Gainful Employment & Education

For-Profit Education

For-Profit Education (Photo credit:

Since education is rather expensive, it seems reasonable for a student to expect a return on her investment. Given that the taxpayers often contribute to the education of students, it also makes sense that they also receive a return on their investment.

As it now stands, the return on the student’s investment is supposed to be a job that is proportional to the cost of education. Roughly put, a student should be able to reasonably work out of her school debt with the job that education is supposed to get her. In terms of the return on the taxpayer’s investment, the return is similar: the students funded by the taxpayers are supposed to get jobs and repay the investment through the taxes they pay. The student becomes the taxpayer, thus enabling the next generation of students to also become taxpayers.

Because the cost of education is so high these days, it is natural for some folks to place their hopes in the free market. The ideal is that for-profit schools will provide a high quality product (education that leads to a job) at a lower cost than the (supposedly) bloated state and traditional private schools. As might be suspected, the ideal is rather different from the real.

While state schools obviously receive state funds, the for-profit schools receive massive federal support—about $26 billion per year in grants and loans. Unfortunately, this money seems to be ill-spent: 20% of the for-profit school students default on student loans within three years of entering the repayment period. About half of all student loan defaulters went to such for-profit schools, although these schools make up 13% of the student population. The estimate is that about half of the loans funneled through students to the for-profit schools will be lost to default, which is hardly a good investment.

One of the main reasons a student defaults on loans (though not the only one) is financial hardship. As might be imagined, not earning an adequate paycheck is a clear way to end up in such hardship. While there are over 2,000 programs where the students had load debt but who paychecks were not adequate to keep them above the poverty line, 90% of these programs are at for-profit schools. As such, these schools seem to be a bad investment for both taxpayers and students. While public and traditional private schools do account for the other 10% that need to be addressed, they are quite clearly a better investment for taxpayers and students. This is not to say that such schools do not need improvement—but it is to say that the current for-profit model in not the solution.

There have been some attempts, such as those in 2011, to impose regulations aimed at addressing the predatory exploitation of students (and taxpayers) by institutions. Not surprisingly, these were countered by the well paid lobbyists working at the behest of the for-profits.

Interestingly, some states are pushing hard for performance based funding for public institutions. For example, my adopted state of Florida has seen the Republican dominated state legislature engage in what some might regard as micro-managing of education. In any case, we are been transitioned to a performance based model in which funding is linked to achieving goals set by the state. Naturally, for-profit schools are not impacted by this since they are private institutions. As such, the current trajectory seems to be for state schools to be state regulated in accordance with performance measures while the for-profit schools enjoy unfettered access to the federal largesse.

Some might suspect that the performance based funding approach being taken towards public universities and colleges is cover for reducing funding even more. This seems reasonable since one of the main effects has been to cut funding for some state schools (such as my own). It is also the case that the approach is designed to shift funding to schools that have more political influence—which is supported by looking at where the money goes.

It might also be suspected that the performance based funding is also designed to harm public schools and push students towards the for-profit schools. These schools typically enjoy excellent political connections and certainly would benefit from reduced public education opportunities. Of course, the profits of such schools come largely at the expense of students and taxpayers—they are thus well-subsidized by the state in a new twist on the old corporate welfare system.  Shockingly enough, there is little conservative rage at this wasteful socialism and these welfare queens.


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  1. Chilean president Michelle Bachelet has promised to end all government funding, including student loans and scholarships, to for-profit educational institutions. She has the votes for it in congress too.

    The experience of for-profit higher education in Chile has been overwhelming negative: high tuition based on student loans, education of inferior quality, students promised unrealistic career possibilities, very high student drop-out rate, zero academic research, professors without tenure or job stability paid by the class hour.

    The latest strategy of the Chilean for-profit education industry is to deny that they are for-profit. This is done by very complicated book-keeping tricks. For example, the for-profit university does not technically make a profit, but a real-estate company, coincidentally owned by the board of directors of the university, owns the university buildings and rents the buildings to the university for a huge profit. However, that’s a kindergarten type simplication of the tricks these guys use.

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