Higher Education that's for Profit

   Many years ago I somewhere wrote a couple of pages declaring that having for profit institutions of higher educations was not such a good idea. At the time, there were hardly any of them. As I recall, my main warning was focused on the temptation of such institutions to shave expenses of the merchandise they were selling—in this case, higher education. That is still an issue, since a seller always tries to peddle merchandise at the level that sells. That was the totality of my thought—then, before for profit higher education became big business.

   Two major things have changed since those long ago ruminations. Getting a degree that will yield a job has become the leading goal of students studying beyond high school. Never before has post-secondary education been so career—indeed, job—oriented. The second big change is the fact that most of these college careers are financed by loans from the government. The income of for profit higher ed institutions is dependent on their students’ getting loans to pay tuition. And we are talking about very large amounts of money.¹

   What seemed not a good idea long ago is even less good now. For profit higher education is not just another version of education as it has been since forever. The motives and hence goals are radically different, facts that of course change the product, in this case education beyond secondary school.

   It is a reasonable response to say, why not give the customers what they want. But with that response, we must reach up to a different level of discourse.  Students are not customers of higher education. Rather, they are more like clients of hospitals, who are not assumed, like people who buy furniture, to know what product is best for them—that is, what set of courses to take, not to mention what the content of those courses should be.

   I will come back  to the topic of the substance of the education presented and turn to crucial change since those long ago days, that makes for profit higher education possible. There’s gold in them thar hills! The students who themselves pay for their education or have their parents fork over the tuition are a fraction of the student body attending for profit institutions. The availability of governmental loans makes it possible for a great many to sign up, a cadre constituting the bulk of the population of for profit institutions.

  Further, institutions of higher education are not like furniture stores. If you are not happy with the couches available in the store around the corner or with the prices they charge, there is likely to be another one within striking distance that in effect competes with it. Such an opportunity to choose an institution is available in relatively very few places in the country.

   Let me now produce a summary of the relationship of students to institutions of higher education that are for profit. What I say won’t hold for every case, but for far too many of them.

   In order for the institutions to make a profit, their product has to cost less than what is paid for it by consumers. Further, within limits (extensive or narrow, depending on many variables) an increase in volume yields an increase in profit.

   There are many ways to reduce the cost of what is given to students. The most obvious is to keep the wages down of those who do the teaching. That’s not the way to get the best people to do that central job!

  Volume is increased by various procedures to attract “customers”—again, that is students. Probably the most successful institutional claim is that there is a job, indeed a career, to be had after completing the work for a given degree. There is evidence that an institution will exaggerate in the claims it makes or will even lie.

   Whence the income of these for profit educational institutions?  As I said, only a modest fraction comes from fees paid by the students from their own or their parents’ funds. What has made this industry big business is the existence of government loans to students to fund their education.

   Let’s look at the way that works. The potential student signs up for a degree program and receives a loan to pay for its cost—up front. That case, however, differs importantly from the two most widespread ways of receiving loans: a mortgage for purchasing a house or a loan for buying a car, say, when not having the wherewithal to pay the full price up front. Not only must the borrower qualify in various ways to receive the mortgage or the car loan, the norm in such very widespread cases is that the repayment of the loan begins at once. The borrower is made aware of his or her obligations from the very start.

   For obvious reasons, loans to fund educational programs differ sharply from this familiar pattern. The money to pay for the cost of education comes up front, while the requirement to repay the loan is deferred to a later, perhaps much later, time. You don’t have to be a clever manipulator to accept such a loan without then worrying about future obligations. Not to mention the fact that a hefty fraction of those loans’ recipients are adolescents and not mature agents fully aware of the obligations they are incurring.

   When you look at this entire picture you can see that by recognizing that for profit institutions

act like most other vendors in the market place, they nevertheless differ from the bulk of those in the special characteristics of the products they are selling and both of the characteristics—immature and impecunious—of the buyers.

   I resist he temptation to produce a peroration on the inadvisability of fostering for profit institutions of higher education and only hope that I have conveyed something of my skepticism.