Yet More on For-Profit Schools: The Empire Strikes Back

One can find here another article addressing the economics of these for-profit institutions. It will serve to remind us why they are of concern.

“Hedge funds have been circling for new carrion to devour in the next economic slowdown and have found a big fat target in the for-profit educational sector. The industry is ripe for the taking. For two decades, for-profit schools have lured gullible students with inflated promises of impressive sounding degrees which they pay exorbitant tuition to obtain.”

“In education's version of the subprime crisis, creative financial aid departments obtain government loans to finance the entire program. There are now over 2 million attending these institutions, accounting for 10% of all higher education in the US, and the profits that have poured in have been absolutely massive.” “Early investors rode the IPO train all the way to the bank. The problem arises when few students ever achieve these laudable goals. According to government statistics, 55% of US college students obtain a degree within six years. At the University of Phoenix, with 400,000 students, the largest for-profit university, only 18% meet this deadline, only 6% at some campuses, and a mere 4% of online students. Dropouts end up defaulting on loans that can amount to as much as $100,000 for incomplete bachelor's degrees and up to $200,000 for advanced degrees.”

When last we addressed the issue, the Department of education was going to shut down some of the most egregious offenders by eliminating government loans to programs that granted degrees in areas where the salary potential was too low to justify the cost of the degree. That seemed to be a good idea. Now lawmakers, fueled with election contributions and threats from lobbyists have gone over to the dark side. There is also a report being prepared by a Robert Shapiro that appears to use some specious arguments to counter the administrations regulatory thrust.


This article describes the current state of affairs. The arguments against implementation of the regulation are apparently being spearheaded by members of the Florida congressional delegation. They have transmitted a letter containing the claim:

“In Florida, more than 300,000 students attended proprietary colleges and universities in 2009, an increase of 63 percent over 2004, according to the Commission for Independent Education,” the letter goes on to say. “These colleges and universities provide a unique educational option for students who are not well-served by traditional higher education. Proprietary colleges and universities offer customization and flexibility to students who are single parents, have a lower income, work at a full-time job while pursuing an education, or are otherwise at-risk for successful completion. The department’s proposed rule will single out these students, despite the fact that degreed graduates of these institutions have highly marketable skills that enable them to improve their lives.”

Granting them the accuracy of that statement, it is irrelevant to the proposed action. Successful schools and programs will be untouched. The administration is trying to limit these schools from luring students into expensive degree programs where the salaries available to graduates are too low to enable them to payoff loans for the cost of the degree. That sounds like protection of students from being ripped off rather than discrimination against students with special circumstances.


Why would congressional representatives (of both parties) write a letter that so transparently casts them as tools of the lobbyists?

“’Collectively, members who signed the letters received nearly $94,000 from the for-profit college sector between the beginning of 2010 and late July, according to the most recent available campaign finance data reviewed by ProPublica. Most of the donations flowed after March 22 — the date the first letter was written to Duncan,’ reports ProPublica.”

The report being prepared by this Robert Shapiro is titled “The Public Costs of Higher Education: A Comparison of Public, Private Not-for-Profit, And Private For-Profit Institutions.” Shapiro apparently makes an apples and oranges comparison between private for-profit schools and traditional non-profit and public schools and claims that the for-profits receive a lot less in public funding than the traditional schools. One would have to wait to see the report, but this appears to be deceptive accounting. The traditional schools are all large enterprises with much more at play than student tuition. The for-profits depend almost entirely on student fees, much of which is provided by the tax payers in the form of student loans. The two types of institutions are not comparable in this way.


Shapiro is also quoted as saying that if there is abuse in the system then market principles will take care of it. If students are not getting what they need they will stop attending the schools and programs that are not delivering. To this I can only paraphrase someone much better with words than I. “Market principles are the last refuge of scoundrels.”


We will have to wait and see if the Department of Education can ignore the pressure and do the right thing.