Home > Uncategorized > The US DOE’s sunk costs into for-profit colleges

The US DOE’s sunk costs into for-profit colleges

June 16, 2016

There’s been a lot of squabbling around how to deal with student debt lately, especially the debt incurred by shitty for-profit colleges. I claim these are sunk costs and should be treated as such.

If you aren’t familiar with the for-profit college boondoggle, let me break it down for you: there’s a federal aid system that guarantees loans to poor students for accredited colleges. This system has been gamed by an industry that includes Corinthian College, ITT Tech, and University of Phoenix, among others. They get accreditation through slimy and questionable means, then they lie to potential students about how great their education will be, then they collect the money.

The issue that the Department of Education (DOE) is now grappling with is this: should those students, who were misled and manipulated, be forgiven their debt?

From the side of the students, it seems pretty clear the answer should be yes. They didn’t receive proper educations, they were lied to and manipulated, and they are, by construction, quite poor. This debt will be hanging over them, making it even harder for them to eke out a living.

From the side of the government, the answer is less obvious. After all, it’s very expensive to write off a bunch of debt. And it would set a dangerous precedent. When would it stop? What if someone who went to a reasonable community college wanted to stop paying their debt? Or what about a graduate from a private college?

I’d argue that this is a sunk cost. Which is to say, the DOE fucked up when it allowed accreditation when it should not have. Once you let your standards go that far, you are on the hook. And although it looks “expensive” to forgive this debt, there’s really no other option, because it’s never getting paid back. That’s what happens when you let a predatory industry prey on the most vulnerable.

So, sunk costs. What’s good about acknowledging sunk costs is that you can learn your lesson and fix the problem that got you into this mess. When you don’t acknowledge sunk costs, you’re in the wrong mindset, hoping against hope that somehow the money will be paid back. It won’t.

What would it mean to fix this problem? We need to turn off the federal aid spigot for bad colleges. We need higher standards for accreditation.

The good news is that the DOE has just come out with recommendations for doing just that. In particular, they’re closing down one of the worst accreditation offenders.

If only they’d just forgive the debt so we could move past this ugly chapter of educational history.

Categories: Uncategorized
  1. June 16, 2016 at 8:36 am

    Yes, recognizing errors is necessary to learning.
    A learning organization, or a learning government, would do that.
    On jugera …

    And a Happy Bloomsday to You ❢


  2. mathematrucker
    June 16, 2016 at 11:57 am

    If the president alone has the power to accomplish this and Jill Stein becomes president, then bye bye student debt. Otherwise, snowball’s chance…


  3. June 16, 2016 at 1:08 pm

    But then, there’s always two sides to the coin though, and it’s hard to get scammers to scam you when you’re well-informed about their tactics and scripts. Due diligence and reform are both the key,


  4. June 16, 2016 at 4:45 pm

    The option that has seemed best to me is to reduce the ‘prestige’ of and the universal need for degrees.

    As far as I understand, in the US it is illegal to make hiring decisions based on (or even ask about during interviews) things like age, gender, race, medical status, etc. Unless it can be shown (to a reasonable legal standard) that this attribute is directly relevant to the job.

    The continuation of this to education reform seems to be: make it illegal to ask for (and make decisions based on) educational status unless the employer can demonstrate that this status is essential to the specific job. So in the case of say doctors or lawyers or plumbers or accountants , a good case can be made that certification is required and the standards of the certification might involve (very specific kind of) mandatory education. But even then, it is good to have an external board that takes responsibility for the standards of that certification and is held accountable for it (as I believe is done with the medical and law boards).

    This would help to reduce employers requiring unspecified “university degree” as a proxy for “from the right side of the tracks”. It would also give extra oversight on reducing bad colleges, since if a post-educational certification board exists then your education needs to be at least good enough to pass that board (kind of how your medical school has to be good enough for you to be able to pass your licensing exams with the knowledge they give you).


  5. June 16, 2016 at 10:27 pm

    Plenty of not-for-profit colleges that need to be shutdown as well.


  6. Guest2
    June 16, 2016 at 10:32 pm

    Even if NACIQI votes to de-recognize ACICS, that does not mean the Secretary of Education will accept that decision. Probably not the way that you describe.

    Sunk costs also mean that there is too much at stake to remove ACICS’s recognition, because the department doesn’t want to have to deal with the fallout of the “atomic bomb problem” of closing the accreditor for 800,000 students, and cutting off their financial aid.

    Let’s expand your argument, and point out that the employment trend for graduates is dismal, forcing many students to sign up for graduate school, even though they would rather have a job and income. Add to this the fact that public community colleges can have graduation rates as bad as those of for-profits, and almost everyone has substantial student debt (I talk to maybe a dozen every day). Does this mean that other accreditors should also lose their recognition? What happens if they do?

    There is a lot going on here, and if you talk about sunk costs, then we need to also think back to the 1800s when the higher education system began its expansion. With over $1.2 trillion dollars invested, and more than one-hundred years of institution-building and employment hierarchicalization, our society relies too heavily on the education system to change much of anything — all this is sunk cost.

    Liked by 1 person

    • June 17, 2016 at 12:51 am

      To be precise, a report from last month says that the most recent figure for community college students taking on debt is: 27%.



      • Guest2
        June 17, 2016 at 7:53 am

        To be precise, DOE is not closing down ACICS, the committee that advises the Secretary has not even met yet, and community colleges can have graduation rates as bad as those of the for-profits everyone is complaining about.
        See Shireman on this political theater.

        Schools like University of Phoenix will not be affected (if ACICS is de-listed) because along with other major players, they were regionally accredited long ago. Other schools are avoiding some of the new regulations directed at for-profits by become non-profits.

        When you talk about closing down bad schools, here’s what gets closed down — poorly financed and poorly managed HBCUs, like Paine College.

        Worse yet, funding pumped into the higher ed sector can be seen as government transfer payments, but without the stigma of welfare. No wonder Ivar Berg referred to schools as “aging vats”. With $1.2 trillion dollars of Keynesian support, higher ed has become a hidden welfare system that keeps unemployment low, and millions employed — this is what student debt slavery is buying now. As others have noted, it is a racket propped up by lies and myths about education.

        As predicted by Michael Spence’s signal theory, Nobel Prize winner in economics, we are over-investing in education. The mathematics used can be accessed here:

        Click to access spence-lecture.pdf

        “If you stand back from all this, the general pattern is fairly clear. The market equilibrium produces overinvestment in the signal because of the signaling effect, which is a private benefit to the investor, but yields no social benefit as its function is purely redistributive.”


    • Guest2
      June 17, 2016 at 6:41 pm

      Thank you — sobering article.

      Not only does it offer collaboration of Spence’s overinvestment prediction, but it talks about the edu-bubble, using law schools as an example. Signal theory and the mathematics behind it (can anyone follow the math side of his argument?) describe why this kind of overschooling occurs, but offers no way out. And no way to prevent nonlinear deflation (across the entire sector?).

      Liked by 1 person

  7. June 17, 2016 at 6:16 pm

    Of course, I meant we’re (and not where).


    • Guest2
      June 17, 2016 at 6:36 pm

      Yes — I wish this blog had an “edit” feature, so I could fix errors before they are blogged.


  8. Guest2
    June 18, 2016 at 9:20 pm

    Here’s why this problem won’t go away. Accreditation reviews are once every 10 years, and they last 2-3 days. Is that really enough time to evaluate a college or school?

    ACICS is not alone, and here is an interesting graphic that makes the general point well:



  9. davidmfisher
    June 23, 2016 at 8:30 pm

    My impression from watching preparations for an upcoming accreditation review at research I institution is that all accreditation reviews are crap. I saw a lot about the prep for this while on our Faculty Council and most of it seems to be about garbage “metrics” and other related nonsense. I don’t think tightening accreditation standards can do as much harm as good. Increasing testing in K-12 was originally motivated by concerns for quality and equality and look how well that’s turned out.


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