Assault on For-Profit Education Will Hurt Economy

Assault on For-Profit Education Will Hurt Economy

Can we afford to eviscerate our for-profit education industry? Not if we want to reach President Obama’s goal of leading the world in college graduation rates. Notwithstanding this reality, the teachers’ unions have launched an all-out crusade to hobble their fast-growing competition. Ammunition was provided by a recent General Accountability Office “sting” operation, which revealed some of the sector’s worst practices – overpromising and overselling their product.  This wave of criticism has stirred up the legislative pot; new restrictions are being considered that could threaten the sector’s growth. Before we decide as a country to throw yet another profit-making industry under the “government does it better” bus, a balanced review is in order.

For-profit schools, many of which are known as career schools, have significantly outgrown public community colleges. This year, some 2.8 million students will attend 2,900 accredited career colleges; between 1998 and 2008 enrollment in these institutions grew 225 percent. They must be doing something right.

In part the growth of career colleges has come from their ability to accommodate the needs of millions who work or who for other reasons cannot attend a conventional college. According to a June speech before the National Press Club by Harris Miller, CEO of trade group Career College Associates, nearly half of these students are parents; they are on average 28 years old and most are the first in their families to pursue higher education. He argues that career colleges meet the needs of these aspirants by being flexible and “outcome oriented.” The curriculum is designed to “aid the adult learning process by being immersive, hands-on, practical, informed by area employers and shaped by real-world requirements.” In other words, students at for-profit schools don’t study philosophy.

Well-known short seller Steve Eisman has been one of the fiercest and most articulate critics of the large publicly traded education companies; his investment firm stands to gain if harmful legislation dampens the sector’s prospects. In testimony in June before the HELP Committee, Mr. Eisman accused the industry of wasting taxpayer dollars. He asserted that these outfits don’t provide much of an education, that promised jobs don’t materialize, that students end up saddled with excess debt, and that default rates are consequently disproportionately high. Mr. Miller disagrees, responding that students get value for their money. He points out that “students graduate from two-year career college programs at three times the rate of community colleges.” He says that public community colleges, like our public high schools, are “resource constrained” and thus not able to provide what today’s students want. Without a doubt, this reality is only getting worse. The Center on Budget and Policy Priorities noted in an August report that 43 states have cut spending on higher education, including community college programs.

As to outcomes, Mr. Miller says that unlike public schools, his members are required to meet certain graduation and hiring benchmarks. “Nationally accredited schools do so at a rate of 70 percent, even in a difficult economy. Career college graduates realize an immediate salary ‘bump’ as a result of their degrees.” He describes that increment as leading to a return of about 31 percent on the investment in schooling.

 As to default rates, Miller contends that the rate at career colleges was 11% in fiscal 2007 compared to 5.9 percent at public institutions and 3.7 percent at private nonprofit schools. However, he points out that much of the difference reflects the disparity in incomes levels and demographics. Defaults among community colleges is nearly 10 percent and at black colleges 11.5 percent. 

Much of the rancorous debate today has to do with student loans and government support. The government has long made higher education a priority, supplying college students with federally subsidized loans. Teachers unions are unhappy that a growing slice of that pie is streaming to the for-profit sector at the same time that states are struggling to meet the growing burden of union pensions and benefits.

The American Federation of Teachers reports, “For-profit schools enroll … less than 10 percent of all postsecondary students, but receive 23 percent of all federal aid dollars.” A report commissioned by Kaplan, DeVry and others in the for-profit sector argue that the comparison is incomplete. A more thorough tally of government outlays, including support to institutions, grants and differential taxes would reveal that “the American taxpayer actually pays three times more to educate students, on a per-student basis, at public post-secondary institutions than for students at private for-profit colleges” They further conclude that it would cost an additional $33 billion to reach the president’s goal of 5 million more associate degree holders if only public institutions are involved.

Undoubtedly, some career schools engage in deceptive and fraudulent recruitment and financing practices, which are illegal and should be stamped out. However, we should not undermine the prospect of significantly widening educational opportunity. The Obama administration has offended the teachers unions by calling for greater teacher accountability. It may be that stifling the growth of the for-profit sector is a bargaining chip. If so, taxpayers will be the losers, along with students.