Monday, June 6, 2011

For-Profit Universities

For-Profit Post-Secondary Schools

Ever since there was an explosion in for-profit university attendance, there has been a considerable amount of discussion about the usefulness of these types of schools. For many people, for-profit universities are evidence that businesses, or profit seeking business models, should not be used to provide schooling to individuals. The reasons for these are generally as follows: for-profit schools have significantly higher dropout rates than other schools. They also graduate people with “worthless” degrees, as the people who attend are unable to find a job, or find a job that pays enough to cover their loans. More recently, the federal government developed a set of rules that would cut federal aid to for-profit schools that don’t meet a particular set of requirements. I feel that these concerns are to a large part exaggerated and unnecessary and I would like to develop an understanding of why I think I am correct.

1. For-profit universities have higher dropout rates than state or non-profit universities. This complaint is generally one of the largest complaints that are made against for-profit universities. The strength of this argument comes from the fact that there is no denying that for-profit universities do have higher dropout rates than state or non-profit universities. However, making this argument assumes that the people who attend for-profit universities are the exact same as those that attend state or non-profit universities. However, when you look at the data (http://chronicle.com/article/Who-Are-the-Undergraduates-/123916/) this does not appear to be the case. People who attend for-profit universities are significantly older, more likely to be a ethnic race other than Caucasian, and have a lower income. All of these indications are signs that people that attend for-profit schools are different than those that attend state, or non-profit, universities. For example, for-profit universities are probably more likely to admit people that struggled more in school, are non-traditional students, or are looking for an education in fields not typically associated with traditional schools. With these differences, we cannot simply look at graduation rates to determine which school is doing a better job.
2. For-profit universities could simply be expecting the student to determine if they are capable of graduating. For non-profit and state schools there is typically a screening process that is used to admit some students, while denying admittance to others. Typically, this is process is justified by arguing that only people who are likely to succeed are admitted. If the for-profit schools admit everyone that applies, there is surely going to be a higher dropout rate as the for-profit schools will be admitting people with lower academic standards. Personally, I don’t see a problem with putting the responsibility of determining success in to those that are applying. I know others feel that it should be the schools responsibility, but this is a matter of personal preference, not an indication of the success of the for-profit model itself.
3. For-profit schools graduate people with “worthless” degrees. I am not sure how we can measure if a degree is worthless. Personally, I can see a philosophy degree from Harvard being pretty worthless in its application to the modern world, but we don’t see claims that Harvard is graduating people with worthless degrees. I think that people are saying that for-profit colleges are creating worthless degrees, due to a larger proportion of those that graduate from for-profit universities falling into default of their loans, or being unable to find employment. I say a larger proportion, because there are people who graduate from state, and non-profit, colleges that have been unable to find employment, or find employment that pays enough to cover their student loans. The problem with this, again, is that it assumes that the people who attend a for- profit school are the same as those that attend a state, or non-profit, school. However, if they are different then looking at employment or default rates alone will tell us nothing about the value of a degree. In addition, this comparison forgets that the types of degrees are typically different as well.

Finally, I would like to make one final point. Recently, the federal government as set up new rules on the granting of federal student loans as to limit the amount of loans that for-profit schools can receive. These restrictions are based on many of the criteria I discussed above. To some extent, I don’t have a problem with an organization that provides a service to people, such as the federal government and student loans, having a set of requirements for receiving that service. So, in that sense I don’t have a problem with what the federal government is doing with regards to these new student loan requirements. However, where I do have a problem is in the fact that through the student loan process, the federal government is subsidizing university attendance. This is achieved through many ways, with the Stafford interest rate subsidized loans being one example. So, if the federal government provides these loans, but excludes a particular group, in this case for-profit colleges, then it is basically picking winners and losers and distorting the education market. For example, the for-profit business model may be the better education model, but because of the federal subsidies, the non-profit / state model that is currently being used may continue to dominate the market simply because it is that system the federal government has picked as the “better” system.

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