US: Taxes support for-profit firms acquiring colleges

America's ITT Educational Services Inc paid US$20.8 million for debt-ridden Daniel Webster College last June, writes Daniel Golden for Bloomberg. In return, the company obtained an academic credential that may generate a taxpayer-funded bonanza worth as much as $1 billion.

ITT Educational, the US's third-biggest higher education company with a market value of $3.8 billion, may increase it by 26% (or $1 billion) within five years because of the purchase of 1,200-student Daniel Webster in Nashua, according to Michael Clifford, an investor who has participated in the acquisitions of four non-profit colleges. At least 75% of new revenue would come from access to the more than $100 billion a year in financial aid the US hands out to college students, he said.

The nation's for-profit higher education companies have tripled enrolment to 1.4 million students and revenue to $26 billion in the past decade. Now they're taking a new tack in their quest to expand. By exploiting loopholes in government regulation and an accreditation system that wasn't designed to evaluate for-profit takeovers, they're acquiring struggling non-profit and religious colleges - and their coveted accreditation. Typically, the goal is to transform the schools into online behemoths at taxpayer expense.
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