Full Sail for Profit

Money

Money (Photo credit: 401(K) 2012)

Across the United States, public education has been under consistent assault. K-20 budgets have been cut, teachers’ unions have been attacked, political agendas have been pushed onto education, and educators have been vilified. One reason for this assault is to open up the education “market” to allow opportunities for profit. As such, the rise of for-profit schools is hardly surprising.

It is important to distinguish between the traditional private school, such as Marietta College, and the for-profit schools. While for-profit schools are privately owned, they are operated rather differently than the traditional private schools. The most obvious difference is that their main focus is profit.

There is, of course, the beloved myth that the profit motivated private sector can out-perform the allegedly inefficient and bloated public sector. However, an examination of the facts shows that when it comes to education, the for-profit schools often stack up poorly against public schools (and traditional private schools).

Thanks to Mitt Romney, one for-profit school, Full Sail University, has become somewhat well known. While Romney praised this Florida school (whose chief executive is a major campaign contributor) while in New Hampshire, a look at the facts will show that the school and other for-profits are not a good choice for students. For example, people who graduated from some Full Sail programs are defaulting on their college loans at a rate of up to 60-75%. The government has pushed for for-profit schools to achieve a graduate loan repayment rate of 35%, which is hardly an onerous requirement. As for why Full Sail graduates have a relatively poor repayment percentage, the average debt of a graduate is 300% to 800% of her income. To be fair to Full Sail, students at public schools are also graduating with significant debt, which provides an excellent reason to be critical of the cost of education in general.

The Obama administration has attempted to set regulations for repayment benchmarks and income-to-debt ratios for for-profit schools. Schools that could not meet these would no longer be eligible for federal funds. However, these regulations were struck down in July of 2012. Interestingly enough, public schools are often being subject to intense scrutiny from state legislatures. For example, Florida public universities have gotten considerable attention from Governor Rick Scott and the legislature. The professed reason is, of course, to ensure that education funds are being well spent. It is, of course, a point of concern that public schools are being subject to intense scrutiny while for-profit schools seem to be held to standards that are rather lower.

One obvious reply is that for-profit schools are privately owned and hence should not be subject to such government regulation. After all, one might argue, the market should decide (via the invisible hand) what education should cost and what jobs should pay. As such, if students have debts that far exceed their income, then that is just how the market works.

While this does have some appeal, the easy and obvious response is that these for-profit schools get over $30 billion a year in taxpayer funds. Interestingly, the 15 publicly traded for-profit college companies get 86% of their revenues from public money. This includes federal financial aid, the Post-9/11 GI Bill and the Department of Defense Tuition Assistance money. As such, these private companies are mostly public funded. This would certainly serve to justify the right of the state to regulate these schools. After all, they are effectively public funded institutions. This also certainly helps explain the attack on public education—the for-profits are competing with public universities for the same money and every dollar that goes to a public school is a dollar that a for-profit school does not get. Naturally, the for-profit schools also compete with traditional private schools. However, the traditional private schools are far less vulnerable to the machinations of those serving the interests of those who seek a profit focused education system.

There is also a myth that the private sector can provide better services at a lower cost. In the case of the for-profit schools, their B.A. degrees average 19% more than the cost of a B.A. at a top public university. The for-profit schools also compare unfavorably in the area of 2 year degrees—they charge 400% more than public non-profit schools. Given that the cost of public education has increased significantly (in part because of budget cuts to these schools), the for-profit schools are certainly very expensive.

Because of the greater cost, the public money that goes to for-profits yields less return than the same money spent on a public institution. Ironically, while public education has been accused of being costly, it is a far better deal than a for-profit education. Interestingly, if free-market forces were actually operating as they are alleged to operate, the for-profit schools should go out of business, given that they cost considerably more than public education. Of course, the mythical free-market is not operating here.

It might be replied that for-profit schools charge more but that they are providing more for the money relative to public schools. However, a look at how the money going into for-profit schools will reveal that this does not seem to be the case.

Based on a 2009 study of 30 for-profit companies, 22.4% of their income goes to marketing, advertising, recruiting and admission staffing. 19.4% goes to profit, which is rather impressive. In contrast, 17.7% goes to actual instruction. As such, the schools charge a great deal more than public schools and spend a great deal less on actual education. This would certainly indicate that they are not providing students with a good value for their money.

While top public university administrators are well paid (for example, the former president of Florida A&M University made $330,000 a year plus a guaranteed bonus), the CEOs of the for-profit schools have an average salary of $7.3 million, despite the fact that by objective measures they deliver an inferior product at a higher price than public schools.

The above facts show a fundamental problem in the United States. Our education system is under concerted attack with the clear purpose of redistributing public funds from high quality public and private schools to the objectively inferior for-profit schools. It is indeed ironic that Obama was attacked in September, 2012 for his 1998 remarks about redistribution. After all, the for-profit schools are the recipients of a $30 billion dollar redistribution. It is also ironic that Mitt Romney, the man who accused the 47% of Americans who do not pay taxes of being irresponsible dependents of the state has praised the for-profit schools. After all, they are growing fat on public money.

This reality is concealed under deceitful rhetoric that is used to mislead the public and garner support for what is actually an attack on the bedrock of a democratic state, namely an effective system of affordable and accessible public education.

Ironically, the way to counter the problems presented by the for-profit schools is to apply conservative principles to them. To specific, they need to be removed from public welfare, they need to be held responsible, and they need to be forced to compete in a free market (one in which their allies do not use the state to impede their competition). This situation nicely exposes the lie of some conservatives: they are exactly what they profess to hate, only on a much bigger scale.

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  1. It’s not all that surprising that a radically market oriented economy would rationalize education in the same direction. But I doubt that the whole process has to do with a lack of foresight or understanding. The World Bank and International Monetary Fund are setting the agenda everywhere and it isn’t in their interests or other corporate interests to actually “educate” people, that is, to encourage them to think independently and not necessarily in lock-step with business. We are losing our human values as we gobble up the world’s finite resources as quickly as possible. The connection is very real.

  2. Education as we have it is coming apart at the seams. And, so, it should. It has become grossly expensive. And for myriad thousands of students saddled with heavy debt-loads, their education is totally ineffective. For way too many, the post-modern version of education is a heart-breaking con-job.

    Institutions should get out of the business of teaching, and into the business of testing and verifying knowledge-competence. What we have now is the wretch of an undergraduate body carrying the corpuscular weight of administrators and useless researchers who are questing for Honor in their own eyes or the Golden Grail of a Blessed Patent. Pox on all: public, private and for profit.

    Have a nice day, eh?

  3. swallerstein,
    What are your other two classifications and distinctions of major Western ethical theory?

  4. The significant part of the lower cost claim for private and for-profit schools compared to public schools is that the lower cost is, of course, lower for the school, not for the student. Even more significant, politically, is that it’s also lower cost for government, since, other than any subsidies, there is no cost to the government.

    The cost is almost bound to be higher for the student. A for-profit enterprise can drive costs lower through competition, but that is always in the context of profit, not education. Profit will always come before quality and cost to the student – it must. Private enterprises are required to work for their shareholders first.

    Competition also has winners and losers. Over a long period this can make the economy efficient, if a little wild at times. It’s bad enough that adults in work are at risk of losing their jobs from time to time, as inefficient companies go bust, particularly in tough times. But education, like health, has very specific risks that are worth taking out of this free-for-all. Students that go through four or more years in a declining educational organisation will have had their formative years ruined, possibly to the point of being unrecoverable. They may miss out on university at a crucial stage and may never get the chance to try again. A similar problem applies to health. If private enterprise screws up, through poor quality of service, or, more likely, a reluctance to provide insurance cover, then when you’re dead you’re dead.

    There seems to be a short sightedness to the profit-motive, particularly in education and health. Profit always about near term returns, and always for the benefit of those it benefits most immediately. The US makes a big deal of its many wealthy philanthropists, but it’s always worth asking, in detail, who earned their money for them? Are there really any victimless for-profit businesses? In education the students will be the victims.

    This isn’t a call to arms from a communist. Capitalism seems to be the best of a bad lot – and by bad lot I merely mean difficult lot, since large scale economics is a dodgy business. Central command economics is simply too complicated for any government to get right over a significant length of time; and there are too many competing ideas with no science to back them up. So even in education there is still room for a small percentage of private schools. If wealthy parents of rich dumb kids want to spend lots of money, then fine, let free-enterprise have its way.

    But if anything should be managed nationally for the benefit of students of the middle and lower income parents it should be education. Evolution hasn’t yet moulded us into rich-brainy and poor-dumb sub-species. The best brains within any nation can come from anywhere within the population. Too much emphasis on for-profit education will always drive the poorly performing poor quality educational establishments into serving the financially poorer sectors of the economy. A lot of talent will go to waste; which only contributes to the decline of the nation. Money can buy education, and it can even by political clout, but it can’t by brains: you did, after all, elect George W Bush. If that wasn’t a sign of the educational decline of the candidates and the electorate I don’t know what is. And now you offer Mitt Romney? Please US, for the sake of the wider world, get your act together, educate all of your people with a for-education model and not a for-profit one.

  5. Ron,

    Good points.

    One problem, I think, with the current profit model is what you noted-that for-profits exist to serve the shareholders. That is, only their good matters. There are other models of business in which the customers and community are also considered stakeholders worthy of concern.

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