Contagion effects of for-profit colleges woes?

Posted on: July 17, 2014, by :

On the day that Americans celebrated the country’s independence day, The Huffington Post reported that one of the largest for-profit college groups in the USA, Corinthian Colleges was heading for disaster. The crux of the matter was due to Corinthian’s over reliant on federal government-backed study loans to the bulk of its 72,000 student loan which was effectively pulled back by the authority. For 2013 Corinthian had a revenue of US$1.6 billion, US$1.4 billion of which was attributed to federal government-backed study loans. 85 out of over 100 of Corinthian’s campuses over 25 states are now up for sale with another 12 slated for full closure.

Although Corinthian gave reassurance to affected students that their studies would not be disrupted, the damage to the confidence of the market is irreparably done.  Corinthian’s case has not been helped by a judge ruling that it does not need to disclose its financial woes in any of its advertising materials. This fuels speculations that there must be more that meet the eyes as far as Corinthian’s predicament is concerned.  It was disclosed that Corinthian’s case may just be the tip of the iceberg, another for-profit group, ITT Education Services Inc. is set to lose some of its federal government funding.

Just 10 days later, a routine audit and review by the U.S. Department of Education (DOE) on the largest for-profit education group, Apollo Education Group which, according to Apollo was a routine procedural matters was read by the market, in light of the Corinthian case with “controlled alarm“.

Are we seeing a contagion effect on the for-profit higher education sector in the USA? Will this contagion effect due to the pulling back and tightening scrutiny of for-profit players in the USA have a “mirror” image if PTPTN (Malaysia’s National Higher Education Funding Corporation) copies some of the measures taken by the USA’s DOE?

So far PTPTN has been concentrating on its efforts in the recovery of study loans and it has not been paying too much attention on the education providers. It is surely highly beneficial if PTPTN performs periodic auditing and review of all the education providers, both public and private to ensure that the study loans provided are spent prudently and achieving their intended purposes.

PTPTN can also collaborate with other agencies such as the Malaysian Qualifications Agency which oversees the quality of teaching and learning of higher education providers to ensure that their respective databases can be cross-referenced.

The yearly amount of RM5.0 billion injected to the entire Malaysian higher education industry as student loans. This is the fuel that sustains the bulk of the for-profit institutions of higher learning in Malaysia. More stringent reporting and auditing procedures should be levied on all institutions of higher learning whose students are receiving PTPTN loans. Institutions, whether public or private with high percentage of PTPTN loan defaulters should be made accountable and if needed, PTPTN should do like the DOE of USA, pull funding from these institutions accordingly.

If we let the status quo persists, the student loan contagion effect of the USA will reach our shores sooner than you expect!

Footnote: Dr. Chow has an opinion piece on his column in the weekly, The Heat dealing with his experience in repayment of study loan and why he sleeps soundly each night as his conscience is clear, he paid back all he had owed! 



July 20, 2014: It seems that the contagion effect has started in the USA. Another for-profit education group is under the spotlight. This time, DeVry University is being investigated by New York Attorney General.

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