What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in the united states. Kids are taught from a very young age that going to college is the most important event in their early life. Everyone from your teachers, politicians and probably your parents, have told you that going to college is essential to achieving the american dream. The idea is that if you study hard and obtain a degree you'll be on try to get a high-paying white-collar job and enter the upper realms of society, it doesn't matter how much the tuition is and how much student debt you'll be stuck with.

The thinking is that, if you want to move up in life, your only option is to enroll in university you're not supposed to consider the fact that up to 40 of college students drop out and of those that do graduate another 40 end up working a job That does not require a college degree and whether you graduate or not you'll be stuck with the student loan balance of forty thousand dollars. On average, more than forty percent of us adults have a post-secondary degree. If you include people who drop out close to seventy percent of the population has enrolled in some form of college education, the problem is, there, aren't nearly enough white-collar jobs available to soak up all these graduates and to make matters even worse. The cost of college is increasing rapidly and shows no signs of slowing down.

Since 1980, the average college tuition has increased more than 10-fold, far outpacing general consumer inflation to afford this students are taking on ever-increasing amounts of debt, essentially selling away their financial futures. Currently, there is 1.6 trillion dollars of student loan debt outstanding in america, millions of people have had their lives destroyed by exorbitant student loan burdens that make the prospect of financial freedom little more than a fantasy and for the most part, the build up of the high Education bubble has been fueled and supported by the u.s government over many decades. The u.s higher education system may seem absurd to many outside observers, but with trillions of dollars on the line you have to look at who benefits. While millions of students are suffering from debt burns, they may never be able to repay.

There is a select group of wealthy businessmen and corporations who have profited to the tune of hundreds of billions of dollars at the heart of it. All is the for-profit education industry, which is perhaps the largest legal racket in u.s history, but before we get into the video a quick word from our sponsors over at masterworks masterworks has emerged as the only platform taking billionaire art collectors head on and lets you access Their exclusive investments simply put, you can now invest in the very same art that they do by names like banksy, monet, basquiat and other iconic artists. We only take sponsorships from companies, we believe in i'm a big believer in art as an asset class both for diversification and as an inflation hedge. I personally invested in homicides by pablo picasso, while past performance does not guarantee future performance.

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If you want to create a for-profit college. The biggest problem is that your prospective customers are 18 year old, high school graduates. They have almost no money and no assets to borrow against. How are they going to fork up six figures for a college education? This is where uncle sam comes in.

In 1965. President lyndon johnson signed the higher education act into law as part of his great society agenda. Part of the idea was to reduce income inequality by providing lower income families loans to go to college. The law created the modern student loan program.

Under this program, private lenders provide the capital for student loans, but the government guarantees the entire balance in the case of a default now 18 year olds, who wouldn't be able to even qualify for a used car loan can now borrow tens or even hundreds of thousands Of dollars after the system was enacted, shrewd businessmen wasted no time in taking advantage of it. For-Profit colleges started popping up all over the country and by the year 2000 there were roughly half a million students enrolled in these institutions, but the real growth started after george bush's presidential election as part of his broad deregulation push the department of education issued a memo. Reducing scrutiny around for-profit college recruitment practices, the memo indicated that colleges would not be harshly penalized if they paid recruiters based on how many prospective students they could sign up around the same time, wall street started taking increasing interest in for-profit colleges as an investment opportunity, investment Banks, including wells fargo and goldman sachs, started helping many for-profit education companies to raise capital from institutional investors. Private equity funds started pumping billions of dollars of investment as well.

Many for-profit education companies listed on the public markets raising billions more in new capital by 2009. When weighed by the number of students, 76 percent of for-profit colleges were either publicly traded on the stock market or owned by private equity firms. During this era of deregulation, the number of for-profit higher education institutions exploded by the peak in 2010, they enrolled more than 2 million students across the country as publicly traded companies. The for-profit colleges were under pressure to meet analyst expectations on a quarterly basis.

This means recruiting as many students as possible charging them as much as possible and spending as little as possible on the quality of the education. They don't really care about their students, career prospects after graduation or if they even graduate at all for that matter. If the student eventually defaults, most of the loans are federally sponsored. The college collects the cash up front in the case of default.

The government foots the bill. For-Profit colleges typically charge high tuition and offer inferior teaching as compared to their non-profit counterparts. So why does anyone choose to attend them? A lot of it can be attributed to the incredibly aggressive marketing tactics that they employ. For-Profit colleges mainly target so-called non-traditional students.

This includes single mothers and low-income people who are struggling to get by they often advertise post-graduation career prospects with exaggerated or sometimes outright fabricated employment statistics. They promise that obtaining a degree will allow you to completely turn your life around they're. Basically, in the business of selling people hope, but much of the time this hope is built on a mountain of lies. Perhaps the worst offender was a now defunct company called corinthian colleges.

They were publicly traded and at their peak they were one of the largest players in the industry. They have substantial support from institutional investors, counting the likes of blackrock and wells fargo as major shareholders under their everest wyotech and held brands. They had more than 100 campuses and 70 000 enrolled students in a 2015 investigation. The state of california found that corinthians specifically targeted vulnerable people, including single parents, at or near the poverty line in their internal documents.

They refer to their target students, as quote isolated, impatient individuals with low self-esteem who have few people in their lives, who care about them and who are stuck and unable to see and plan well for the future. Unquote, a later investigation by the consumer financial protection bureau found that corinthian representatives lured students in with artificially inflated job placement statistics for graduates. They even went as far as to make up fake companies that graduates supposedly found employment at. They would also pay employers to give temporary job placements to new graduates and would record these as if they are full-time jobs.

They didn't advertise the fact that close to 60 of their students drop out without graduating, but perhaps the most gut-wrenching part of the story was their tuition fees for a bachelor's degree, corinthians charged between sixty thousand and seventy five thousand dollars, which is multiples higher than the Cost of public universities, federal student loan programs have a cap, so they could only pay for about. Eighty percent of that for the remainder corinthian encouraged students to sign up for their private student loan program called genesis loans. These genesis loans had 15 interest rates, which was almost five times greater than rates on federally subsidized loans. They also charged a six percent origination fee students had to start making payments even before they started graduating and they would have their degrees withheld if they had any outstanding balance.

They even resorted to loan shark desk tactics such as pulling students out of class and otherwise humiliating them if they were late on their payments facing billions of dollars in legal settlements, the company declared bankruptcy and shut down all of its operations in 2015.. Sixteen thousand students and staff were left without their degrees and jobs overnight. Ceo jack massimino was eventually fined. Eighty thousand dollars by the sec, that's a pretty small price to pay, considering that many corinthian students paid well over 80 thousand dollars for their fraudulent degrees.

When you consider the interest expense, while corinthian was perhaps the most extreme, most for-profit colleges have high tuition and questionable marketing strategies, at least to some degree. In 2010, the government accountability office published a report about this issue. They sent undercover agents posing as prospective students to visit 15 for-profit colleges, representatives from all 15 colleges, made deceptive or otherwise questionable statements. Four of the colleges encouraged the undercover agents to falsify their financial aid forms to qualify for federal aid in the 2009-2010 academic year.

For-Profit colleges in aggregate received 32 billion dollars of federal grants in student loans since the turn of the millennium. The grand total is in the hundreds of billions. So what has society got in return for this massive public investment? While there is still much debate about how to calculate returns to education, perhaps the most comprehensive study of the issue was published in the national bureau of economic research. In 2016., economists, stephanie cellini and nicholas turner analyzed the employment outcomes of 1.4 million students who left for-profit colleges between 2006 and 2008..

On the bright side, students who graduated with a bachelor's or associate's degree saw an average increase in their annual income between thirty five hundred and four thousand dollars. But you also have to consider the roughly sixty percent of students who dropped out of school without receiving a degree they incurred, tens of thousands of dollars in debt and lose years of their life and from an employment perspective. They actually arguably end up worse off than have they never gone to college at all. These people are forced to explain the gap on their resume when they apply for jobs when employers find out that they fail to finish their degree.

There is a perception that the student is unmotivated and doesn't get things done. This leads to worse employment, prospects and ultimately lower pay. When you include all students, those who graduated and those who did not the average for-profit college attendee sees a 600 decline in annual earnings. After barack obama was elected in 2008, his administration started cracking down on for-profit colleges.

The department of education started strictly enforcing the so-called gainful employment rule. This rule cuts off federal funding to colleges if their post-graduation employment outcomes are below a certain threshold. Thousands of for-profit college programs did not meet the gainful employment threshold with 80 to 90 percent of their funding coming from federally subsidized loans and aid. Cutting this off was tantamount to a death sentence.

For-Profit college companies started going bankrupt, left and right and total enrollment started nose, diving from its peak in 2010., under the trump administration education secretary, betsy devos reversed many of the obama-era policies, including the gainful employment requirements. She was much more lenient on regulations and was viewed as friendly to the for-profit education industry, and while she was lenient to the colleges, her policies were far less favorable to the students under the prior administration. Former students of the now defunct corinthian college had their federal loans forgiven. However, davos overturned this and started collecting on them again going so far as the garnish wages of the victims, the court ruled that these loan collections were illegal, as the students had been defrauded.

Davos continued to collect on them anyway, until the department of education was eventually held in contempt of court, even though the for-profit colleges had an ally in the trump administration, the damage was already done with negative headline after negative headline in the media. Prospective students grew increasingly wary of the for-profit colleges, enrollment continued to decline and has leveled off at about 750 000. In recent years. That's roughly two-thirds lower than the 2010 peak.

This video isn't saying that college is bad. In most places, there are far better options than for-profit colleges. In-State community colleges provide superior employment results at a fraction of the cost. The only thing they're not as good at is marketing the two-decade reign of unregulated for-profit colleges will go down as a stain on the history of american education for years to come.

Alright guys that wraps it up for this video. What do you think about for-profit colleges? Let us know in the comments section below as always. Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.