I’m a grad student doing a project on the best way we can legislate changes in (1) accreditation, (2) disclosures to students, and (3) accountability/oversight of these schools. Please get in touch and share your stories. We may even ask you to testify in front of state legislatures. Mostly, we’re just collecting stories for a “story book” that we can hand to California State Senators or Assemblypeople.

Get in touch!
forprofitschooldebtstories@gmail.com

Yes, educational loans also go to not-for-profit institutions, but the percentage of loan to other assistance is much smaller — 90% of the revenue received by for-profits comes from federally guaranteed loans. Calling what for-profit universities do part of a free market approach to education is simply perverse.

For-profit colleges exist ONLY because of guaranteed student loans, a subsidy that makes risky loans available to non-credit-worthy teens, provided courtesy of the Bush administration.

Is it any wonder that the majority owner of the largest network of private colleges, Art Institutes, is owned by Goldman Sachs? (Okay, technically, it’s the largest shareholder in AI’s parent company, Educational Management Corp.)

So when will Goldman Sachs endow a chair in economics at Harvard, do you suppose?

My compliments on a well thought out post. Hope you have the time and inclination to become an ongoing commenter.

Given the choice of the same non-organic milk for $2/gal. at a store where the “use by” date is a week away and another store where the “use by” date is a two weeks out for $3/gal., I’ll gladly accept that I need to finish my milk within 7 days for a 33% saving. Procrastination is a luxury few will pay for once they “understand”.

Also, I have found Walmart to be responsible. When their milk department is out of their Great Value Lactose Free Fat Free too frequently, they have been willing to substitute the same thing “organic” (which normally costs around 10% more) for the non-organic price. Not everyone has the “Whole Foods” mentality or financial priorities.

In the absence of distorting public policies, I see no reason to think that for-profit universities can’t provide a valuable service to students.

You claim that their profit incentives are *by definition* misaligned with those of students. Then how does Apple (or GE or Trader Joe’s) produce goods that people like? Presumably their profit motive is just as strong as a for-profit ed provider.

In European football (soccer), top teams from each nation’s league compete annually in the UEFA Champions League. Some of the top national leagues, such as England’s Premier League or Italy’s Serie A, have teams that are investor-owned. Others, most notably Spain, are comprised of teams that are mutualized not-for-profits, somewhat similar to the Green Bay Packers in the NFL.

Both models seem able to support top-quality teams; the last six Champions League titles have been split 50/50 between mutualized teams (Barcelona, 3 times) and investor-owned teams (A.C. Milan, Inter Milan, and Manchester United).

But the for-profit model may be performing better in creating a commercially-dominant league, as the English Premier League is solidifying its place as the most-watched league in the world, while many other top nations’ domestic leagues are dominated by a few top teams and draw less international interest. Of course, creating a commercially-dominant league is much more consistent with the goals of a for-profit structure, so perhaps this is no surprise.

Sports ownership structures may be interesting to examine but, due to the unique characteristics of this business, may not hold many lessons applicable to other businesses.

Mark Slavonia

I agree with the comment about incentives/subsidies to education via loans, that we have perhaps inflated the price of education via cheap credit (that can’t be washed away in bankruptcy).

And we’ve inflated the cost of healthcare via the tax subsidy for health insurance.

I would advocate for less promotion of private education and healthcare via these government subsidies – and rather see investment into low cost public alternatives to private versions.

Same could be said for investing. Rather than encourage everyone via tax breaks to invest in IRAs, why not provide a low-cost government option to everyone? It may not be the best option for everyone – but could lead competition in the right direction.

Is there effective competition in education? There is on some level… Colleges compete vigorously for talented students, for high-profile faculty, for donations and research grants. Yet on the consumer end, there is a troubling lack of transparency. How many students can fairly assess their likelihood of completion when they enter? The economic value of their degree?

The government subsidies definitely need to be revisited, but I would also look to improve transparency in this market. Without quality information, there can be no real competition.

A surplus over agreed costs may be made and then reinvested in the service providers (aka staff/management) and service users (pupils and parents) in terms of agreed quality of remuneration and agreed quality of education.

Such a ‘not for loss’ or ‘profit for purpose’ is what Dr Yunus of Grameen Bank fame means when he refers to ‘social business’.

The challenge is a suitable legal and financial framework.

Felix, why do you keep repeating this myth? It is absolutely not true. Unless a company’s board wants to maximize short term profits at the expense of the long term health and viability of a company, they do not have to make decisions that only address this year’s profits. If the execs did that, they would be called banks.

Felix, you know this much better than I do; why are you making such a silly argument? Some of these businesses are reading the market very poorly; a few constitute fraud. Many are run by smart people trying to fill a need left woefully unfilled by traditional hidebound academics. To those who note that for-profits depend on government education subsidies, note that so do the non-profits.

I heard a very compelling argument by Clayton Christensen a couple of years ago that offered the prognosis that the more successful innovations being pursued by for-profit education would in time be thought of as highly or more so than traditional non-profit approaches.

Non-profit education is worse than inefficient – it is patently unable to respond to the market needs of our changing society. The for-profit solutions are varied and messy right now, but those without staying power won’t last.

There are lots of good for-profit educational models: the CFA program, homeschool curricula, the Educational Testing Service and College Board for SATs and AP Exams, the CFP program, etc. Open your eyes. $200m / year for a BA is too much!