For-profit Higher Ed is Fine – Government Funding is the Problem

One
of the more annoying tropes of the left is that while it may be all right for
profit-oriented businesses to function in many markets – I have yet to hear
anyone demand that dry cleaning, for example, be done by non-profit entities –
they shouldn’t be in “helping” fields like health care and education.
Supposedly, it’s wrong to profit from the needs of others.

That
sentiment lurks behind the scenes in the recent regulatory war that Senator Tom
Harkin (D-Iowa) has launched against the for-profit sector in higher education.
The for-profit schools have been singled out for criticism (some of it
perfectly justified) but a blind eye has been turned toward the non-profit
sector. Consequently, Congress has created the impression that for-profit higher
education seeks only to scam clueless students and pocket tax money intended for education and training.

The
Manhattan Institute has just released a paper by Judah Bellin, “The
Unacknowledged Value of For-Profit Education”
that goes a long way toward
leveling that badly imbalanced view. Bellin’s study makes it clear that
for-profit higher education can be just as useful for students as non-profit
and is sometimes superior. He observes that the for-profits do a good job of
creating programs that fit the needs and constraints of “non-traditional”
students – that is, older, often married people who are juggling various
responsibilities while attempting to learn new skills.

The
crucial reason why the for-profits serve their students well is precisely that
they are driven by that bête noire of
the left, profit. Bellin writes that they “can easily change their program
offerings based on market signals; accordingly, they provide training in fields
in which employer demand for skills is increasing.” Conversely, non-profits
almost always have trouble adjusting to changing needs because of their
governance structures in which stakeholder groups (especially the faculty) can
thwart changes they don’t like.

But
if for-profit higher-ed is so good, why the perception that it is an ugly
aberration in the lovely realm of non-profit education? Senator Harkin held
hearings last year in which he exposed a lot of deception and fraud by some of
the higher education companies.  They
have used high-pressure tactics to lure in people who have little or no ability
to benefit from coursework, much as unscrupulous mortgage originators lured
many people who should never have thought about buying a house into doing so.

Because
a large percentage of the students enrolled by the for-profits are hardly
students at all, many default on their federal loans – money that helps fatten the 
companies’ bottom lines. Despicable behavior, true. But many lower-tier
public colleges and universities operate the same way, attracting low-ability
students with talk about the big earnings premiums that college grads
supposedly get.

The
root of the problem here is not the profit motive but the corrupting
influence of easily available federal money. Bellin argues that the government
should stop subsidizing substandard institutions. Take away the crutch of
federal funds and low-quality schools “would be hard-pressed to stay in
business.”

Right.
As Milton Friedman pointed out, “No one spends other people’s money as
carefully as he spends his own.” That applies just as much to education as to
anything else.  Bellin suggests that we
phase out federal loans over a ten year period. I’d go along, but we should do
that for the non-profit sector as well.

Avatar

George Leef

George Leef is Director of Research for the John W. Pope Center for Higher Education Policy.

Leave a Reply

Your email address will not be published. Required fields are marked *