For-Profit Education- The New "F" Word

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Aaron Wong's picture

Conventional wisdom would dictate that there is no greater oxymoron than the concept of “for-profit education”. Since the first recorded lesson in history, where God taught Adam to eat from some trees and not others, education has conjured the image of a more-learned being benevolently guiding those under his care- not for personal gain, but because of a genuine interest in seeing them further enrich themselves.

The modern term “higher education” implies exactly that- education which has been elevated to a higher level. Higher education evokes thoughts of marbled halls and thick-volumed libraries, of avuncular professors teaching on sun-drenched quadrangles and mortarboards-in-the-air graduation celebrations.

Such romantic notions are far removed from the typical student in a for-profit institution. Classes take place in office-style meeting rooms instead of expansive lecture theatres, often taught by part-time faculty who hold regular jobs elsewhere.  Some students may complete a significant portion of their degree online, without ever stepping foot on campus. Extra-curricular activities are limited, and courses are structured to facilitate the quickest possible completion.

Although derided by critics as “education-lite”, for-profit education today is big business. The US for-profit post-secondary industry was estimated at $31B in 2012[1]. Between 2000 and 2010, this sector added 1.3 million students, an annualized growth rate of 16%[2]. In contrast, the not-for-profit sector grew at 2% and added only 440,000 students over the same period[3]. For-profits now account for 10% of all US college enrolments, up from 3% in 2000[4].

With this growth has come increasingly loud criticism. In June 2012, Senator Tom Harkin released the Harkin Report, a scathing 249 page compendium of a laundry list of misdeeds committed by 30 of the largest for-profit education companies. The Report found that taxpayers had collectively spent $32 billion on companies operating for-profit colleges, with dubious returns. Half of all students who enrolled left within 4 months[5]. Dropout rates at associate degree and bachelor programs were double those at non-profits. Also uncovered were exorbitant tuition, aggressive recruiting practices and systematic regulatory evasion.

To supporters of for-profit education, such incidents are aberrations, bad apples. To detractors, the frequency of such events suggests more of a bad orchard. So what should our stance be on for-profit education? Does it have a role to play in the wider higher education landscape?

The role of for-profits

For-profits were created to serve a very different niche from traditional universities- the so called “non-traditional students”. Non-traditional students typically delay their enrolment for a few years after high school, attend classes part-time and may be single parents or individuals who are financially independent from their parents[6]. For-profits also practice “open admissions” (accepting students so long as they meet the pre-requisites) and are purely academic-drive- no research, no publications and no tenure. These fundamental differences make direct comparisons with traditional non-profits difficult.

However, that doesn’t stop people from trying. Taking potshots at the for-profit industry has become something of a cause célèbre. Steve Eisman, the short seller who famously profited when the US housing market collapsed, labelled for-profits “socially destructive and just as morally bankrupt as the subprime mortgage industry”[7].

For example, one of the major criticisms of for-profits is the disproportionate amount of money spent on marketing relative to student instruction. The Harkin Report found that on aggregate, for-profits spent 30% more on marketing than on student instruction[8]. These figures are often waved around as a sort of ipso facto proof of for-profit education’s immorality- these companies prioritize roping in other students over teaching the ones they already have!

But consider another hallowed tradition of American state colleges- athletics. The Knight Commission on Intercollegiate Athletics (tasked with improving accountability on spending in college sports) found that the 98 institutions in the highest tier of college football spent an average of $92,000 per athlete in 2010, 7 times the amount spent on student instruction[9]. In the Southeastern Conference, spending per athlete was a whopping $164,000 versus $13,000 per student. Expenditure on athletics is growing at approximately twice the pace of academic spending.[10]

Defenders of college athletics say that sports improves the visibility of the school, builds school identity and attracts applications. Which, curiously enough, sounds an awful lot like marketing. Two wrongs don’t make a right, but our outrage needs to be consistent. If we are outraged that for-profits are spending 30% more on marketing than instruction, surely we must be many times more outraged that state universities are spending 7 times as much on athletics as teaching.

Lessons for traditional education

In fact, the for-profit model has some valuable lessons for traditional education, one of which is flexibility. For-profits schedule their courses to match the calendar year, with classes starting every few months. This allows students to complete their courses quickly and minimizes the opportunity cost of education. Such flexibility is not possible at traditional non-profit universities simply because they have not been configured this way. Faculty members need the summer to attend conferences, design new courses and write the all-important research papers which drive university rankings. Universities, on the other hand, have lucrative summer schools, executive education programs and symposiums to run.

Furthermore, course offerings at traditional institutions have lagged behind the changing demands of the workplace. How do we know this? Consider the demand for H-1B visas. The H-1B visa allows US employers to hire foreign workers in “specialty occupations”, typically in fields like engineering, education, law and accounting where a minimum of a bachelor’s degree is required. There is an annual quota of 85,000 visas, and in every year since 2003 this cap has been reached[11]. With the exception of a three year blimp after the Financial Crisis, in every year since 2003 the supply has been exhausted earlier and earlier. In 2013 and 2014, the entire quota was exhausted within the first week of petitions opening[12]. This suggests that American employers are unable to find the right skill sets within the local graduate pool. The misalignment of courses with growth areas may also explain why after adjusting for inflation, the average graduate earned no more in 2007 than he or she did in 1979.[13]

In contrast, for-profits focus on offering business-relevant courses like accounting, finance and engineering. They have also carved out a niche in healthcare, a sector expected to add 162,000 jobs over the next 10 years[14]. Analysis at Wells Fargo suggests that as much as 40% of America’s medical assistants receive instruction at for-profit colleges.[15] By offering courses driven by market demand, for-profits provide a steady stream of graduates equipped with the skills the economy needs.

Finally, teaching methods at traditional institutions have been slow to evolve. A case in point- for the longest time, traditional institutions have criticized the model of online learning, questioning its quality and effectiveness (this despite a 2009 meta-analysis by the US Department of Education which concluded that students who took all or part of their classes online outperformed those learning through pure face-to-face instruction[16]). Only recently have they started exploring options with MOOCs and distance learning. Georgia Tech’s partnership with Udacity and Harvard and MIT’s joint-venture Edex are some examples that come to mind. If these initiatives have a grafted-on feel to them, it’s because they are. Traditional universities have extensive investments in physical capital- classrooms, labs, libraries. Their business model is still predicated upon bums-in-seats contact education.

For-profits have been built from the ground up to incorporate virtual learning. The University of Phoenix has relied on online learning to scale from 8 students in 1976 to more than 200,000 today[17]. Nearly 40% of Career Education’s 45,000 students are enrolled in web-based virtual campuses[18]. Online instruction provides busy individuals with work and family commitments the option of learning as and when they can.

Conclusion

Does profit cheapen education? Proponents of this view point to advertising strategies used by for-profits like posters on the subway, rags-to-riches infomercials and gimmicky special offers on tuition - selling education like a hamburger. Such tactics may be tacky, but what is more disconcerting is the underlying current of academic elitism inherent in the criticism. It is all good and well to snigger at such advertisements when you come from a system that includes higher education as a natural stepping stone. But for many underprivileged individuals, for-profit education may be the only viable way of improving their lives.

Non-profits have had a monopoly on higher education for most of the past century, yet have failed to offer a viable route to a degree for non-traditional learners. Regulators should acknowledge this reality and examine how for-profits can be integrated alongside traditional education as a safety net. Dismissing for-profits as pantomime villains in a simple morality play is not the solution. Prune the orchard, don’t burn it down.  

 

 

 

References: 

[2] Total Undergraduate Fall Enrolment in Degree-Granting Postsecondary Institutions, National Center Education Statistics, 2012, http://nces.ed.gov/programs/digest/d13/tables/dt13_303.70.asp

[3] See (1)

[4] See (1)

[6] Non-traditional undergraduates/ Definitions and Data, National Center for Education Statistics, n.d, http://nces.ed.gov/pubs/web/97578e.asp

[7] Big Short Eisman Vies With Goldman Over For-Profits, Kambiz Foroohar and Esme E. Deprez, Jan 25 2011, http://www.bloomberg.com/news/2011-01-24/big-short-eisman-vies-with-gold...

[9] Restoring the Balance, The Knight Commission On Intercollegiate Athletics, 2010, http://www.knightcommission.org/images/restoringbalance/KCIA_Report_F.pdf

[10]Academic Spending vs Athletic Spending: Who wins? Donna M. Desrochers, Jan 2013,   http://www.deltacostproject.org/sites/default/files/products/DeltaCostAI...

[11] Data Published by the US Citizenship and Immigration Services Bureau,  http://www.uscis.gov/portal/site/uscis

[12]  USCIS Reaches FY 2015 H-1B Cap, UCIS, 7th April 2014, http://www.uscis.gov/news/uscis-reaches-fy-2015-h-1b-cap

[13] Higher Education-Not what it used to be, The Economist, 1st December 2012,  http://www.economist.com/news/united-states/21567373-american-universiti...

[14] Employment projections, Bureau of Labor Statistics, 2012, http://www.bls.gov/emp/ep_table_102.htm

[15] The rise and fall of Corinthian Colleges and the wake of debt it left behind, Jessica Glenza, 28th  July 2014, http://www.theguardian.com/education/2014/jul/28/corinthian-colleges-for...

[16] Evaluation of evidence-based practices in online learning, Means, Toyama, Murphy, Bakia, Jones, US Department of Education, September 2010, https://www2.ed.gov/rschstat/eval/tech/evidence-based-practices/finalrep...

[18] Online learning and the world of for profit education, HigherEdJobs, n.d, http://www.higheredjobs.com/higheredcareers/interviews.cfm?ID=224 

Comments

Great piece, Aaron. Although there are some bad apples out there in the for-profit space, there is a rotten batch lingering in traditional education. Curricula has barely budged in the last few decades and if some institutions go out of business because of their complacency, we will at least move forward with progress and leaner education. With where tuition costs have gone and where education quality has not, it is time the market gives universities a run for (other people's) money.

At the same time, I sympathize with the criticisms of those education programs you see in subway ads. Many of them make gullible onlookers think they will get a job just because they complete the program. Over education in run-of-the-mill majors is not what higher education is all about.

I am much more inclined to support the for-profit ventures that value cost effectiveness and efficiency. Founders Fund (under Peter Thiel) has made some excellent investments in this space. Already today there are already some great players out there educating folks on technical skills for a fraction of the price. (Khan Academy, Codecademy, Code School)

hey GM and GD- thanks for taking the time to read and comment!

@ GM- you've hit the nail on the head there about curricula not adapting to the needs of the market. Liberal arts institutions produce some of the great thinkers of our time, but you need to know how to build a bridge before you can write poems about it.

You're also right in pointing out that for-profits are no angels. The Harkin Report revealed some very serious ethics violations committed by for-profits which have no place in any business, for-profit or otherwise. In some cases, recruiters would hard-sell students by lying about place availability, or how if they missed this cycle they would have to wait a full year to enroll again. They inflated employment statistics, badgered potential students and did things that would put used car salesmen to shame. Such actions are predatory and despicable.

Regarding the way that for-profits market themselves, one could argue that the tactics they employ are no different from those used by companies selling weight loss /dating products- targeting fear. Fear of being overweight, fear of being alone, fear of being under educated. That said, it's also fair to say that companies which sell education owe a special duty of care to their target audience, who (at the risk of sounding condescending) are a more vulnerable demographic by definition.

My take would be that the for-profit model is a good idea which has been let down by very irresponsible execution. There are many people out there for whom the for-profit style of education makes a lot of sense. Restricting the growth of for-profit education would be doing such people a disservice.

Great analysis. I think that the development of for-profits is chiefly the result of a mostly unregulated/unsubsidized market economy for higher education in the United States. The increase in tuition fees in the last 30 years has dramatically outstripped the increase in starting salaries, and the content of many (if not most) undergraduate programs is disconnected from employer demands. Today's young people must weigh risk v. reward when deciding whether to attend university, where to attend, and what to study, which I predict will have a negative long-term impact on the US's societal knowledge, economy, and global competitiveness.

Although registered as non-profits, many traditional, private universities in the US operate exactly like businesses, with a keen nose for donations and a constant eye on the bottom line. I too sympathize with those looking for real job skills who take the for-profit bait and end up disappointed. I also feel for those who believe that a traditional university education is preparing them to compete in the market. I do hope that President Obama can work with Congress to make community college free, per his 2015 State of the Union address. (I use the word "hope" because I think it unlikely given the current executive-legislative divide.) In the meantime, any and all forces that may disrupt the established model are welcome.

@ GD

You're absolutely right in pointing out that private non-profit universities are run no different than businesses. NYU, for example, has aggressively expanded overseas and has branch campuses in Shanghai and Abu Dhabi. Harvard's endowment is somewhere north of $30 billion. Again, nothing wrong with this per se, but it's a bit rich to suggest that for-profits are cash-grubbing charlatans while non-profits are somehow beyond the taint of money.

For profits are an effect, not a cause. they are the result of a traditional education system which has, to its credit, served a certain subset of the population very well but neglected another. Like it or not, we need for-profits to educate those who have slipped through the cracks. We cannot, in the words of the great Tay Zonday, build a tent and say the world is dry.

Free community colleges is an interesting idea- I know that "free" tends to be a dirty word in some political circles in the states but anything which increases access to quality education is a good thing in my book