The following is an excerpt from the book Plutocracy in America by Ronald Formisano (Johns Hopkins University Press, 2016):

"America’s overconfidence in upward mobility . . . has become the rationale for indifference toward income inequality—a rationale built on a demonstrably false premise." —Timothy Noah, The Great Divergence

Long-cherished convictions among a people die hard, and the belief in the American Dream—the United States as the land of opportunit—has enjoyed a particularly durable afterlife. That its mystique extends well beyond the nation’s borders probably has added to its longevity. But the dream, once a reality, has become a myth.

Noble laureate Joseph E. Stiglitz, summarizing the work of economists, observed that presently “the United States has less equality of opportunity than almost any other advanced industrial country. Study after study has exposed the myth that America is a land of opportunity.” While social mobility is still possible, “the upwardly mobile American is becoming a statistical oddity.” Economic mobility in the United States is less than in most of Europe. And beyond Europe, countries as diverse as Japan, New Zealand, Singapore, and Pakistan have higher degrees of income mobility than the United States. The life chances of an American child are more dependent on the income and education of her or his parents than in most other advanced countries for which there is data. This relationship increased after 1980, and cross-national comparisons indicate that the “more inequality, the less social mobility.”

Class mobility in the United States displays what demographers call “stickiness,” namely, those born into the top fifth of incomes and those born into the bottom fifth tend to stay there. The Economic Mobility Project of the Pew Charitable Trusts found that about 62 percent of children born in the top fifth stay in the top two-fifths, while 65 percent born in the bottom fifth stay in the bottom two-fifths. More mobility occurs in the middle, but not as much as in comparable countries.

Inequality and diminishing mobility are reflected in—and caused by—growing inequalities in the U.S. system of secondary and higher education. High school graduation rates have improved in recent years, with the national rate going from 71.1 percent in 2001 to 78.2 percent in 2010 (in 2008 it was 85 percent in the European Union). Some states have attained rates of 90 percent, but minority students still lag well behind whites, with one-third of African American and 29 percent of Hispanic students dropping out. Graduation rates also stayed lower among Native Americans. Educators attribute the overall increase to efforts to keep students in school, while economists also point to the lack of jobs as a motivating factor.

More importantly, during the last decade the number of high-poverty schools has risen, and many students in these schools remain trapped in a self-perpetuating set of disadvantages that significantly lower their chances of improving their lives. (High-poverty schools are defined as having at least 75 percent of their students enrolled in free or reduced-cost lunch programs.) For decades studies have shown that students in high-poverty schools perform poorly, compared with those in better-off districts. And that gap has not been decreasing, but growing. High-poverty high schools have a graduation rate of 68 percent, and only 28 percent of their graduates attend four-year colleges, compared with 52 percent of the graduates from low-poverty schools. The homes of low-income students contain fewer resources to enhance their education, and they suffer from lesser-quality materials available in their classrooms. Schools in affluent neighborhoods enjoy abundant resources and more qualified personnel.

The high-poverty label for schools increasingly has come to mean those segregated by income and race. Since the 1990s, white flight and black middle-class flight, along with a series of decisions by a conservative U.S. Supreme Court majority hostile to desegregation remedies, has led to the rapid resegregation by race in schools across the country. Consequently, dozens of school districts have been released from court-ordered desegregation, especially during the presidency of George W. Bush. Studies of large school districts that had been removed from these court orders found that they steadily lost white students and became increasingly segregated after the release—isolated by both income and race.

Scholars of segregation now use the term “apartheid schools” to refer to those whose white population is 1 percent or less. Most are in the Northeast and Midwest, and they are increasing in the South. In 1988, these pockets of underachievement numbered 2,762; in 2011, they rose to 6,727. These schools are surely separate but not equal. According to ProPublica, an independent nonprofit devoted to investigative journalism, many are no better or are worse than the segregated schools of the 1950s. “High-poverty, segregated black and Latino schools account for the majority of the roughly 1,400 schools nationwide labeled ‘dropout factories’—meaning fewer than 60 percent of the students graduate.” Nikole Hannah-Jones, who wrote the joint Atlantic–ProPublica report “Segregation Now,” comments that not just poverty, but “the concentration of poor students in the same school hurts them the most.”

As Suzanne Mettler notes in Degrees of Inequality, “our system of higher education contributes, increasingly, to rising inequality, as it stratifies Americans by income group rather than providing them with ladders of opportunity.” Inequalities, beginning in the household, strongly influence how high school graduates fare at four-year and community colleges. Over 40 percent of the students entering college do not get a degree within six years; over half do not when community colleges are counted in the mix. Whether or not a student graduates seems to depend largely on how much money her or his parents make. Paul Tough put it in blunt terms in the New York Times Magazine: “Rich kids graduate; poor and working-class kids don’t.” Just one-fourth of college freshmen born into the bottom half of the income distribution will earn a degree by age twenty-four, while almost 90 percent of students from the top quartile will graduate. Tough adds that this difference has little to do with ability; comparing students with the same standardized-test scores, “you find that their educational outcomes reflect their parents’ income, not their test scores.”

High-income students increasingly attend elite private universities and colleges as well as the best public universities. Rising inequality and intensified competition for entrance into selective colleges has skewed those institutions’ populations toward youths from families in the upper income brackets. Researchers at Stanford University found that low-income and middle-income students, regardless of race, are significantly underrepresented in highly selective colleges and universities: “Almost three-fifths (58%) of the students in these universities come from families in the top quartile of the income distribution, overwhelmingly white, while only 6 percent come from families in the bottom quartile of the income distribution.” Over the last thirty years, “more and more seats” in the top schools “have been occupied by students from high-income families.” Black and Hispanic students remain substantially under-represented, and racial disparities in enrollment have increased. In 2004, “white students were five times as likely as black students to enroll in a highly selective college and almost three times as likely as Hispanic students.”

The Stanford group commented that the American educational system is often seen as a pyramid, with “many low-status, broad-access institutions at the bottom and fewer high-status, narrow-access universities at the top. Students who attend the few elite schools . . . enjoy larger tuition subsidies, disproportionately extensive resources, and more focused faculty attention.” Surrounded by high-achieving peers from affluent, educated families, these privileged few move into social networks that continue to pay off for them. Elite graduate schools, financial institutions, and high-status law firms recruit exclusively at these colleges, and “evaluators at elite firms routinely use school prestige as a key factor when screening resumes. Indeed, nearly half of all Fortune 500 CEOs have degrees from one of thirteen schools, twelve of which are highly selective.”

While elite universities are becoming precincts of privilege, tuition at public universities, which educate 70 percent of the nation’s students, has skyrocketed at a rate faster than medical care, gasoline, and all consumer items. Since 1985, the cost of college tuition and fees has increased by 559 percent, far outpacing family income. From just the years 2006 to 2011, as a major recession depleted family resources and income, tuition at four-year public colleges went up 18 percent. Although schools have been adding services, huge cuts in state funding have shifted the financial burden onto students. Every time state legislatures face a budget squeeze, they look to education as a convenient target where they can cut back on discretionary spending, in contrast to something like Medicaid. Between 2008 and 2012, states provided 28 percent less financing for education, and students have borrowed more to compensate, so that in the decade before 2012, federal college-loan debt more than doubled, from $41 billion to $103 billion.The United States leads the world in educating the wealthy. Children of the 10 percent are receiving “some of the best [education] in the world, and the quality keeps getting better.” For the 90 percent, not so much, as the average global standing of the United States in educational achievement keeps falling behind because of wide funding gaps between the rich and everyone else. Ironically, the federal government’s efforts to close achievement gaps are actually backfiring, according to Rebecca Strauss of the Council on Foreign Relations. Intentionally or not, the government has actually funneled more money to the least needy, reinforcing inequities. In easing repayment terms for student debt, the government bestowed the biggest gains on those with the most debt, individuals who tend to be in graduate or professional programs that offer increased earning potential. These “winners” could get a federal subsidy four times larger than that provided to low-income debtors through Pell Grants. The government also gave a new, more generous tax credit to families earning between $120,000 and $180,000, amounting to $10 billion in annual benefits.

State university systems have compounded inequity by shifting financial aid away from needy students and toward those with sparkling resumes—who tend to come from more affluent families with greater resources. High SAT scores and other merit-based criteria correlate closely with family income, with the result that state aid to the nonâ€‘needy has tripled in the last two decades—to 29 percent per full-time student in 2010–2011. States also promote this shift in an effort to motivate students and keep them in-state once they graduate. About one in five students from households earning over $250,000 receive merit aid, while one in ten students from families making less than $30,000 receive aid. In Kentucky, a state that lags behind in educating its youth, two of its three financial aid programs “primarily benefit middle- to upper-income students.” In 2013, the state denied aid to 86,000 students who qualified by need. It should be noted, however, that while merit aid is increasing, 71 percent of educational aid nationally is based on financial need.

The many dimensions of inequality in American higher education seem to proliferate. The dearth of low-income students at elite universities results in part from high-achieving poorer students not applying to selective colleges—although many of these institutions might cost them less, since they offer generous financial aid—whereas the two-year and nonselective colleges to which they do apply and get accepted lack resources to give adequate aid. But low-income high achievers typically live in small school districts, lack a critical mass of talented students in their schools, and are unlikely to encounter a teacher or friend from an older cohort who attended a selective college.

Some educators do not see this as a problem. They point out that “students of any background can—and do—get a top-quality education at lots of non-name-brand institutions.” Further, high-achieving students in working-class or rural regions do not just apply to places close to home because of ignorance of opportunities at selective institutions, but also because of loyalty to parents, “family ties, cultural fears, and economic pressures.” Although they can receive “a top-notch education” close to home, they are also likely to incur a great deal of debt in those institutions lacking financial-aid resources.

For-Profit

For-profit colleges far too often lead low-income students into debt rather than toward graduation or careers. Their marketing claims hold out the promise of certain jobs and upward mobility, but too many deliver the reverse and deepen inequality. The for-profits have grown rapidly in recent years since they offer flexible, market-oriented programs of vocational training. According to recent studies, some students and alumni are satisfied with the training they receive and may gain employment, but most end up wondering if the cost has been worth it. Many prospective employers are either uninformed about for-profit degrees or prefer graduates of public community or four-year colleges. Almost all students at for-profits are financed with loans or grants, and graduates with bachelor’s degrees have taken on a median debt of $33,000 per student, compared with $18,000 at nonprofits and $22,000 at public institutions.

For-profits have also proliferated because a federal spigot of taxpayer money—more than $30 billion a year—helped create them, with 90 percent of their income derived from federal aid. Thus taxpayer money has created what are often money-making machines for unscrupulous administrators and Wall Street investors.

While nonprofits have expanded the supply of skilled workers and have accommodated nontraditional students and underserved populations, their overall impact has not alleviated—and has probably deepened—inequality. From 1998 to 2008, enrollment at for-profit colleges rose by 225 percent, accounting for 10–13 percent of all college students as these institutions aggressively targeted non-traditional students, low-income students, and veterans through promises of secure employment. At least half of for-profit enrollees, however, do not know they are attending a for-profit school. Nor did most do any comparison shopping for an education: only four in ten considered other schools before attending a for-profit. Graduates also “end up with higher unemployment and ‘idleness’ rates and lower earnings six years after entering [for-profit] programs than do comparable students from other schools.” Their default rates on student loans are the highest, accounting for nearly half of all defaults. In 2013, attorneys general in thirty states began cooperating to stem abuses in the industry. The U.S. Senate had already conducted a two-year investigation and issued a report in 2012 accusing thirty for-profit colleges of paying out more for marketing than instruction, using “troubling” recruiting tactics, wasting taxpayer money, and failing to graduate half or more of their students. The for-profits, while spending very little to recruit qualified staff at any level, generally garnered more in tuition and fees than public colleges, helping to make the enterprise highly lucrative for its executives.

Senator Tom Harkin (D-IA), long associated with populist causes, declared that the practices of the for-profit colleges the Senate investigated typified most of the remainder: “They are systemic throughout the industry, with very few individual exceptions.” The Senate report, endorsed only by the Democrats on the investigating committee, said that more than half of the nearly 1.1 million students enrolled in the thirty for-profits examined in 2008–2009 left without a diploma. Many who had graduated often found no promised job waiting for them and were burdened with significant debt, sometimes amounting to tens of thousands of dollars. Julie Kampschroeder, a high school guidance counselor in the St. Louis area, warns students about entering for-profits and winding up bankrupt: “They will go after your Social Security, your paycheck; they will not stop.”

Congress made matters worse for indebted students with the 2005 Bankruptcy Reform Act, which made it almost impossible for students to discharge their debts by declaring bankruptcy. The law treated in-debt students as if they were no different from people who went on credit card binges. Consumer advocate Elizabeth Warren, now a senator (D-MA), observed that the law treated all bankrupts as if they were cheaters.

General David Petraeus and his wife Holly have often criticized for-profits for taking advantage of veterans aided by the 9/11 G.I. Bill. The law provides financial assistance for education and housing to anyone serving in the armed forces for at least ninety days after 9/11, and as soon as it was passed, for-profit colleges began targeting veterans with often-deceptive advertising and promises. At the for-profits with the highest veteran enrollments in bachelor’s degree programs, 53 percent of the veterans withdrew within two years, compared with 20 percent of the veterans attending public universities. Another adversary of the for-profits has been Kentucky’s attorney general, Jack Conway, who wondered why a state with 4.5 million people contained 141 for-profit colleges. Conway relentlessly has brought consumer-protection and other suits against for-profits in his state, earning the ire of the industry. When he ran for reelection in 2011, his opponent—whom he defeated—received “scores” of donations from administrators at for-profits such as ATA College, Northwestern College (not to be confused with nonprofit Northwestern University), Sullivan University, Harrison College, Herzing College, Keiser University, National College, Daymar College, and Bryan College Online.

In bringing suit against Spencerian College’s Louisville branch, Conway provided specifics on that college’s advertised rate of placing graduates in occupations such as phlebotomy, medical transcription, and other areas contrasted with the actual rate of placement—with discrepancies of 30 to 40 percent in some cases.

The largest for-profits are publically traded on Wall Street and are enormously profitable for their owners and shareholders. Even during the 2008 financial crisis, “the top nine companies enjoyed a 4 percent growth in their stocks, while the S&P 500 declined by 39 percent.” Most taxpayers are the unwitting underwriters of this bonanza. The post-9/11 G.I. Bill, for example, allowed the for-profits to increase their income from military benefits from $66.6 million in 2006 to $521.2 million in 2010, while revenue from expanded Pell Grant funding went from $2.5 billion in 2006–2007 to $7.5 billion in 2009–2010.

For-profits wield enormous influence by contributing heavily to Republican and Democratic candidates at the state and federal levels. Some congressmen and senators, along with Wall Street firms, are investors in or proprietors of these institutions, reaping millions of dollars. In early 2012, when moderate senator Olympia Snowe (R-ME) announced she would not run for reelection, she attributed her decision to Congress’s hyperpartisanship and dysfunction and promptly cashed in on her reputation for bipartisanship by publishing a book, Fighting for Common Ground: How We Can Break the Stalemate in Congress. Unremarked in almost every news story about her retirement was the fact that she and her politico husband, former Maine governor John McKernan, had made several million dollars from Education Management Corporation, which had just become the target of a class-action lawsuit initiated by whistleblowers. In 2012 McKernan held almost $15 million worth of the company’s shares, and Wall Street’s Goldman Sachs owns 43 percent.

The debt piled up by for-profit students, graduates, and nongraduates has consequences for the U.S. economy and for the nation’s taxpayers. Some economists believe that the $1 trillion in overall student debt has inhibited recovery from the financiers’ economic debacle of 2008–2009 by causing indebted former students to delay purchasing big-ticket items, instead conserving their resources and paying off debt.

Congressional Republicans—who, in the 1980s, included critics who labeled for-profit institutions “diploma mills designed to trick the poor into taking on federally backed debt”—now constitute a block of staunch champions. In 2012, presidential candidate Mitt Romney praised specific for-profits whose owners and investors contributed to his campaign. But many Democratic legislators join their Republicans cohorts in votes against more regulation, while the efforts of Democratic lobbyists and prominent politicians, including former president Bill Clinton and personal friends of President Barack Obama, supplement the stepped-up spending of the industry to ward off restrictions. A phalanx of money, partisans, and personal relationships, concludes Mettler, allows the schools “to exist primarily to take advantage of opportunities to milk the system,” at the expense of taxpayers and “disadvantaged Americans.”

The above excerpt is taken from PLUTOCRACY IN AMERICA by Ronald Formisano Published by Johns Hopkins University Press © 2015. Reprinted by permission of the publisher.