How Bruce Rauner makes money from for-profit schools and worthless degrees

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Bruce Rauner, the Republican candidate for governor, has invested in for-profit schools accused of fraud.
  • Seth Perlman / AP Photos
  • Bruce Rauner, the Republican candidate for governor, has invested in for-profit schools accused of fraud.
UPDATE: This post has been updated to include a quote from Thomas Zimmerman, lead attorney for the students in a class action lawsuit against the Illinois School of Health Careers and ForeFront Education.

Republican Bruce Rauner's generosity to educational causes is one of the accomplishments he's touted most often during his campaign for governor.

"Over the last 20 years my wife and I have dedicated our lives to education improvement," he said during a stop at a Humboldt Park church last month. He noted that they had donated millions of dollars to charter schools and education reform organizations through their charity, the Rauner Family Foundation.

In fact, Rauner says that ensuring a "high-quality education for all" is the key to the state's future. "Education isn't just a state obligation—it's a moral issue," proclaims his "blueprint" for what he'll do if elected. "It's a matter of fairness and social justice."

It's a powerful statement. But as a longtime venture capitalist and investor, Rauner hasn't always put his money where his ideals are.

The GOP candidate made some of his vast fortune—and continues to collect money—from for-profit schools that are accused in court of exploiting students, handing out worthless degrees, and raking in millions of taxpayer dollars through fraud.

As you've undoubtedly heard by now, Rauner made hundreds of millions of dollars as a leader of the private equity firm GTCR from 1981 to 2012. Though he left the business shortly before launching his bid for governor, he continues to have investments in it.

In 1999 GTCR funded the creation of ForeFront Education, a for-profit company offering college degrees and training for jobs including medical assistants, paralegals, and office administrators. As with all of its investments, GTCR was interested in this segment of higher education because of its growth potential—or, as the Chronicle of Higher Education later reported, "because of its high profit margin."

As investors, Rauner and his colleagues were onto something: the for-profit college industry was entering a boom time. By 2010 it was generating $30 billion a year, according to an investigation by Bloomberg News. But it did so "by targeting vulnerable populations—disabled military and veterans, the homeless, immigrants and minorities—with misleading promises of low costs, online academic help, and lucrative jobs after graduation."

ForeFront's schools were part of the trend. In 2003 ForeFront acquired the Illinois School of Health Careers, with campuses in the Loop and on the far northwest side near O'Hare. Its brochures informed prospective students that the school was "institutionally accredited." It boasted of a "distinguished reputation in Chicago for graduating and placing high-quality students into allied health professions."

In 2010, however, school administrators admitted in a letter to students that one of its programs wasn't actually accredited, and therefore graduates weren't qualified to take state exams to become certified nursing assistants.

A group of students filed a class-action lawsuit in Cook County accusing the school and ForeFront of fraud. If the students had known the truth about the school's credentials—and its difficulty in helping them land jobs—"they would not have enrolled," the lawsuit stated.

"It caused a great hardship to the students, who come from and live in poor communities and were trying to better their lives," says Thomas Zimmerman, the lead attorney for the students. "A lot of these students were single mothers. They put their lives on hold for eight months to study and get certification, only to find out at the end that it was all for nothing."

The suit was settled in 2013 for about $1.2 million.

According to GTCR's website, the firm still owns ForeFront and the School of Health Careers, which means the GOP candidate is still profiting from it.

Yet Rauner's campaign says he wasn't responsible—much as he's downplayed his ties to nursing homes accused of substandard care and privatized probation services that prey on the poor.

"Bruce wasn't involved with it, but ForeFront Education made a mistake, apologized for it and tried to correct it by paying for students to take a new program as well as paying them $1,500," says spokesman Mike Schrimpf.

That's not the end of the story. Rauner is also a stockholder in Education Management Corporation (EDMC), which operates more than 100 campuses around the country, including the Illinois Institute of Art in Chicago, Schaumburg, and Tinley Park.

The total enrollment at EDMC schools soared from about 38,000 in 2001 to more than 158,000 in 2010, according to a report from the U.S. Senate committee on health, education, labor, and pensions. And the growth was fueled by taxpayer funds.

In 2011 the federal government, the state of Illinois, and ten other states sued the company and its schools, alleging they committed widespread fraud while collecting $11 billion in federal student aid between 2003 and 2011. Student recruiters—known as assistant directors of admission, or ADAs—were paid solely on the basis of how many warm bodies they were able to enroll, and almost anyone was admitted if it meant more money coming in, the feds said.

"EDMC also regularly instructs ADAs to enroll applicants regardless of their qualifications, including applicants who are unable to write coherently, applicants who appear to ADAs to be under the influence of drugs, and applicants for EDMC's online program who do not own computers," the suit alleged.

If potential students had misgivings about signing up, admissions staff were supposed to convince them with a tactic called "finding the pain."

"'Finding the pain' means locating a prospective student's vulnerabilities and exploiting those vulnerabilities to persuade the student to enroll in an EDMC program," the suit alleged. "EDMC trains ADAs that examples of 'the pain' include a hypothetical student's desire to earn enough money to move her kids out of a dangerous neighborhood, or her desire to make her father proud."

Students were also assured that they'd have assistance in finding a job. However, "students may use the Career Services Office for a limited time after graduation, despite the fact that many ADAs tell students that they will have lifetime access."

The suit is still in litigation.

At the same time, EDMC schools did a dismal job of retaining students: more than half left without a degree or diploma within four months, the Senate report found.

Even students who manage to get degrees from for-profit schools usually leave with debts, and many are never able to pay them off, leaving taxpayers on the hook. Nearly half of all federal student loan defaults—47 percent—are from students who attended for-profit schools.

Rauner's campaign says he has no direct ties to EDMC. "That is a publicly traded company and the stock is held by the Rauner Family Foundation, so Bruce has no personal financial benefit from it," Schrimpf says.

But Rauner lists himself as a stockholder in the company on the statement of economic interest he filed with the state. And EDMC is nowhere to be found in the most recent tax filings for the Rauners' charity.

In his education blueprint, Rauner gives Governor Pat Quinn a "failing grade" for making higher education accessible to all. "Too often the result of this process is many students with some postsecondary education, no degree, and a crippling amount of student debt. We can do better."

Correct.

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