Friday, August 06, 2010


If Only We Had a Government Capable of Making Rules...

As regular readers know, I used to work in for-profit university. I fled it for various reasons, but still find some of the commentary about them unhelpfully reductive. Naturally, I’ve been following Senator Harkin’s hearings -- and the responses to the hearings -- with interest.

Broadly, the hearings are addressing abusive and/or misleading and/or illegal recruitment practices at various for-profit colleges and universities. The stated idea is to prevent taxpayer money (in the form of Federal financial aid) from being squandered on diploma mills or colleges that charge far too much for what they deliver. The unstated idea seems to be to have a referendum on the very idea of for-profit education.

It seems to me that it would be a lot more productive to focus instead on the rules of the game.

In my time at Proprietary U, there was a chronic internal tension between Admissions and Academics. The folks in Admissions were accountable for hitting their numbers -- they did somersaults and backflips to explain how that wasn’t commission pay, but it was commission pay -- and some of them did pretty much whatever they had to do. On the positive side, that meant helping students set up carpools, navigate paperwork, and get scheduled. On the negative side, it led to some pretty dramatic overpromising, some really unhelpful denigrating of the gen ed classes that students still actually had to take, and a level of ‘message management’ that sometimes became silly.

On the Academic side, we had to actually teach the students who got recruited. The numbers by which we were judged were retention percentages and job placement statistics. As some of us never tired of pointing out (hi!), those two numbers often pointed in different directions. Those of us who believed that fighting attrition by lowering standards was a bad idea would cite the employability of graduates, but we weren’t always on the winning side.

When the market was booming, the conflict was more stylistic than substantive. Students stayed in programs because they saw the payoff; retention efforts amounted to little more than open discussions of starting salaries. (For a while there in the late 90’s, the truth was good enough that you didn’t have to sugarcoat it.) Since the institution charged more per student than it cost to educate each student, growth was a source of profit, so it could grow quickly to meet mushrooming demand. On the national level, that growth has continued, and has far outpaced anything happening in the nonprofit world, where growth is typically a cost.

When the market turned, though, things got ugly fast. And this, oddly enough, is where the nonprofits have an advantage (or would, if the states would step up).

In most public colleges, there’s an allocation from the state and/or county and/or city that goes directly to the operating budget. In practice, if not in theory, that allocation is usually pretty independent of enrollment numbers. During enrollment booms, that means that the percentage of the budget paid for by the students directly increases. But during declines, there’s at least the cushion of some revenue that’s independent of tuition.

The for-profits can grow much more easily, but they have a harder time dealing with decline. That’s because they don’t have the enrollment-independent cushion of funding that the non-profits have.

Now it’s certainly true that the state-provided cushion is proportionately much smaller than it used to be, which means that declines hurt more now than they once did. But a drop that might register as ‘difficult’ for a community college could put a for-profit out of business altogether.

That is, unless the for-profit does what cornered animals tend to do. I’d expect to see any ethical gloves come off in times of decline, as they fight and scrap for every single student.

And this is why my position on for-profits is neither ‘for’ nor ‘against.’ It’s that they need to be meaningfully regulated. If they’re forced to fight fair but still manage to thrive, then presumably they’re adding value somewhere. At that point, the sober objection to their existence seems to fade away. But leaving them alone to do as they will is madness. Left to their own devices, they’ll act much like the cable tv monopolies did when they were deregulated; it’s naive to expect that they wouldn’t..

In the hearings, the for-profits have raised some fair points in their own defense. The one I find most compelling is the (correct) contention that the investigation doesn’t have a control group. Do we really, honestly believe that unethical behaviors are confined to the for-profit sector? Do we really believe that desperate tuition-driven nonprofits won’t do whatever they have to do to survive? For that matter, do we really believe that every accredited nonprofit actually provides a quality education?

But there, too, my response is that picking one side over the other misses the point. The point is a need for rules of the game, evenhandedly enforced, that will punish institutions for giving in to the temptations of untoward behavior. That’s true whether the institution is publicly traded, church affiliated, or state-identified. If a college is incompetent or corrupt, I don’t much care that it’s not for profit.

Ideally, the nonprofits would learn from the best elements of the for-profits. Is the agrarian calendar really cast in stone? Might a ‘career development’ style class make sense as a requirement, at least in some majors?

And ideally, higher ed will get past the kabuki of outrage at the existence of profit and actually address the rules of the game. If only we had a government capable of making rules...

The most puzzling thing about the hearing concerned not letting a student talk to financial aid until they had signed up. Somewhere I saw a statement that this is required by law, so there must be some fundamental difference between them and us that leads to high pressure sales techniques. Our students enroll and then deal with financial aid, but they don't technically owe any money (or any loans) other than an application fee until the last day to drop has passed, and the first fee deadline can be as late as the first day of class. Are the for-profits run in a completely different way that would explain that scene in the admissions office? Please enlighten us.

I'm also curious about the structure of your CC's finances. I now know that California schools really do lose money when they add a student, but we don't. Our tuition will easily cover the cost of hiring an adjunct as long as the section has a reasonable number of students in it. (I'm assuming here that you don't need to increase the professional and administrative staff, which makes up more than half of our budget, when you add a section. The fact that our admin views growth as a good thing suggests I am correct.)
I work at a large for-profit and have a couple of comments.

There is a 3rd party to this tension DD mentions; admissions, academic and finance. Finance is drive by wall street, and even if revenue goes up (due to students persisting longer) wall street panics when enrollment goes down.

Wall street is a harsh taskmaster for EVERY public company; it encourages short term thinking in order to maximize stock price for this quarter and discourages a company from being willing to take a hit this year to make a strategic directional change. This is no different for DeVry than it is for Goldman Sacks, and has driven many of the same bad decision making processes.

Regardless, I agree that for-profit education is neither good nor bad on it's own. This isn't a moral issue. There are some truly despicable players, there are some players who are less than perfect, and there are some that do the right things. That goes for non-profit as well.

It is far more important that, if the government thinks it has the right to regulate how student loan money is spent, than it should be doing it across the board. Why are for-profits subject to gainful employment and non-profits aren't? Why are these same GAO experiments never run across sectors?

And the thing that annoys me the most in this debate is why are all for-profits treated as a monolithic group, when we would never do the same for non-profits. Is Harvard expected to operate the same as a rural community college? Hardly. So why should we assume that University of Phoenix operates the same way as a beauty school?

I would never claim that for-profits are innocent; EVERY school (regardless of profit status) has people who behave deceptively or with less than full disclosure.

But this feels like a vendetta, one based in some type of moral outrage that someone, somewhere is making money on education. (And if that's the case, can we go after textbook publishers next?) The problem requires a more fine-tuned analysis and response than we are currently seeing.

@CCPhysicist: Our students don't owe any money other than an application fee until the class starts, and we pro-rate the tuition so that if they drop in the 1st week or two they don't owe the whole thing.

I too was puzzled by why the GAO saw that as a bad thing, since if I called up financial aid at some big state school I wouldn't get a whole lot of help until I was enrolled either. Certainly nothing specific to my situation. More likely I would be referred to the government loan websites or the FAFSA helpline. Again, why are for-profit's held to a different standard?
What about a model where the Gov't will ONLY pay for loans to expensive private schools if a student has attended at least one successful semester at a community college.

This means that only students that can succeed in college end up at expensive private colleges. Less defaults. Less misery. Also this means that the community colleges would raise the bar since they'd have a better class of prisoners. That's good for everyone too... better outcomes. It also avoids a lot of messy "rules". Simple.. you want a loan? Sign up for the CC! Pretty reasonable approach for parents too BTW.

Sorry meant to say it would raise the bar at private colleges... the better class of prisoners would be the ones who had succeeded at CCs. Not sure what it would do to the CCs... DD?
I've seen too many hard sells from private schools (eg. DeVry, RCC) that hide the full cost of attending (and inflate the cost of attending a public institution*).

Set a rate (based on what a community college or public university charges) for a diploma or degree, and base loan amounts on that. If a private school can deliver the goods cheaper (or deliver better goods for the same money) then surely the divine market will see that they prosper?

*RCC's recruiters routinely compare the cost of attending community college (including living expenses and vacations) with the tuition to attend RCC.
I wouldn't call outrage toward the for-profits to be kabuki entirely. While Higher Ed has a lot to answer for, it is obviously massively superior to a mafia operation designed to defraud first-time college students out of Federal grant and loan money.
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