Oportuna columna publicada por el NY Times y circulada por Gregory Elacqua que aquí reproduzco.
NYTimes
September 16, 2011
Why We Need For-Profit Colleges
By JOE NOCERA
Last month, a company called Education Management Corporation was sued
by the Department of Justice. Education Management is a for-profit
education company; in fact, it is the country’s second-largest such
company, with more than 150,000 students attending classes on more than
100 campuses, where it offers degrees in business, accounting and
nursing, among other subjects.
According to the government, Education Management had a “
‘boiler-room’-style sales culture.” Its recruiters used “high-pressure
sales techniques, and inflated claims about career placement to increase
student enrollment, regardless of applicants’ qualifications,” as The
Times put it in an article about the lawsuit. And it supposedly paid
recruiters bonuses based solely on how many students they enrolled —
which is against the law.
Although Education Management vehemently denies the charges and vows to
fight them, this is hardly the first time a for-profit university has
been accused of impropriety. Indeed, during the last half-dozen years or
so, scandal has dogged the industry. In recent years, Kaplan, a division
of the Washington Post Company, faced allegations that it recruited
unqualified students and had an unacceptably high percentage of defaults
on its student loans. This summer, it settled a lawsuit (without
admitting wrongdoing) that claimed it failed to place students in
externships.
The allegations all stem from one essential fact: The for-profit college
industry makes its money by recruiting students — overwhelmingly poor
and working-class students — who must draw from the federal till to pay
tuition. In many cases, as much as 90 percent of the revenue of a
for-profit college company comes from the federal government, in the
form of Pell Grants and student loans. The more students the companies
enroll, the more federal money they get — and the more profit they make.
This has led to a widespread view that the for-profits will do just
about anything to get that federal money. Although for-profit colleges
enroll 12 percent of the nation’s college students, they soak up about
25 percent of the federal government’s student-aid budget. Fewer than
half the students who enroll in the four-year for-profit schools
graduate. Roughly 47 percent of those who were paying back their loans
in 2009 defaulted by 2010.
The shadow of scandal has, in turn, done a lot to color the way the
larger society thinks about the industry. No one is much willing to
listen to its defenders, who point out, for instance, that higher
default rates are inevitable given the higher-risk populations being
served, or that state schools also receive enormous taxpayer subsidies
that just don’t happen to be as obvious, or that the allegations hurled
at the for-profit schools are sometimes overblown or unfair. Educating
the poor and the working class is something that should be encouraged,
rather than scorned, they say. Jeffrey Leeds, whose private-equity firm
owns a big chunk of Education Management, says, “Our mission is
straightforward, and one we are proud to take on — to help students,
typically nontraditional students, successfully complete college
programs with workplace skills that enable them to get good jobs in a
tough economy.”
Instead, the industry’s transgressions have led many critics to conclude
that the only way to “fix” for-profit education is to get rid of it
entirely. One such critic is Steve Eisman, the famous short-seller and
hero of Michael Lewis’s book “The Big Short.” Last year, he said in a
speech that the for-profit education industry was “as socially
destructive and morally bankrupt” as the subprime-mortgage industry.
Having bet against for-profit education stocks, he then made similar
remarks in Congressional testimony. Not surprisingly, this caused more
stock declines in the sector.
All of this obscures what really ought to be the most important fact
about the industry: the country can’t afford to put it out of business.
On the contrary, America needs it — and needs it to succeed — desperately.
To start with the obvious, a college education has never been more
necessary for a decent life in America. Many manufacturing jobs now
demand a level of skill and education that virtually requires a college
degree. A lot of white-collar employers won’t even consider a job
applicant who hasn’t graduated from college.
And yet for the poor and the working class, that education is not easy
to attain. State university systems have become increasingly expensive.
Community colleges are terribly overcrowded. The schools most capable of
meeting the country’s growing education needs are the for-profits. In
the decade beginning in 1998, enrollment in public and private
universities went up less than 25 percent. Enrollment in the for-profit
colleges, meanwhile, was up 236 percent.
What’s more, the traditional university isn’t really set up to educate a
person who has a full-time job. The for-profits can offer class times
that are convenient for students, rather than for professors. They can
offer online classes, which many traditional universities have been
reluctant — or unable — to dive into. They pay professors to teach, not
conduct research. A well-run for-profit college could teach its
nonprofit counterparts a thing or two about efficiency and innovation.
That’s the part of the profit motive that grades well.
The bad part, of course, is that capitalists will always behave more or
less like greyhounds chasing a mechanical rabbit, motivated by whatever
incentives are put in front of them. Just as the federal government
created perverse incentives that helped bring about the subprime crisis,
so have the government’s rules for the for-profit industry unwittingly
led to its excesses. When industry reaps all the profit from student
loans and the taxpayer has to pick up the losses, how can we be
surprised when things turn out badly? What is needed now is creative,
enlightened policymaking that will change the incentives so that good
outcomes matter more than sheer volume.
Recently, the Department of Education issued a series of regulations
that are supposed to do just that. Unfortunately, the new rules are
cumbersome, complicated — and more than a little punitive. The most
controversial of them, known as the gainful employment rule, is built in
part on the actual earnings of all the graduates of a given for-profit
college. Yet, astonishingly, the schools themselves are never allowed to
see the income numbers of individual graduates because the government
considers them private. Rules like that aren’t likely to help fix anything.
There is an easier way. Robert Silberman, the chairman and chief
executive of Strayer Education, widely regarded as one of the better
for-profit companies, suggests replacing the plethora of regulations
with two simple changes. First, he says, the government should force the
for-profits to share in the losses when a student defaults. And second,
the government should set up a national eligibility test to screen out
students who lack the skills to attend college. Would there still be
defaults? Of course. But plenty of students at nonprofit universities
default, too. Silberman’s solution would help ensure that both the
government and for-profit companies are taking smarter risks on the
students they enroll and educate.
There is nothing inherently wrong with the idea of for-profit education.
The for-profits have flaws, but so do nonprofits, with their bloated
infrastructure, sky-high tuition, out-of-control athletic programs and
resistance to change. In a country where education matters so much, we
need them both.
Joe Nocera ([email protected]) is an Op-Ed columnist for The Times and
the co-author of “All the Devils Are Here: The Hidden History of the
Financial Crisis.”
Editor: Dean Robinson ([email protected])
——————-
Gregory Elacqua
—
Director
Instituto de Políticas Publicas
Facultad de Economía y Empresa
Universidad Diego Portales
Ejército 260
Santiago, Chile
56-2-676-2800
56-09-6-206-5993
[email protected]
www.politicaspublicas.udp.cl
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