COVER STORY: In A New Light
C O V E R S T O R Y
In A New Light
Advocates for For-Profits Try To Illuminate Institutions’ Attributes In Three New Reports
Compiled by Paul Bradley
Illustration by Mark A. Bartley
Three recent reports — one from the American Enterprise Institute, the second from The Pell Institute for the Study of Opportunities in Higher Education, the third from the Institute for a Competitive Workplace, an arm of the U.S. Chamber of Commerce — attempt to cast the institutions in a new light and alter the terms of the debate around them.
In addition, top prosecutors in 10 states have launched a joint investigation into potential violations of consumer protection laws by for-profit colleges, according to the Huffington Post. The probe is a signal that rapidly rising enrollments and a growing reliance on federal student aid dollars by for-profit colleges are attracting greater scrutiny of the industry.
But even as debate around the for-profits grows more contentious, some groups, claiming that the discussion has generated far more heat than light, are calling for cooler heads to prevail.
The American Enterprise Institute, a right-leaning, Washington-based public policy group, issued a report positing that for-profit colleges are neither good nor evil, but ought to be part of any solution that helps the nation in achieving its education goals.
“Many in public education assume the worst about for-profit corporations, arguing that they are money-grabbing entities that will shortchange the public good if it means increased profits,” the report says. “Critics see no place for for-profit providers in American education. Supporters view for-profits as a force for good that can harness the profit motive to attract top talent and scale quality in public education. The government often perpetuates these divides by drawing lines in the sand of what activities companies can and cannot do based on their corporate structures. Despite these views on for-profits, however, the reality is different.”
Written by Michael B. Horn of the Innosight Institute, the report, entitled “Beyond Good an Evil,” argues that policymakers and reformers must measure for-profits and non-profits alike on public expectations and tangible outcomes.
“Government should not discriminate between for-profits and nonprofits as a matter of blanket policy,” Horn writes. “Instead, it should ask if the company with which it is contracting, for-profit or nonprofit, is delivering on what society is paying it to do, as determined by both the spirit and letter of the law. And policymakers more broadly should be asking if the law is asking these organizations to do the right thing.”
AEI said the report is the first in a series called Private Enterprise in American Education and “designed to pivot away from the tendency to reflexively demonize or celebrate for-profits and instead understand what it takes for for-profits to promote quality and cost-effectiveness at scale.” AEI plans to become a more vocal force in the debate over for-profit education.
In his analysis, Horn makes three main points:
First, he says, for-profit companies are not inherently good or evil. Rather, these companies do what their customers pay them to do. In the case of higher education, Horn writes, government policies have explicitly tied dollars to expanding access to college.
“For-profit institutions, then, should not be faulted for focusing on access. The government and society have offered incentives for this behavior. Blaming for-profits for doing what we have asked and paid them to do from the outset makes little sense,” Horn writes.
Second, for-profit companies and their not-for-profit counterparts have far fewer inherent differences between them than many assume. Both for-profits and nonprofits have distinct business models, but whether a company is a for-profit or nonprofit does not, in and of itself, mean that it will or will not be corrupt, Horn writes.
Third, the biggest differences between for-profits and nonprofits stem from their fundamental corporate structures, which determine what they do with their profits.
“This means that for-profit corporations do not reinvest all their profits into their core business as do successful nonprofits, but this is not a bad thing,” Horn writes. “Returning money to their owners provides a natural pathway for for-profits to attract even more capital to grow and scale operations and attract more top talent when there is a viable market. Nonprofits do not share this natural pathway. Conversely, not having shareholders allows nonprofits to play a critical role and remain invested in a sector even in the absence of a viable market — a circumstance from which successful for-profits retreat, as they will not be able to provide meaningful returns for their owners.”
The Need for Nuance
“Moving beyond the tired debates of for-profit versus nonprofit can result in a much healthier debate over the end goal of policy,” the report concludes. “Although for-profits are not a panacea for what ails society, using what they do well in conjunction with policy that rewards the right outcomes — and is open to an honest debate about what those should be — just might start to move us closer to those elusive solutions that could greatly benefit society.”
The Pell Institute report also urged policymakers to take a more nuanced look at for-profit colleges, which range from huge multi-state operations to mom-and-pop beauty schools.
“The recent scrutiny and negative publicity surrounding for-profit education has created a perception that all proprietary institutions are amassing large profits and providing students with large debts and few tangible skills,” the report says. “We do not argue that this does not occur, but we cautiously suggest that for-profit education be examined more carefully. . .the for-profit sector is quite diverse.”
“Adopting a homogenous perspective on for-profit education may prevent researchers, policymakers, and critics from adequately assessing what seems to be a rather diverse set of institutions serving a high proportion of students in need of support. Certainly, some institutions are more effective than others, as one would find in any sector. However, a black or white narrative that portrays for-profit colleges and universities negatively is dangerous and could inhibit the potential for learning from a myriad of practices and philosophies that for-profit institutions use to support and serve students, particularly those from low-income and racial/ethnic minority backgrounds. To date, very little research has focused on examining the programmatic practices and procedures of for-profit institutions, so very little is known about the manner in which students are supported at these institutions, both academically and personally.”
The Pell report was commissioned by the parent company of the DeVry University, one of the largest players in the for-profit sector.
Meanwhile, the report issued by the Institute for a Competitive Workplace said that the for-profit sector is thriving in part because it has embraced the advance of digital technology that has transformed many parts of society, while traditional higher education has been slow to do so.
“Digital technology has not only changed many economic sectors, it has transformed them by lowering costs, increasing access, and delivering the personalized, customized, and interactive experiences that consumers have come to expect,” the report states.
“Higher education, however, has yet to experience the kind of disruption and subsequent gains in productivity realized by other knowledge-based industries. While colleges and universities have used technology to streamline back office functions, improve research collaboration, and give teachers new tools to manage their classrooms, they have yet tap the potential of digital technology and embrace private sector-led innovation to transform learning, dramatically lower costs, or improve overall institutional productivity.”
“Higher education has not changed its basic structure and delivery model because it hasn’t been forced to do so. Protected by government regulations and accrediting bodies, supported by taxpayer subsidies and guided by a collegial, risk averse culture of shared governance, higher education has avoided addressing the fundamental issues of how academic programs and institutions must be transformed to serve the changing educational needs of a knowledge economy.”
“In fact, the most significant technology-related development in higher education in the past decade occurred outside of the traditional sector with the rise of for-profit universities. Entrepreneurs discovered that using technology to cut costs, deliver convenient online classes, and reach students seeking career-specific training could be a profitable enterprise. These universities originally targeted a small subset of career-minded students, but their numbers have grown quickly, accounting for almost 12 percent of all students enrolled in postsecondary education in 2010. The University of Phoenix is now the largest university in the United States, with an enrollment of more than 500,000.”
The report said that the regulations being proposed by the Obama administration will stifle the innovation that higher education so badly needs.
“The sheer complexity of the rule and its attendant reporting requirements will require institutions to devote significant resources to longitudinal tracking of students for years after they leave school,” the report said. “Like other regulations, this will favor major players and discourage smaller and newer market entrants — often the most dynamic sources of innovation. Moreover, requiring information on education outcomes from the for-profit sector but not from the traditional sectors raises a question of fairness: Why should the traditional institutions, which account for most of the student loan volume and the defaulters, be exempt from having to report on their productivity and performance and protected from losing eligibility for federal funds if they fail to prepare their graduates for employment?
“While the proposed regulations have the right overall intent of attempting to focus on outcome measures, they miss the mark considerably because of a fundamental lack of fairness and excessive complexity. A better approach would be to require all colleges and universities to disclose information on graduate employment rates, earning levels, and the average indebtedness of students upon graduation, along with other relevant outcome measures. This would let students make more informed decisions about the college that is appropriate for their needs.”
Margaret Spellings, former U.S. education secretary and president of the U.S. Chamber’s Forum for Policy Innovation, said the report is an effort for the group to assume a greater voice in the higher education policy debate.
“We must recognize that ideas from outside the established system can benefit our students and we need to examine policies to ensure fairness across all sectors,” she said in a press release. “Our focus must be on providing prospective students with the tools they need to compare institutions and make informed decisions on their higher education options.”
“The United States is losing ground internationally in degree, credential, and skill attainment; tuition is increasing faster than the cost of living; and traditional institutions are experiencing a productivity crisis,” Spellings added. “It is clear that innovations from all sectors—including the private sector—are needed for the transformative change required to meet our nation’s higher education goals.”
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