Revive For-Profit Higher Education

Competition Boosts Choices and Opportunities
By guest author Richard Vedder
December 21, 2018

The Obama Administration intensely disliked for-profit higher education. Political appointees in the U.S. Department of Education (Robert Shireman particularly stands out) as well as Democrats in Congress (e.g., former Senator Tom Harkin, current Senator Dick Durbin) constantly attacked the sector. Most of them probably thought that businesses should not make profits from education, which they consider primarily a public good appropriately only provided by nonprofit schools. All sorts of regulations were imposed: state certification requirements (forcing online companies to get state bureaucratic approval in every state in which they operated), gainful employment rules, etc. These restrictions were ostensibly designed to protect student consumers from fraud, but since in most cases they did not apply to public not-for-profit institutions, they were highly discriminatory—clearly an attempt to stamp out the schools. The effects of this are still being felt, as evidenced by the recent decision by the Education Corporation of America to close dozens of campuses with thousands of students. To be sure, there were a number of “bad apples” engaging in deceptive practices, although a non-discriminatory policy would have closed down some public institutions as well with very poor academic and employment outcomes.

I thought the unfortunately largely successful regulatory attack was a mistake for four reasons. First, markets impose disciplines on all institutions charging a price for their services, including schools. In the case of the for-profits, however, that discipline is far greater, because tuition fees are virtually the only source of revenues, unlike nonprofit institutions dependent on government subsidies, endowment income or private gifts. At for-profits, satisfying the customer is critical to survival, and hence teaching is Job One—more so than at other institutions also promoting research, saving the earth (“sustainability”), achieving progressive objectives (“diversity”), providing entertainment (e.g., football), etc.

Second, that market discipline makes colleges more efficient. Resources are more intensely used. Most proprietary institutions rent pleasant but highly functional space with good parking on the outskirts of town or operate on-line—having no real campus. Instructors each teach several sections of needed core courses, not one or two sections of classes covering obscure tangential topics that the instructor favors.

Third, while traditional higher education talks about serving low-income persons, racial minorities and first-generation college students, the for-profits do it—without hiring an army of diversity coordinators to demonstrate institutional support for equal educational opportunity. Critics of proprietary education bash the schools for poor performance, a phenomenon largely a consequence of accepting large numbers of at-risk students. The elite private schools that heavily influence the culture of most American universities want it both ways—they want to sound like they love the poor and minorities, but they also want high academic standards, first-rate students and the like. These goals sometimes conflict, particularly given the abysmal circumstances at home and school facing many poor inner city kids prior to college.

Fourth, the proprietary schools emphasize preparing students for specific vocational objectives. Many are two-year or even nondegree schools offering certificates denoting competency in some needed vocation, such as welding, plumbing, or driving eighteen-wheel trucks over long distances. We need truck drivers and welders just as we need engineers and accountants, and Americans have neglected public vocational education, viewing it as second-rate, inferior training. The for-profit schools include many “career colleges” that often train students with limited interest or skills in traditional book-based learning who are capable of learning other very useful skills in a short period for less money than traditional four-year bachelor’s degree-granting institutions cost.

A recent National Bureau of Economic Research study suggests that on average the for-profits do less well in terms of academic performance than traditional schools. There are variations, however, around that average. I recently spoke at a CEO summit of leaders of scores of these institutions, and generally was impressed with their diligence, intelligence and, as far as I could see, integrity. I would buy a used car from a randomly selected president of one of those schools as eagerly as I would from presidents of traditional not-for-profit institutions. American higher education benefits from competition and diversity of its schools. Let’s preserve that, welcoming a vibrant network of proprietary schools.

Republished from the Independent Institute. Originally published on Forbes.