‘The Washington Post’ and the Perils of For-Profit Colleges

As the for-profit higher-education industry fights efforts by the Obama administration and Congress to increase federal oversight of its schools, the industry’s lobbyists have a powerful weapon: the world-renowned Washington Post.

It’s hardly a secret that the Washington Post Company owns Kaplan Inc., one of the largest for-profit-college chains in the country. Kaplan, in fact, accounts for 62 percent of the parent company’s total revenue. Late last week the Post reported that overall revenue from its Kaplan division rose to $743-million, up 9 percent over the same period last year. Recognizing the outsize role that Kaplan plays in keeping the newspaper afloat, Donald E. Graham, the company’s chairman and chief executive, declared in 2007 that the Washington Post Company was now “an education and media company.”

Less widely known are the Post‘s ties to Corinthian Colleges, a for-profit higher-education company that serves about 110,000 students at more than 100 colleges in the United States and Canada. The newspaper company purchased nearly seven million shares of Corinthian Colleges’ stock in 2008, giving it an 8-percent ownership stake in a company that appears to be among those most in jeopardy if the administration’s regulatory proposals go into effect.

Given its enormous financial interest in those companies, you would think that the Post would go out of its way to avoid creating even the appearance of a conflict of interest. But you’d be wrong. Instead, the newspaper company has used its editorial page to lobby against the administration’s regulations, especially one that would penalize for-profit colleges for saddling students with unmanageable levels of debt.

The Post ran an editorial in August condemning the proposed “gainful employment” rule, which would cut off federal student aid to college programs whose students take on the most unmanageable levels of debt (in relation to their expected future earnings) and have the poorest records of repayment. The editorial, titled “How to Discourage College Students,” warned that if the regulation went into effect, it would “deprive many working students of their best option for higher education.”

(The Education Department issued rules late last month to, among other things, stop for-profit colleges from engaging in misleading recruiting and marketing practices, but it has postponed making its proposed “gainful employment” regulation final until next year.)

The Post’s editorial page has won praise in some quarters for prominently disclosing, in the editorial’s second paragraph, that the newspaper has a conflict of interest because of its ties to Kaplan and “other for-profit schools of higher education that, according to company officials, could be harmed by the proposed regulations.” In a column that ran the same day as the editorial, the Washington Post’s ombudsman, Andrew Alexander, applauded the newspaper for its “transparency.”

But the newspaper’s watchdog on journalistic ethics missed the point. The question is not whether the Post disclosed the conflict (a point that is debatable, since the editorial did not specifically acknowledge the newspaper’s link to the troubled Corinthian Colleges), but whether it should have editorialized about this subject at all, given the vital stake it has in the outcome of the debate.

After all, much of the editorial simply repeats the industry’s talking points, by, for instance, exaggerating the impact that the proposed gainful-employment regulation is expected to have on proprietary institutions, and referring to for-profit colleges as “tax-paying schools,” without noting that many of them derive 70 percent to 90 percent of their revenue from American taxpayers through federal student-aid programs.

Even more important, the editorial’s central thrust—that the administration is wrong to try to limit student options because “the more options available to parents and students, the better"—is self-serving and misguided. Yes, it’s good for students to have educational options. But should the government sit idly by when some major for-profit higher-education companies are leaving the majority of their students worse off than before they enrolled, buried under mountains of debt and without the skills they need to get gainful employment in the fields in which they trained?

Take Corinthian Colleges, for example. According to data released by the Education Department this summer, only 24 percent of students who left the company’s schools in the previous four years had paid down any principal on their federal student loans as of September 2009. In other words, about three-quarters of students who left those institutions during that time had not paid enough to reduce their total loan debt by even a dollar. In comparison, the Education Department found that 54 percent of students at public colleges and universities, and 56 percent at private nonprofit institutions, had paid down principal on their federal loans during the same period. Under the administration’s gainful-employment proposal, college programs with repayment rates under 35 percent could be in danger of having their eligibility for federal student aid revoked.

Of all of Corinthian’s former students, those who attended the company’s Everest campuses fared the worst. According to the Education Department, 33 of those 86 locations had repayment rates of less than 20 percent, and five had rates below 10 percent. The Everest Institute’s Detroit campus, for example, had a rate of just 7 percent.

Meanwhile, Corinthian itself has told investors that it expects nearly 60 percent of the $150-million in subprime private loans it made to students in the 2010 fiscal year to go into default. For the company, losses on the high-cost “institutional loans” are more than offset by the federal financial-aid dollars those students bring in. But for the students, defaulting on those loans could lead to a spiral of debt that could ruin their lives.

Are those for-profit institutions really “the best option for higher education” that low-income and working-class students have?

For better or worse, the Post has tied its financial future to the success of its proprietary institutions. As a result, it should come as no surprise that Mr. Graham was making the rounds on Capitol Hill to try to build opposition to the administration’s proposed regulations.

But by carrying the fight into the newspaper, the Post’s leadership has done damage to perhaps its most valuable asset: the sterling reputation it has built over the past 40 years as a result of its dogged reporting. “The Washington Post was an American icon. It’s the newspaper that brought down a president of the United States in defense of the rule-of-law nearly 40 years ago,” one unhappy reader wrote in response to the editorial. “But that was then; now it’s Kaplan’s Washington Post.” Such sentiments should set off at least as many alarms with the Post’s leadership as Kaplan’s stock price has.

The truth is, the Washington Post company has put its newspaper into a tough spot. The paper can’t afford to ignore what has become the biggest education-policy news story of the year. But it cannot possibly do the kind of investigative digging into the for-profit higher-education industry that we have come to expect from the Post without threatening its own bottom line.

The position the paper finds itself in should serve as a warning to other cash-strapped newspapers and news-media outlets that are considering entering into similar corporate “partnerships.” In tough economic times, with so many newspapers struggling to survive, such arrangements are surely tempting. But as the Post example shows, they come at a steep price: They have the potential to undercut the integrity of the very journalism they are meant to support.