareholders over students. The Washington Post July 29 by Daniel De Vise

[Excerpt] A Senate committee that successfully pressed for tighter regulation of the for-profit higher-
education sector published a report Sunday that said the business had put shareholders before students.

As of 2009, the report said, three-quarters of students in for-profit colleges attended institutions owned either by publicly traded companies or private equity firms. It said the schools excelled at recruiting students, but not necessarily at retaining them: More than half of students at for-profit schools who enrolled in the 2008-09 academic year left without a degree, the report found. Half of all non-finishers ended their studies within four months...

The new report is titled “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success.” It concludes a two-year investigation by Sen. Tom Harkin (D-Iowa), chairman of the Senate Committee on Health, Education, Labor and Pensions. Including appendixes, the document totals about 800 pages.

Investigators studied operations at 30 for-profit higher-education companies, including industry leaders Apollo Group, Education Management, DeVry and Kaplan. Kaplan is owned by The Washington Post Co.

“We uncovered two very big problems in for-profit higher education,” Harkin said in a statement. 

“One, billions of taxpayer dollars are being squandered. And two, many for-profit schools are doing real, lasting harm to the students they enroll.” …But for-profit colleges have failed to support those students, the report states, by prizing recruitment over retention. The colleges studied spent 23 percent of their revenue on marketing and recruiting, the report found, and 17 percent on instruction.

Majia here: I strongly recommend reading the entire article at the link above.

The report found that for-profits' profit margin was about 20 percent and the CEOs of these for-profits earned on average $7.3 million. That is many times what public university presidents are paid.

The report claims that companies succeed financially because they charge such high tuition. An associate degree costs 4X as much as a comparable program offered at a public community college.

Tuition hikes were found to derive from "company profit goals" rather than education costs.

The report found that students were recruited using high pressure sales techniques.

Students pay these high tuition rates using student loans. The default rate on student loans from for-profit universities is much higher than from public universities.

Why in the world would we want to impose this model on public schools in the k-12 arena?




  1. Highland Park is in the center of Detroit, it is the murder capital of the world, it doesn't even reach "armpit of the US" status.

    Madmax world here they come.

  2. Parents and students, make sure you check out to see what kind of administrative practices Highland Park will now be subjected to. Make sure you go to the beginning of the timeline to see the cover-up attempt of student abuse by TLG administration. Also see YouTube channel, "HeyMisterRios2" for video and audio.


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