Saturday, February 09, 2013

Kaplan: Decades of Washington Post Conflict of Interest

Economic and finance bloggers like to point out the gun shy behavior that the mainstream media has with the too big to fail banks due to the large advertising dollars that those banks can spend. I've even blogged how that is one of the ways Wall Street can threaten the NY Times into mollifying their criticism of the big banks, their operations and the current system. An even more disgusting conflict of interest from a fellow cathedral institution is the Washington Post (Wapo) and their subsidiary, Kaplan Inc, which is a test prep company that has morphed into a for-profit college juggernaut. Wapo is a member of the media wing of the cathedral with the crowning achievement of destroying Nixon with the Watergate investigation, but the company doesn't make money from their media entities anymore. Kaplan is their moneymaker and how Kaplan makes their money slants every article that the Wapo media properties report on college, student loans, tuition costs, and government policy.
Stanley Kaplan suffered from the glass ceiling Jewish quota system that prevented him from getting into an Ivy. He cited that as the genesis for starting test preparation services. It makes perfect sense from his point of view, because outside of GPA, the SAT was the single most important nationwide gauge that colleges could use to compare one student versus the other without knowing anything about the high school's academic rigor. If there was a glass ceiling, the best way to differentiate oneself, and potentially make oneself such a great applicant no one could say no, was to boost that SAT score as much as possible. One man's feelings of being jobbed became a business, and played on people's insecurities, hopes or grudges. Kaplan had kept his service small for students on the high end targeting elite universities. Kaplan's test prep service was a solid moneymaker, and in the '80s, he sold it to the Wapo.
The rise in college costs started in the '70s, gained steamed in the '80s and went to ludicrous speed in the '90s. More and more students applied as a college degree became a requirement for more jobs that were the ticket to the good life. The nation pushed more kids into college. The media had a major hand in this as companies like Wapo highlighted the need for a college educated workforce and the only losers don't go to college message. The cutting edge crowd for elite university applicants expanded. A major focus, due to accusations of racial bias amongst other items, was placed on the SAT: scoring, edge in admissions, and test preparation. The entire time that Wapo was reporting on the rise of education, the importance of going to as good of a school as possible and the SAT, the company was making money and giving its subsidiary Kaplan Inc free press. The message might not have named Kaplan as a resource, but the reader would think, "My kid needs to max out their score", which would lead to researching how to do so, and Kaplan was the industry leader in boosting an SAT score. The same could be said for the push for graduate school programs that Wapo supported because Kaplan was the leader in GRE, LSAT, MCAT, etc. test preparation. They never had to name the company, which means they never had to reveal their conflict of interest, but it is there and one of the motivating factors behind Wapo media properties pushing the importance of college and standardized test scores. That is a decades long conflict of interest but not the worst one.
A change in how Wapo and Kaplan did business was when Wapo bought a chain of vocational schools at the turn of the century. This purchase was right after the government changed the bankruptcy rules for student loan debt. That change pushed student loan interest rates down as well as lowered the bar for credit worthiness for student loan recipients. If they have to pay it back, anyone can be approved. This fit right into Wapo's new properties. Kaplan took over that voc school chain and turned it into a revenue generator as suddenly they could offer voc courses to anyone with a built in revenue spigot from the federal government. It took a decade for anyone to point out that this stains the legacy of Wapo. Huffpo even cited the guerrilla registration tactics that Kaplan uses to sign students up, get the loans approved, then not care who shows up for class or graduates. In that Huffpo article is a graph that shows how Wapo's strategy for revenue has changed even in a short span of time away from news and test prep to the for-profit college route. In 2009, the Wapo corp had over $250 mil in net income from higher ed, less than $25 mil from test prep and over $150 mil in newspaper losses. Kaplan colleges are not diploma mills. They are registration boiler room centers. These articles cite the hard behavior but none really attack the decades of propaganda when money is on the line.
If I viewed that chart of income, I would say that the company is using the newspapers as a loss leader for their other businesses. How much free advertising are they giving their own company with ads in the paper as well as nudging public opinion on college education and requiring degrees of any sort for more and more jobs? The Wapo's support for student loan forgiveness plans as well as pushing for more loans at lower rates directly feeds into their profits. It's worth billions in revenue and millions in profit looking at Wapo's financial reports. Zero Hedge has posted continuously on the near parabolic rise in student loans since 2008. If we consider the rise of loans, and whether those loans are used for education or not, if the students are receiving loans, that money is paid to the university, but the debt is held elsewhere. Wapo acts as a middleman, with no skin in the game, therefore it makes sense that their Kaplan registration crews would act like subprime loan salesmen. Where does the money start from and where does it end? The government money and credit guaranteeing and subsidizing loans is backstopped by taxpayers and given to Kaplan, therefore Wapo. It is a giant conflict of interest, but does Wapo have to say anything in an article besides "Kaplan Inc is a subsidiary of the Washington Post"? No. They never have to reveal that Kaplan is the primary source of their profits. Taxpayer is the bag holder, the government judicial system is the enforcer, and Wapo is the lucky stiff counting 100 dollar bills. This is classic rent seeking behavior in our crony capitalist system.
The Washington Post is like many newspapers, a dying institution. Even the Ford Foundation, a non-profit, gave them $500,000 for operations. Wapo's decision to buy Kaplan proved to be the best diversification that a major media company has done in the post-public offering consolidation and acquisition years. The Kaplan Inc of today is far from what Stanley Kaplan envisioned decades ago. It is far from what Kaplan sold to Wapo in the '80s. Kaplan had been test prep services, with a steady expansion of locations, exams, and client base. Mr. Kaplan still affects your life, or at least your wife's social media life, and I'll post on that tomorrow. Similar to the steady current of 'buy a home' messaging during the housing bubble, the Wapo has engaged in a 'go to college' brainwashing campaign. It started decades ago, and is not just tied to their friendship with academia. While the switch in their business model was a long time in the making, the recent switch to higher education has been in the last five years. While other media sources (NY Times properties) have been attacking for-profit schools, Daniel Graham, at the head of Wapo, has defended them. His reasons are obvious. Losing all of that money, the Wapo might as well be renamed the marketing arm of their true revenue generator: higher education. The Washington Post has a conflict of interest that creates debt slaves out of their readership. While they must reveal a conflict of interest when it is directly tied to an article, none of the articles glorifying college, pushing education on lower income families, and pushing higher education are required to state just how dependent on that brainwashing campaign the paper truly is.

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