A Philosopher's Blog

For-Profit Colleges & Your Tax Dollars

Posted in Universities & Colleges by Michael LaBossiere on October 23, 2010

When I first learned about for-profit colleges, I had mixed feelings. As a philosopher, I was somewhat appalled at the idea of transforming the education process into a crass money making machine. As an experienced academic, I had some vague hope that for-profit schools could offer more people a lower priced education by slashing away the costly bureaucratic fat (or “bureaufat”) that has accumulated at many schools. As a somewhat cynical person, I suspected that the for-profit schools would find clever ways to exploit people and siphon money from the government.

As usual, my cynical self seems to have been correct.

One rather interesting fact about the for-profit colleges is that they have less than 10% of the post-secondary students, yet get 23% of the federal aid dollars (based on data from 2008-2009. Another interesting fact is that this federal aid provides 87-93% of the income of these for-profit colleges. A third rather interesting fact is that these colleges have a profit margin ranging from 16 to 37%, which is outstanding.

The “secret” to generating such profits is hardly a secret. While there is a popular myth that private sector for-profits can deliver better services for less money, the for-profits seem to charge a great deal. For example, Kaplan intended to charge students in California $646 for a three credit hour class that would cost $78 at a community college.

Of course, there is nothing inherently wrong with charging high fees, especially when there are alternatives. However, it seems that some for-profit schools have engaged in wrongful deeds in making money. Recent investigations have revealed significant problems with fraud and abuse. For example, students were apparently encouraged to lie on their financial aid forms so as to receive federal financial aid or increase the aid received. While the students obviously are culpable as well, encouraging people to commit fraud is not something that these schools should be doing. However, since this aid is a major source of their income, it is hardly surprising that they would do all they can to maximize their profits.

For-profit colleges like to point out that they have a higher graduation rate than community colleges and they use this to attract students. However, an analysis of the data seems to reveal that their graduation rates are not quite what they claim. What is not in dispute, however, is that students of the for-profit schools lead the nation in defaulting on their student loans. Since the loans come from taxpayer dollars, this means that the burden falls onto us. While the people who default are responsible for the loans, the for-profit schools seem to be a causal factor as well. One obvious possibility is that there is a connection between the fraud that the schools allegedly encourage so that students can maximize their financial aid and students being unable to pay back that money. Another possibility is, as noted above, the graduation rate of the for-profit schools is not as good as they claim. People who do not finish school are less able to pay off loans and perhaps less inclined to do so.

I think that properly regulated for-profit schools could have a place in education.  After all, such schools could (in theory) offer a lower cost alternative to traditional schools. However, the current crop of for-profit schools seem to be far too problematic, primarily because they seem to be placing profit above everything else, even ethics. What is especially bad, at least from the standpoint of the taxpayers, is that the for-profit schools seem to making their profits by milking the government (and hence us).

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