A Trend I don't Appreciate

The Journal reported this week that shopping centers are filling up their vacant spaces with for profit colleges:

The schools, eager to keep up with demand from out-of-work adults seeking new skills in the health-care, automotive and technical trades, are renting empty mall anchor stores, grocery stores and space in office buildings to house their classrooms and training facilities. Though there are some obstacles to moving in, the schools are often welcomed as tenants, picking up hundreds of thousands of empty square feet and bringing new customers to nearby shops.

While it's great that shopping center owners are getting some revenue for the vacancies, I certainly hope this trend is temporary. Investors tend to stay away from centers that have a gym, an ice rink, or a vocational school. In this case, it's not just the parking issue that bothers me, what troubles me more is the "for profit schools" business model.

The "for profit schools" industry is subsidized by the federal government. The revenues for these schools come from tax payer funded financial aids. According to this NPR story, the amount of federal financial aid for students at for profit schools has exploded to $27 billion. While only 7% of of all college students attend for profit schools, they receive about a quarter of all federal financial aid, and represent almost half of the students who default on their loans.

These for profit schools typically charge very high tuitions. A one-year program for a culinary school could cost as much as $40,000. There is no evidence that these schools are providing high quality education, and what makes it worse is that students often can not find high-paying jobs after graduation to justify the high tuition costs. Listen to this Marketplace story for some of the issues facing for profit schools. My favorite line from Pauline Abernathy with the nonprofit Institute for College Access and Success: "We've seen some really troubling signs that taxpayers are subsidizing programs that over-promise and under-deliver."

No kidding. One of the biggest critics of the for profit schools is hedge fund manager Steve Eisman, who shorted the subprime mortgages and was profiled in The Big Short. His take on for profit colleges:

"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong," Eisman said. "The for-profit education industry has proven equal to the task."

Steve Eisman is testifying at today's Senate Hearing - Emerging Risk? An Overview of the Federal Investment in For-Profit Education.