While the ideal of higher education is supposed to be above the concerns of mere money, there is nothing inherently wrong with for-profit colleges. Unless, of course, there is something inherently wrong with for-profit operations in general. As such, it should not be uncritically assumed that a for-profit college must be bad, ripping students off, or providing useless degrees. That said, the poor reputation of the for-profit colleges is well earned.
One rather tempting argument against for-profit colleges is that by being for-profit they must always charge students more or offer less than comparable non-profit colleges. After all, as the argument would go, a for-profit college would need to do all that a non-profit does and still make a profit. This would need to be done by charging more or offering less for the same money. However, this need not be the case.
Non-profit and public colleges are generally top-heavy in terms of administrators and administrative salaries. They also often expend considerable funds for amenities, sports teams and such. These “bloaters” are things that a well-run for-profit college could cut while still offering the core service of a college, namely education. For students who do not want the extras or who would rather not help fund a massive administration, this can be a win-win scenario: the student gets the education they want for less than they would pay elsewhere while the for-profit makes a profit by being efficient with its money. This is, obviously enough, the dreamy ideal of capitalism.
Sadly, the actual world sees this dream often transformed into a nightmare: for profit schools, in general, turn out to be as the Marxists that supposedly rule academia would expect: predatory and terrible. One main reason for this is that these entities are focused on making as much profit as possible and this consistently leads to the bad behavior endemic to the for-profit system. While regulation is supposed to keep the bad behavior in check, Betsy DeVos has curtailed oversight of these colleges. As a specific example, her department has stopped cooperating with New Jersey on the fraudulent activities of for-profit colleges. If the state neglects to check bad behavior, such as crossing borders illegally or welfare fraud, then people are limited only by their own values. While that can work in some cases, it is generally a bad idea to leave important matters up to the individual conscience. For example, it would be foolish for the state to just hand out welfare by simply trusting people and never verifying their claims. Likewise, it would be foolish to allow for-profit colleges to do as they wish without proper oversight.
As should be expected, I have consistently been against these terrible for-profit colleges. I also extend my opposition to terrible non-profits and public colleges: what I am against is the terrible part, not the profit part. As with much bad behavior that harms others, the most plausible solution is to have and enforce laws against that bad behavior. As noted above, those who are concerned about welfare fraud are not content to rely on the conscience of the recipients nor are they willing to simply allow an invisible hand to ensure that things work out properly. They, obviously enough, favor the creation and enforcement of laws to prevent people from committing this fraud. By parity of reasoning, for-profit colleges cannot be expected to operate virtuously with only the conscience of their owners as their guide. The invisible hand can also not be counted on to ensure that they do not engage in fraud and other misdeeds. What is needed, obviously enough, is the enforcement of the laws designed to protect taxpayers and students from being defrauded by the unscrupulous.
It could be argued that while the invisible hand and conscience cannot work in the case of, for example, welfare cheats, they work just fine in the context of business. In the case of for-profit schools, one might argue, they will fail if they do not behave well and the free market will sort things out. The easy and obvious reply is to agree that the bad colleges do fail, the problem is that they do a great deal of damage to the students and taxpayers in the process. This is a bit like arguing that society in general does not need laws, since eventually vigilantes might take care of any thieves, murderers and other threats. As Hobbes noted, the state of nature does not work terribly well.
This is not to say that I believe for-profits should be strangled by red-tape. Rather, the laws and enforcement need to focus on preventing harms like fraud. If a business model cannot succeed without including fraud and other misdeeds, then there is clearly a problem with that model.
I have a fair amount to say about this – but for now I’ll just focus on one part of your post, i.e., the analogy that compares the regulation of for-profit colleges to that of the welfare system. I think the comparison is inaccurate.
When regulating colleges, the focus is on the provider; you are making the case that it is the provider that is perpetrating the fraud on the consumer. Welfare fraud is the opposite – the fraud is being perpetrated by the consumer (or recipient); the laws are in place so that the provider does not fall prey to these scams and the abusers are dealt with as a matter of law.
From my point of view, I’d say a better comparison might be to the IRS, the EPA, or even Congress itself – they are being given money to perform certain activities for the betterment of the citizens, but they are top-heavy, over-managed bureaucracies that mismanage taxpayer money and do not provide what is promised – all the while lining their own pockets with perks and bloated salaries.
From a more liberal point of view, I would imagine you might resonate with a comparison to another for-profit business – like Enron or AIG – or perhaps an industry like the oft-discussed Pharmaceutical Industry.
In these comparisons, the regulatory focus would be on the entity or provider, not the recipient.
Not clear what the truth is here. The easy availability of student loans could encourage fraud. On the other hand, the teachers unions, who give almost exclusively to Dems, would love to see the for-profit schools killed off.
Given that schools are always asking for money, it seems like it would be difficult to turn a profit by running one.
Michael LaBossiere says
It could be done honesty, but would require keeping the administrative costs low. Most administrators are, however, accustomed to large salaries, so it would be hard to find people willing to be paid lower salaries to do good work. Other than teachers, obviously.
The key is to use adjunct administrators.
Michael LaBossiere says
Or perhaps illegal immigrants from foreign universities?
Evolution works because organisms unfit for their envorinment don’t reproduce. They die from inability to get food, or inability to protect themselves.
Science in the modern sense works as a process because unsuccessful hypotheses are falsified and not reproduced … eventually.
Markets work because businesses that don’t deliver value for the costs they incur go bankrupt.
However, when markets are distorted by an artificial influx of money given without results, the companies in that sector can survive just as well we we could keep dodos alive today in a protected environment if we had some, or as well as Lysenkoism did in the Soviet Union.
If we had a free market in education, we would see bad colleges fail very quickly, and fewer bad ones form. As it is, both bad private and public colleges can keep sucking taxpayers’ money. The difference is that bad private colleges waste the money on investors, while bad public ones waste the money on unnecessary non-academic staff and ancillaries. And I think any economist of any school would predict that. From a quick reading around, the sheer volume of perverse incentives is staggering.
Again from a quick browse, it seems that public education in the US is an even bigger problem, since it’s a much much bigger spend of other people’s money and affects many more students. Apparently colleges turn out many graduates who are almost qualified to stock shelves at Wal-Mart, but at least have their lives enriched by the lifelong appreciation skills they learned in their Beyoncé Studies classes.
It would be interesting to compare the absolute numbers of people for whom college was a waste between private and public colleges. But we have no criteria for deciding what was a waste.
Until somebody comes up with a method of finding and enforcing failure criteria on colleges, and colleges can draw on bottomless money taken from workers, there will be bad outcomes all round. But, looking on the bright side, also good ones!
Fantastic interview with Bryan Caplan.
Economist Bryan Caplan thinks education is mostly pointless showing off. We test the strength of his case.