For-Profit Colleges on the Brink, Part 2

Peter Wood

This article was originally published on the Chronicle of Higher Education's Innovations blog.

For several years prior to 2010, it was boom times for for-profit colleges and universities. Their enrollments soared, their profitability went through the roof, and investors rushed to get in on a good thing. The market capitalization of the for-profit sector of higher education shot up to dizzying heights. Much of the growth was due to the efficient way in which for-profit colleges and universities signed up students for federally guaranteed student loans. As a whole, the sector didn’t much concern itself with the academic preparation of its prospective students. Federal loan eligibility was the key to admission.  

Beginning in 2009, the Obama administration’s Department of Education began to float ideas for increased regulation of the for-profits, but in spring 2010, it seemed to decide enough was enough and began an all-out regulatory assault on the pro-profit sector that continues to this day. The assault spilled over to Congress as well. On December 8, for example, the Senate Health, Education, Labor and Pensions Committee, chaired by Tom Harkin (D) issued a scathing report, Benefiting Whom?  For-Profit Education Companies and the Growth of Military Education Benefits, that portrayed the for-profit sector as ruthlessly exploiting federal programs intended to help veterans. The report, based on an undercover investigation by the Government Accountability Office, turned out to be error-ridden with virtually all of the errors prejudicial to the for-profits, but that hasn’t slowed the effort to rein them in. When the regulatory assault began, analysts predicted big drops in enrollment; stock prices plummeted; and some foresaw an industry that would be driven to the wall. In my last blog I summarized what happened.

How much or how little should the travails of the for-profit sector of higher education matter to those of us concerned with the general future of American scholarship and liberal learning? How much should it concern Americans who worry about the important roles post-secondary education play in national prosperity and social mobility? These are not easy questions. Many of the for-profits are online or make extensive use of online teaching. Many of them operate nationally or in multiple states. Most are predominantly vocational with a thin veneer of “college” over their utilitarian academic programs. They are unabashedly oriented to students who want to get ahead in life and in their careers. At their worst, they manipulate this yearning in students. But their sheer drive to succeed at this level means that have stripped away a lot of the attendant nonsense of contemporary higher education. And looked at from that angle, they might be a valuable part of the higher-ed ecosystem.

But there is a powerful argument on the other side as well, recently put to me by Barmak Nassirian, Associate Executive Director of the American Association of Collegiate Registrars and Admissions Officers. As Mr. Nassirian puts it, all of us who care about the quality of American higher education have a stake in the “integrity of credentials.” He adds, “It matters whether credentials are real,” and the flood of bachelor and graduate degrees all the way up to “Ph.D.’s” pouring out of some of the for-profit universities strongly suggests that these operations are more akin to diploma mills than they are to legitimate institutions of higher learning.

Mr. Nassirian also doubts that the proposed federal rules would trouble any legitimate enterprise. What the main rule comes down to is a requirement that at least 35 percent of a university’s borrowers-of-federal-funds cover the interest payments on their loans plus at least one dollar of the principal. That allows colleges to enroll student bodies comprised of up to 65 percent deadbeats. And yet the industry finds this to be a life-threatening intrusion on its livelihood.

I find this a pretty compelling argument—against a kind of abusive institution that grew up seemingly out of nowhere within the last decade. The problem, of course, lies deeper than the abuse itself. There are always sharp dealers ready to take advantage of a situation. The situation at hand was easy money from a grossly lax federal student-loan system. The rise of a parasitic industry bent on taking advantage of that system, however, doesn’t mean that for-profit colleges are an inherently bad idea. It means we need to learn how to distinguish the wholesome from the counterfeit.

My case for preserving the for-profit sector wouldn’t be built on the record of the existing institutions. But there is nevertheless a good case for preserving it, even if it means tolerating a certain level of malfeasance. That case rests on the need for greater institutional diversity in American higher education at a time when many of the older models are faltering. I’ll make that case in three parts: (1) the not-for-profit sector probably faces a major shake-out due to the combination of growing public resistance to the price of tuition and its inability to shed high costs; (2) the for-profit sector has shrugged off many of the practices that have contributed to those high costs in non-for-profit sector; and (3) we need to preserve the institutional flexibility and social options that the for-profit sector has pioneered as we move to new models of higher education. I’ll turn to these in the next installment of this series of posts.

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