Tuesday, December 09, 2014

Placing the Actor

You know how you can see an actor on a tv show and recognize him from somewhere, but you can’t remember where, and it drives you a little bit crazy until it comes to you, days or weeks later?  That’s how I am with the story that the loan guarantor ECMC is buying several dozen Corinthian College campuses for less than a half-million each.  There’s more to the story, but I haven’t quite placed the actor yet.  

ECMC is buying 56 campuses and paying very little for each.  It’s saying it will run them as nonprofits, and will show good faith by starting with a 20 percent tuition cut.  It’s promising to bring in a top-flight educational management team, despite never having run even a single campus of a college before.  And it’s saying, probably correctly, that it won’t be a guarantor of any of the loans on its own campuses, because the Feds will.

I can see why the Feds are eager to sell.  They have no desire to run a chain of colleges, and full refunds and payouts to everyone would be terribly expensive.  Selling to ECMC makes the problem go away, or at least spreads it thin over several years.  It strikes me as the same logic that made selling Chrysler to Fiat seem like a good idea.  The Feds may be eager enough to sell to allow a tuition cut that would violate the 90/10 rule, as Trace Urdan pointed out yesterday.

But ECMC’s interest is harder to explain.  It has the means to do the deal, certainly, and it has the opportunity, but I’m stuck on the motive.  Why is it doing this?

At least with Fiat and Chrysler, there was a straightforward profit motive.  Since ECMC is committed to running the campuses as nonprofits -- it’s calling the nonprofit operation Zenith, which reminded me of Tenured Radical -- a straightforward profit motive is off the table.  

The CEO is speaking the language of philanthropy, but I’m having trouble with that.  It’s pretty far out of character for a loan collector, for one thing, and actually taking over and operating 56 campuses when you’ve never even run one seems like a convoluted way to make a contribution. If it wanted to make philanthropic donations, there’s no shortage of foundations and nonprofits already around that would be happy to receive a large check.  I’m not convinced.

Some commenters suggested that it was a principal/agent problem, in which the upper management of ECMC was buying itself high-paying sinecures before its current industry collapsed completely.  It’s possible, I guess, though it seems like an awfully indirect and labor-intensive way to do something that they could have achieved much more simply.  The financial services sector is notoriously clever about finding ways to make money; the idea that they’re buying campus presidencies for themselves just seems...odd.  I’ve been around my share of bankers over the years; I’ve never heard one say “nonprofits...that’s where the money is!”  It seems more cynical than insightful.

Granted, a hundred years ago some titans of industry used to like to establish nonprofit universities named after themselves as a combination of egotism and noblesse oblige.  But that doesn’t seem to be the case here.  They aren’t naming the campuses after themselves, and they don’t seem to have some sort of larger Cause -- whether ideological, religious, or whatever -- in mind.  They’re talking instead about pruning program offerings based on local job markets.  That’s fine, as far as it goes, but it’s pretty standard.  There’s no obvious “hook.”  They don’t seem to be out to prove some sort of theological or pedagogical point, or to build monuments to themselves.  They’re talking about it like a new product rollout, and the product doesn’t seem to be substantially different from what’s already on the market.  After all, if you want to offer slightly cut-rate vocational programs, what’s to distinguish you from the local community college?  And the community college starts with both local reputational advantage and lower tuition.

Someone suggested yesterday that it could be an exercise in property flipping.  I guess that’s possible, though I’d imagine most Corinthian locations are leased, rather than owned.  (I may be wrong on that.)  It could also be an attempt to buy accreditation, as in the “taxi medallion” sales of 2000-10, but those were usually for the sake of profit.  The nonprofit piece muddies the picture.

Yesterday I came up with another angle. What if the idea is to use the campuses as data mines for the sake of other financial products?  

It’s not entirely fanciful. That’s what Google does with Gmail, Google Docs, and the rest of its “free” offerings.  It offers services free to users, in exchange for gathering all sorts of data it can sell to advertisers, whether directly (as data) or indirectly (as ad placements).  If the service is free to use, the user is the product.  Facebook does that, Twitter does that; it’s not unusual in certain industries.  Older media operated somewhat differently, but on the same principle: radio stations sell listeners to advertisers, allowing listeners to listen for free.  Newspapers sell readers to advertisers.  The model is more refined than it once was, but not conceptually new.

In this case, replace “free” with “nonprofit,” or even “loss leader,” and the idea may work.  Given a chain of 56 different campuses in a single system, it would be easy to run each campus as its own test market.  The data-mining possibilities are astonishing, given the amount of confidential information that students disclose on financial aid forms, among other things.  If the campuses are basically break-even enterprises on their own after the first couple of years, then the data becomes a self-renewing profit source.  Every semester brings a fresh new crop of students, each representing fresh new data.  ECMC may not make a profit off campus operations, but it may profit -- directly, indirectly, or both -- from the data it could mine from the campuses.  

I hope that this is tinfoil-hat territory, and that student data is much more protected than that.  But I wouldn’t be shocked to learn that an experienced loan collector had found a loophole in the regulations around student financial data.  They’re pretty good at that sort of thing.

Wise and worldly readers, is there a better explanation?  Is ECMC simply and suddenly consumed with civic spirit and a love of the common good?  Have I given short shrift to the “sinecures” theory?  Can someone please help me place the actor?