Who Profits from For-Profit Colleges?

Today, many are questioning the role of for-profit colleges and universities—a role that portends major changes for higher education in the U.S. for the foreseeable future. Do FP colleges provide a valuable service to students who, because of finances, rigorous admission standards at traditional colleges, or scheduling difficulties, could not otherwise attend college and earn a degree? Or do FP colleges add up to nothing more than a huge rip-off of their students and society—a rip-off that should be curtailed before catastrophic social damage occurs? More concretely, should persons thinking of going to college consider FPs as a viable alternative to traditional private or public institutions?

That FP colleges and universities have been wildly profitable for their owners and shareholders is hardly in doubt.  During the last few years, FP colleges and universities have raked in billions in profits. Through 2009, FPs were the darlings of Wall St., producing record returns on investments and pushing their stock prices ever upward. Moreover, FPs were the fastest-growing sector in higher education, enrolling nearly 10% of all college students in the nation. During 2010, however, stock prices of FP universities have declined, and many are questioning whether they can continue such rapid growth in enrollment and, therefore, revenue.

In recent months, FP colleges have come under fire for allegedly fraudulent student recruitment and student loan practices. PBS’s Frontline broadcast a highly critical documentary, College, Inc., on 5/4/10, that caused quite a stir among higher education professionals and the general public. Since then, the U.S. Senate has undertaken an investigation of FP college practices. On 8/3/10, the Senate Committee on Health, Education, Labor, and Pensions (HELP) heard testimony from the Government Accountability Office (GAO) about fraudulent student recruitment and student loan counseling (FPs took in some $24 billion of the roughly $85 billion in federal student loan funds for all students). Finally, the U.S. Department of Education is in the process of promulgating new rules for evaluating student loan practices of FP and traditional institutions.

In response, FP institutions claim that they fill a much-need niche by enrolling students who have been neglected or excluded by traditional private and public colleges. In addition, they point to their ability to offer courses online in order to accommodate the busy schedules of employed and adult students more readily and to save on instructional costs. Since the larger FP institutions have gained regional accreditation by the same bodies that accredit traditional private and public universities, they claim that the quality of their instruction equals that of traditional institutions. While admitting to Congress some irregularities in recruitment and other areas, FP representatives plead that this sort of thing can happen in rapidly growing institutions, and they point to corrective measures they have taken to prevent future abuse.

Despite the claims of FP representatives and the admittedly mixed testimony of FP students and faculty, for me the answer to the basic question is clear: for-profit institutions are not a good deal for their students or for society. Their rapacious quest for financial gain siphons much-needed funding that could help meet the strapped budgets of traditional institutions, thereby educating more students for less. FPs’ drive to augment the bottom line also sets up a conflict of interest with the need to provide high-quality instruction. All too often, instructors and staff encounter overwhelming pressure to enroll as many students as possible, regardless of qualifications, and keep them enrolled.

Consider the following points:

  • Many students who enroll in FP universities have, indeed, been excluded by traditional institutions, usually because they are educationally unprepared for college-level work or because traditional institutions lack sufficient resources (classroom space, computer technology, faculty) to provide instruction to them. Most especially, such students are not “neglected,” “abandoned,” or “ignored” as FP representatives would have you believe.
  • FP universities claim to be able to offer instruction for less cost than do traditional institutions; yet, their tuition charges equal or exceed charges at private colleges. While holding the cost of instruction (faculty salaries, benefits, etc.) low, FPs also bear no burden of costs for research. The difference (tuition revenue minus actual cost of instruction) is the profit that lines the pockets of private investors for which society receives no educational or research benefit whatever.
  • Not everyone should go to college. My experience as a faculty member and dean revealed that only about 20% of students enrolled in four-year colleges possess both the skills and the motivation to do acceptable college-level work.
  • There is, however, great need for education and training that supports career development in a number of fields that do not or should not require a baccalaureate degree. This need can be met more efficiently, at lower cost to individual students and to society, and with higher quality instruction by community colleges than by FP institutions. Public funds diverted to investors’ pockets should be returned to community college budgets.

For all its problems (topics for other postings!), the higher education system in the U.S. is not broken. FP institutions reveal that more could be done to offer online instruction, to meet the scheduling and distance needs of a more diverse student population, and to provide better support services to students. But all of this can be done at lower cost to students and to society. Channeling billions in student aid funds to the private bank accounts of investors and owners in these times of economic distress makes no sense. It’s time to take the profit out of “for-profit” universities.


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