What You Need To Know About For-Profit Colleges

The Chronicle of Higher Ed published just today another nightmare story about practices at a for-profit college: Corinthian. Fortunately, this one is on the verge of closing anyhow, but you need to take heed, because Corinthian College isn’t alone among for-profit institutions in the use of criminal practices.

But before we talk about for-profit colleges, we need to talk about what profit is to begin with. First of all, profits are a good thing. People open and run businesses to make money from them, and these businesses create jobs for everyone. People deserve to make money for their goods and services, as much as the market will allow. Any normally and ethically run for-profit business operates for the profit of its owners and the good of its customers, and should take the good of its employees into account as well.

In the most simplistic terms, profits in any for-profit business are the difference between expenses and revenue when that difference is positive. So business owners are motivated to reduce expenses and maximize revenue to generate the most profit from their business. Limitations on reducing expenses are generally in the areas of quality control (you usually need to pay well to get good employees, for example) and regulatory requirements (taxes, health care, etc.) along with just the cost of doing business in any given area (rent, utilities, etc.). Very basic stuff here. But the point of a for-profit business is that the entire positive difference between expenses and revenue belongs to the owners. It’s all theirs. They can reinvest all or none of it in their business, but that’s up to them. If the owners decide to close up shop and sell their business or any part of it, all of the money left after debts have been settled is theirs.

Now a non-profit business is run on entirely different principles. A non-profit business is run to provide a service to the community (however you define it), not for the benefit of the owners. If you close up a non-profit, you don’t get to walk away with what’s left after the bills have been paid. It’s not yours. You have to donate those funds to another non-profit. The positive difference between revenue and expenses is all supposed to be reinvested in the business itself. The point of a non-profit business is to maximize the services rendered within budgetary constraints, not to make owners rich.

Now there are quite a few practices in the non-profit sector that raise eyebrows, and rightfully so. The NFL is a $9 billion a year non-profit entity, for example. It’s really hard to tell it’s a non-profit given how much some players and coaches get paid. Some major non-profit organizations give hefty bonuses to their fundraisers. Within reasonable limits, this is an understandable practice. Do you really have a problem with paying out $1,000,000 in bonuses to someone who raises $10,000,000 for you? I wouldn’t. However you look at it, the non-profit is $9,000,000 ahead.

But the point is that the “profit-taking” in any non-profit organization has some kind of limits. Salaries, bonuses, etc., will never add up to profit taking, which can always be 100% of the positive difference between revenue and expenses (I’m imagining an honest world: bear with me). No such limits exist in a for-profit business.

Now I’m all for people making profits in almost all sectors, but from what we’ve seen of the way for-profits operate in the educational sector, I think the profit motive does not belong in higher education at all. In fact, it doesn’t belong in any educational system at any level at all. My wife has worked for several charter schools around Ohio, and I wouldn’t advise sending your children to any of them. Most of them are just prison-prep for children who have been abandoned by the state. At one of her schools, the principal just walked off the job in the middle of the day. One school closed three days before opening because of low enrollment (after allowing instructors to move across the country to start there). Because student discipline was low, teaching was almost non-existent.

In higher ed., the National Center for Education Statistics consistently reports that for-profit schools have the highest student loan default rates, the lowest graduation rates (88% of the students at U. Phoenix don’t graduate, but they all have student loan debt — see Bill Maher’s video below), and the worst employment numbers for graduates. As we see from the Corinthian College fiasco, these for-profits engage in a wide array of deceptive practices to inflate these numbers dramatically — not to mention their engagement in predatory loan practices.

Someone is surely going to argue that non-profit schools do the same thing. When they do, that’s just as bad, but the fact is, the numbers seem to illustrate that they don’t do that to nearly the same degree, and most non-profits don’t engage in these practices at all.

Why do for-profits have such uniformly poor numbers? The purpose of the institution is not to educate students. The purpose of a for-profit institution is to make money for its owners, and as in all cases, it does everything that it can to minimize expenses and to maximize revenue. And since higher ed. is massively competitive, and since for-profits are at a disadvantage to begin with, these efforts regularly cross the boundaries of ethical practices.

But the most important fact here is that they’re not in business to provide a service. They’re in business to make money. At a typical for-profit, faculty are viewed as employees, are paid as little as possible, are completely disempowered, and are pressured to inflate grades in a customer service model. Those who know also know that non-profits are moving more and more in this direction, but most for-profits are much farther down this road than most non-profits. Don’t be surprised if over 90% of the courses taught in any given for-profit school are taught by adjunct instructors who, should their wages be calculated hourly, are being paid about the equivalent of an employee at McDonald’s.

Now how are faculty treated at non-profits? In many places, pretty much the same, but not at all places. At schools focused on their educational mission, faculty aren’t employees: they’re the product. When education is the school’s mission, faculty are recognized as those providing that education, or fulfilling that mission, so they are the designers of the product, disseminators of the product, and are the product itself. They’re most often full time and more often tenured, so they have the protections needed to resist unethical, customer-service based models. They can hold their students to meaningful standards without worrying about low grade distribution leading to poor course evaluations (it usually does).

So should you ever go to a for-profit college? I would say there are exceptions. Some trade and industry schools are exceptions: because they are beholden to the one specific industry that they serve, and because they are often run by stakeholders in that industry, they are sometimes internally motivated to provide a high quality education within that narrow field. The profit motive doesn’t hurt them because they have a knowledgeable customer base. In these situations, the customers aren’t students but their students’ future employers. That’s not a bad model.

But for-profit institutions of higher ed? Forget them. All of them. I don’t think any of them should be eligible for federal financial aid, and tighter pressures need to be placed on many non-profit schools as well. Does that expense really contribute to the school’s educational mission? Is this practice just profit-taking in disguise? For-profit institutions of higher ed. are often much more expensive than state universities, and certainly more expensive than community colleges, so you are most likely to get a better education for a much lower price — often as little as 1/10th the price — at a state school. If you attend a state school, your money is paying for your education, not transforming your debt into someone else’s profit at the expense of a quality education.

What are the best colleges and universities? Private non-profits have the highest graduation rates, followed by state schools, followed by for-profits.

If you’d like to see a little more reporting on the horrifying practices at many for-profit colleges, check out John Oliver’s commentary on student debt. I’ve never seen a non-profit engage in these kinds of practices:

And Bill Maher has a few things to say about them too: