Should We Let Scam-Artists ‘Educate’ Our Young People?

Just over 200,000 young American men and women — all students defrauded by a now defunct for-profit trade school — received some welcome news earlier this week on their student loans. The Biden administration has just erased the $3.9 billion these students owe the U.S. Department of Education.

A happy ending to a sordid story? Not quite. The villain in this tale, the ITT Technical Institute trade-school chain, spent years systematically enriching its top execs and investors at student expense. The CEO who orchestrated that fleecing remains at large and a millionaire many times over.

The students that this CEO’s operation fleeced now do have no more student loans to worry about. The big worry they do have left: their futures.

Our key to brighter futures, here in the United States, has always been education. But over recent decades we’ve let education become a corporate playground where the already rich  race around making themselves ever richer. This shift, we need to remind ourselves, represents a dramatic break with our not-so-distant educational past.

Back in the mid-20th century, no one looked at schools and envisioned lush profit centers. We did, to be sure, have private schools and colleges in that era. But these private institutions never generated grand fortunes for those who ran them. Private elementary and secondary schools either operated as exclusive havens for the scions of already affluent families or, more typically, as academies with a particular religious bent. At the collegiate level, a similar story.

The top brass at all these private institutions seldom earned over upper middle-class paychecks. No one grew fabulously rich off of educating young people. But all that has changed. Helping lead the charge for that change: a network of postsecondary institutions that feast off of taxpayer dollars.

Top execs at for-profit trade schools have done a major chunk of that feasting. Between 2003 and 2010 alone, these CEOs pocketed over $2 billion from their company stock sales. The CEO of ITT Tech, Kevin Modany, shared in those good times. In 2009, the Indiana-based Modany pulled down $7.6 million, over 22 times the then-$377,144 annual pay of the president of Indiana University.

Modany took home even more, $8.8 million, in 2012. Over the next three years, he added on another $7.6-million to his take-home haul. And what happened in the fourth year? In 2016, ITT Tech shut down and filed for bankruptcy.

The shutdown left in the lurch the chain’s 8,000 employees and 40,000 students then enrolled on 130 campuses across 38 states. These students, the Indianapolis Star reported at the time, found themselves “carrying piles of student loans” and course credits “difficult to transfer.”

Students already “graduated” from ITT Tech sat in similar straits. Those young people who had left their job placement to ITT Tech often found themselves “placed” in low-paying positions that didn’t require professional training. Graduates who tried to do their own job-hunting regularly suffered through humiliating job interviews. Prospective employers simply refused to take their ITT course credits seriously.

For good reason. ITT Tech spent more on marketing than educating. A U.S. Senate investigation would later put the comparative outlays at $2,839 per student for instruction and $3,156 per student on marketing. The school’s simple marketing mantra, according to the ad agency creative director who handled the ITT Tech account: “Get Asses in Classes.”

ITT Tech marketeers aggressively targeted their pitches at young military veterans — to maximize the federal aid the college could collect — and did their best to conceal the true cost of an ITT Tech education. In its prime, the chain was charging $77,000 for an average bachelor’s degree, about $640 per credit. Most ITT Tech students went for two-year degrees. Their per-credit cost, Barron’s would observe, tripled the going per-credit rate at the nation’s most expensive public community colleges.

The eventual overall price-tag for an ITT Tech education could rise far higher once student loan repayments kicked in. One ITT Tech Seattle campus student, a Gizmodo report noted after the school’s shutdown, had earlier taken out “$65,000 in federal and $7,000 in private loans to pay tuition.” Just four years later, after compounding interest, the student owed over $200,000.

By that time, regulators had caught up with ITT Tech CEO Modany’s corporate scamming. In 2012, a Senate report on for-profit trade schools showcased ITT Tech’s ongoing abuse of students and taxpayers. The federal Securities and Exchange Commission three years later charged that Modany and his chief financial officer had “engaged in a fraudulent scheme and course of business.”

Modany’s response to the growing critiques? He railed against “socialists” and “union” support for the “precious little millennial egos” getting so much attention for “telling lies” about him. But the railing wouldn’t save Modany. In 2016, the U.S. Department of Education finally pulled the plug. DOE informed Modany that August that students would no longer be able to use federal loans to attend his educational institution.

That announcement immediately torpedoed ITT’s financial model. The chain’s funding came overwhelmingly — 70 percent in 2015 — from federal student loans. Without that funding, all the marketing deception in the world couldn’t keep Modany’s scam alive. Just a few days after the Education Department’s ruling, amid widespread student and staff confusion, ITT Tech shut its doors,.

Earlier this year, in an exhaustive report entitled Dreams Destroyed: How ITT Technical Institute Defrauded a Generation of Students, the Project on Predatory Student Lending detailed the entire sordid history of the ITT Tech fraud and helpfully highlighted a series of recommendations to prevent any sort of future repeat.

The U.S Department of Education, the study suggests, “should sharply limit the ability of participating institutions to operate multiple locations and apply greater scrutiny to those that do.” The Department should also “derecognize” any accrediting agency that approves “an institution that causes large-scale harm to students and financial injury to the federal student aid programs.”

These and other suggestions in the study make eminent sense. But all these reforms leave in place the underlying incentive to become fabulously rich — off of federal tax dollars — that lit the profiteering fire under ITT Tech chief Modany.

We can, fortunately, eliminate that incentive with one simple move. We could limit executive compensation at any entity that takes in federal tax dollars to no more than a modest multiple — say 10 or 25 times — of the pay of that entity’s most typical employee.

Legislation now pending in the U.S. House of Representatives, the Patriotic Corporations Act, would take a step in this direction by granting preferential treatment in federal contracting to firms with pay ratios of 100 to 1 or less. The Congressional Progressive Caucus, note Institute for Policy Studies analysts Sarah Anderson and Brian Wakamo, has called on the Biden administration to give — via executive action — corporations with narrow ratios this same preferential contracting treatment.

And what will happen if we don’t move in this direction? Steel yourself for more Kevin Modanys.

Sam Pizzigati co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Twitter: @Too_Much_Online.