The Huffington Post reports that the Washington Post might have been forced into its fire sale this week after the threat of federal action in 2010 resulted in the drying up of a Washington Post Co. cash-cow division called Kaplan Higher Education.
Acquired by the Washington Post Co. in the 80’s as a business that helped students prepare for tests, another acquisition in 2000 turned Kaplan into a for-profit university that generated hundreds of millions of dollars for the company. The timing was perfect because the company’s flagship newspaper, the Washington Post, was about to enter into a startling financial decline.
Everything would run smoothly for a decade. The Post newspaper lost millions, Kaplan generated more than enough to cover those losses. That is, until the negative publicity surrounding a government crackdown on predatory recruitment practices plummeted Kaplan’s fortunes — and along with it, the fortunes of the Washington Post.
One of our society’s great scams is the student loan racket. Every year, the federal government gives away tens of billions of tax dollars in the form of student loans. The ultimate beneficiaries are sometimes the students, but always the schools. If you want to know why college tuition rates have skyrocketed, this easy money is why. Because practically anyone can get a government-subsidized student loan, universities feel no pressure to offer competitive pricing in a free market. Schools can pretty much charge whatever they want because the customer can almost always get the purchase subsidized by Uncle Sam.
When college prices go up, so does federal spending on student loan aid.
It wasn’t always this way. Government student loans used to be reserved for the needy. But along with the rhetoric about how a college education is a “right,” came the opening of the government spigot, which in turn raised the cost of everything and, naturally, invited exploitation.
Enter in into this picture a staggering rise in what are known as for-profit universities — all of them eager for a spot along this rich government trough. A recent study shows that between 2000 and 2010, this “sector grew by some 235 percent in enrollment.”
Just like the better known public universities, these for-profit universities offer bachelors and associate degrees, and some of them provide a legitimate public service. Too many of them, though, are what are known as “diploma mills” that run like used car dealerships. Recruiters troll for suckers, employ a high-pressure sales pitch, sign the sucker up for a government loan, and collect the taxpayer cash.
The results are great for the school. At this point there is no way for them to lose because they have been paid by the federal government with our tax dollars. Meanwhile, the student that was pressured into signing up drops out and is either saddled with a huge debt for something that did them no good, or they default on the loan and the taxpayer takes it in the neck.
And it is in this environment that Kaplan and by extension the Washington Post thrived.
According to HuffPo, while the Washington Post newspaper was losing as much as $150 million in ’08 and ’09, Kaplan was raking in the money thanks to its 60 for-profit schools that housed over 100,000 students.
But it was only the Washington Post Co. profiting.
Students, on the other hand, were not doing so well; again, according to the Huffington Post:
[A]s enrollments skyrocketed, federal statistics showed that students were faring poorly. A Senate report released last year found that Kaplan’s student loan default rates were the third-highest of 30 schools examined, and were 25 percent higher than the default rates across the for-profit college sector.
Recruiting documents obtained by the U.S. Senate Health, Education, Labor and Pensions committee showed aggressive tactics that Kaplan sales managers used to entice students to enroll. Recruiters were instructed to find students’ “pain and fears” during sales calls to convince them that a college degree would solve their problems. “If you don’t make this change, how do you think your future looks?” one document read.
The taxpayers also lose in the event of default. After all, it is our money being lent out and not being repaid.
But imagine being the student saddled with all this debt after some recruiter (possibly working in “boiler room” conditions with quotas, etc.) has exploited your “pains and fears.”
If that isn’t troubling enough, a 2010 New York Times investigation into Kaplan revealed whistleblower lawsuits alleging that recruiters in one location profiled students based on “markers like low self-esteem, reliance on public assistance, being fired, laid off, incarcerated, or physically or mentally abused.”
Kaplan also boasted about the number of poor and minority students they regularly enrolled.
But as for-profit student loan default rates climbed, in 2010, the government closed in to tighten regulations. And it was Washington Post Co. chairman Donald Graham, who became the most high-profile lobbyist pushing back. The Huffington Post reports that Graham’s company spent $1.3 million to keep their cash cow alive.
But in a delicious twist, the very same Obama administration that the Washington Post newspaper sold its soul to put in the White House is the very same Obama administration that would eventually help to bring about the end of the Post’s sugar daddy.
Apparently, President Obama’s administration did agree to water down regulations that would have hurt a newspaper company that just two years later would do so much to re-elect him. But the negative publicity the uproar generated probably did as much damage as any tightened regulations. HuffPo reports:
The lobbying efforts by Kaplan and others in the industry eventually resulted in watered-down regulations. But bad publicity surrounding the government scrutiny scared some students away. In response to criticisms of its high-pressure recruiting tactics, Kaplan introduced a program that would give students a 5-week free trial period to see if they liked the programs. Enrollments plummeted, and nine campuses have closed since last year.
As Kaplan’s higher education business dried up, shortfalls in the company’s newspaper division continued to be a drag on overall profits. That division, which was primarily made up of the Washington Post, saw its losses more than double last year from $21 million to $53 million.
And then the roof fell in:
By the end of last year, just as Graham and his company now acknowledge they began seeking a buyer for the Washington Post, operating income at Kaplan’s higher education division had plummeted to $27 million from $406 million two years earlier, a drop of 93 percent[.]
The Washington Post Co. has denied that the collapsing fortunes of its Kaplan education division had anything to do with its sale of their flagship newspaper.
If you are looking for a moral to this sordid story, it is this: Ten years ago, the Washington Post was worth $2 billion. Monday it sold for $250 million, an 87% loss (higher if you account for inflation and lost interest on $2 billion over a decade).
Had the Graham family simply sold the paper ten years ago instead of trying to keep it alive at the expense of the American taxpayer and God knows how many thousands of students (many of them, apparently, poor minorities), the Grahams would be a whole lot richer today.
Follow John Nolte on Twitter @NolteNC
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