A Philosopher's Blog

Full Sail for Profit

Posted in Ethics, Philosophy, Politics, Universities & Colleges by Michael LaBossiere on September 28, 2012
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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14 Responses

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  1. T. J. Babson said, on September 28, 2012 at 8:16 am

    So, no pity for the teachers who would lose their jobs under a Labossierian regime?

    • Michael LaBossiere said, on September 28, 2012 at 9:14 am

      Who would lose jobs?

      Suppose that for-profit schools were held to the same standards as public universities and there was free competition (that is, the for-profit schools did not have governors and state legislatures attacking the competition). Presumably they would still be able to employ people. I am not advocating banning such schools, just holding them to reasonable standards of accountability. You know, the ones that I have to meet.

      Also, if the for-profit schools did not make it, there would still be demand and this would presumably result in hiring more teachers at other schools (private and public).

      What is interesting is that the public sector teachers and teacher unions get attacked for allegedly being inefficient and selfish. Yet the for-profit schools are terrible when compared to the average public schools in terms of costs, debt ratio, graduation rates and job placement. Yet they have been praised by the same folks who back attacking public education. I’d say that the difference is in the money flow.

  2. T. J. Babson said, on September 28, 2012 at 8:56 am

    “There is also a myth that the private sector can provide better services at a lower cost.”

    This is not what we free market fundamentalists believe. We believe that it is competition that leads to excellence in all things. This concept goes back to the Greek concept of Agon, and goes a long toward explaining the excellence of Greek civilization.

    If there is no competition, the private sector will not provide better services at lower cost.

    Magus said that you are the most competitive person he knows. Do you not believe in the power of competition to bring about excellence?

    • Michael LaBossiere said, on September 28, 2012 at 9:32 am

      You don’t believe that it provides better services at lower cost? Or is it that I did not go far enough in the virtues of competition?

      The Greeks also had a strong sense of community. The Spartans, for example, believed that the state should have total control over the individual. The Athenians had democracy at times, but they still had a strong sense of community (see the Crito for Socrates’ discussion of loyalty to the community).

      You did identify the problem, namely the matter of competition. I do agree that excellence is generally proportional to the level of competition. Of course, there still needs to be limits (as Hobbes argued if we are in a state of total competition, that is a state of war and that is no good for anyone).

      In the case of the for-profit schools they have a significant advantage over the public schools. Currently, there are governors and state legislatures who are allies of the for-profit schools. They have significant control over the public universities and have been systematically cutting budgets and otherwise attacking public education. These schools also have powerful allies in Washington and elsewhere (Democrats and Republicans). As such, the power of the state is being used against the public schools. These for-profit schools are also being protected from accountability by their allies. As such, the competition is certainly not that of a free market-rather, it is significantly state controlled. Interestingly, while Romney condemns the 47%, he praises the for-profits (which survive on welfare) and talks about reducing government and getting it off our backs (while the state is used as a weapon against public education and a shield for the for-profits).

      The difference between Obama and Romney is not that one gives free stuff and uses the state and the other does not. The difference is in who gets that free stuff and what the state is used for. So, while people think Obama gives them free stuff, the folks in the for-profit schools know that they are getting plenty of free stuff from the state. Oddly, I do not see Fox railing against these welfare kings and queens.

      Now, if the for-profits were efficient and effective, then that would be fine. After all, I have no problem with quality private schools having students who get financial aid. My problem is with schools that seem to exist mainly to funnel public money into private pockets.

      I am consistent in this matter since I am also critical of the same problem in public schools-for example, I have written critically about the needlessly high administration costs in public schools. I would say that the public schools are also guilty of funneling public money to private profit, but their sins are tiny compared to those of the for-profit schools (as supported by the % of money that goes to profit and the comparison of CEO salaries with university president salaries).

      So, my overall principle is that education funding should be used efficiently and effectively for actual education rather than being funneled into other pockets.

      • T. J. Babson said, on September 28, 2012 at 10:43 am

        “You don’t believe that it provides better services at lower cost? Or is it that I did not go far enough in the virtues of competition?”

        It is the competition that brings about excellence, not the “public” vs. “private.” If one can arrange for competition between public entities, they too will excel.

  3. T. J. Babson said, on September 28, 2012 at 9:49 am

    “Oddly, I do not see Fox railing against these welfare kings and queens.”

    Google “higher education bubble” if you want plenty of examples.

    Here is one from Forbes:

    Higher education is in a bubble situation—its price has risen sharply, fueled by cheap federal loan and grant money (sound familiar?) while the return on the investment has fallen. More and more college students are either not graduating or are taking jobs that do not require college-level skills and often pay mediocre amounts. In investor parlance, the price-earnings ratio on investing in higher education seems to be rising sharply. Where markets operate without external interference, there would be a correction. Sensing lower returns on their investment, the demand for higher education would fall and, with that, enrollments. Declining demand would lead to falling tuition fees, etc. Colleges would layoff lots of workers.

    Yet market forces in this sector are grossly distorted by governmental and, to a much smaller extent, private philanthropic payments. Subsidies are propping up a situation that is unsustainable in the long run, but can be maintained at least temporarily without critically altering enrollment and pricing situations. Thus the way and timing of the bursting of the bubble is different than say, the housing or equity markets, but the bursting will occur nonetheless.

    http://www.forbes.com/sites/ccap/2011/04/05/the-higher-education-bubble/

  4. T. J. Babson said, on September 28, 2012 at 10:48 am

    Mike, why are you so skeptical of the free market? Where the market is free, like in technology, we see amazing productivity gains. Look at computers. This is the power of competition.

    • Michael LaBossiere said, on September 28, 2012 at 11:17 am

      I’m not skeptical of the free market, I’m skeptical that the market is actually free. As you note, the brutal competition in hardware has fueled advances and lower prices. However, this is but one small part of the market.

      I’m actually a proponent of freedom in the market, provided that the competition is fair and there are rational rules limiting excesses and damaging behavior (this is the same view I have of individual freedom).

      • T. J. Babson said, on September 28, 2012 at 12:01 pm

        So we are in at least partial agreement. Where do you see competition playing a role in K-12 education, or in education generally?

        • Michael LaBossiere said, on September 28, 2012 at 1:53 pm

          In K-12, there is competition between students, but I infer that you mean between schools (and not sports). With public schools, there is competition for funding, personnel and such. Not surprisingly, the schools in the wealthiest areas generally “win”-which is why parents are often very concerned about where they live. For example, my friend Ron bought his house primarily because it was near the best school in Tallahassee.

          The “no child left behind” era and its follow up has done considerable damage to K-12 education. Once connected people figured out that they could make money selling standardized tests to schools, the assault on quality public education began. While the unions have been cast in the role of villains, a look at the impact of standardized testing and associated programs will tell a different tale.

          At the university level, schools compete among themselves for students, faculty, grants, reputation, rankings, status and so on. The competition can be rather intense. There is also the competition between US schools and foreign schools. The US has enjoyed the highest ranked and regarded university system in the world. People come here from around the world to attend our top-ranked universities. Interestingly, many states have been cutting education budgets and engaging in rather hostile actions against public education, thus attacking one area in which we are top performers. While this approach will result in significant profits for the folks selling standardized tests and running for-profit schools, it will do considerable damage to the United States as a whole.

          What bothers me the most is the pure selfishness of the idea that education is just another thing to “strip mine” for profits. What really angers me is that it is presented under a cloak of “small government”, “choice” and “a free market.” That is, pleasing lies concealing the intentional erosion of a key pillar of our country.

  5. WTP said, on November 6, 2012 at 1:00 pm

    Here’s some “quality” instruction you won’t find a Full Sail university. Which will do more damage?

  6. WTP said, on July 8, 2013 at 11:31 am

    Cross posting…just because…with an addition…

    http://aphilosopher.wordpress.com/2013/06/03/should-everyone-go-to-college/#comment-29544

    The default rate for student loans at US colleges and universities, courtesy of the US Departement of Education. Perhaps this should be an indicator of the value of an education at these schools. Of course much depends on what one chooses to study.

    http://www.nslds.ed.gov/nslds_SA/defaultmanagement/search_cohort_3yr.cfm

    Some sample data, e.g. default rates for various institutions:

    Harvard 1
    Yale 1.4
    University of Miami 2.7
    University of Florida 3
    Florida State 5.2
    Ohio State 5.6
    University of Maine 7
    Webster University 8.2
    Full Sail University 11.8

    Webber College 18
    FAMU 18.3
    University of Phoenix 26.4


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