Wednesday, October 12, 2011

Today's fake: Indians imitate San Francisco 'school' real estate scam

In San Francisco, an institution known as the Academy of Art University is highly visible around town. Its advertisements are plastered on Muni buses, its own shuttle buses ferry students around the central city, and its logo appears on numerous buildings devoted to classes, workshops, dorms, or other, more vague purposes.

A tourist or newcomer might be excused for thinking the Academy of Art University is a thriving art institution in a town full of artists. But if you've been in town for a while, you start noticing that the AAU's presence constantly increases. More buildings, more shuttle buses -- impressive! You might wonder how they achieve such success.

In fact, the AAU is well known to San Franciscans as little more than a real estate scam. Yes, there are classes and workshops and dorms, and the shuttle buses ferry registered "students." But the quality of the art education offered by the institution is well known to be mediocre. How, then, is the organization apparently growing by leaps and bounds? Basically it works like this:

  1. Government grants you status as non-profit educational institution. Under this status, you pay no real estate taxes.
  2. Sign up students and help them get gobs of student loan money. The money goes straight to the institution for "tuition."
  3. Hire mediocre instructors at low pay.
  4. Use the extra money to buy San Francsico real estate. Pay no taxes on it.
  5. Real estate appreciates, now worth 2x, 3x or more what you paid for it. Your "educational institution" now owns hundreds of millions of dollars worth of prime real estate in a world city. Happy!
  6. Award "graduating" students worthless degrees, which they don't care much about, because many of them are foreign students here on a lark. They go home, resume their lives, having had a year or two jaunt as "art students" in San Francisco. Happy!
  7. Many students default on student loans -- government and lenders unhappy.
  8. City of SF loses ability to collect tax on dozens of buildings. Recipients of city services unhappy.

It works like a charm, and now they're imitating it in India:

... Several new private "universities" have also opened up recently in Himachal. According to a local daily, the Tribune, one of these institutions enrolled students and started offering courses even before it came into legal existence. You might put down this haste to the high demand for quality education among India's overwhelmingly youthful population. But as the Tribune described in a series of reports, the universities not only lack faculties, laboratories and libraries; a few do not meet the criteria for acquiring property in the state.

In other words, private universities have become a pretext for real estate speculators to acquire expensive land from the government: another example of the collusion between state and private business manifested recently in some of India's biggest corruption scandals. These sweetheart deals would be somewhat excusable if, unlike most Indian institutions of learning, the private universities offered an education rather than degrees. But they are only interested in extracting steep tuition fees from parents anxious for their children to join India's new economy. Not surprisingly, as the Wall Street Journal pointed out, 75% of technical graduates and more than 85% of general graduates in India are unemployable.

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