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Obama’s Crusade Against Profits

Coming soon to a college near you.

Jul 5, 2010, Vol. 15, No. 40 • By ANDREW FERGUSON
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You can never be sure when or why one industry or another will draw the attention of the Mr. Fixits of our federal government. Just imagine: There you are, Mr. or Ms. Businessperson, walking along, making money, minding your own business, and then wham: They pop up out of nowhere, wheeling around like a gun turret and fixing their gaze on you and your company, insisting that they’re going to make you fairer and more rational and fix problems you didn’t know you had. It must be terrifying. 

Obama’s Crusade Against Profits

And for that reason, if only for that reason, the multibillion-dollar industry of for-profit colleges deserves our sympathy. Proprietary colleges, as they’re also called, educate about 7 percent of America’s college students, according to a study by the Chronicle of Higher Education. Most of these are “nontraditional”—single parents, high school drop-outs, part-time workers, adults past the usual college age. They learn a trade or prepare for careers in medicine, business, education, or information technology. Being needier than the average college student, they bring to their schools large sums in federally subsidized loans, which the for-profit schools are delighted to accept. Students at proprietaries consume nearly 20 percent of the federal government’s education loans and grants. 

To oversee the for-profits from a perch at the all-seeing Education Department, President Obama last year appointed Robert Shireman, an activist who had spent much of his career chastising for-profit schools. Like most activists, he himself was not-for-profit. This spring Shireman gave a speech to school administrators that signaled Washington’s intense interest in the schools. He singled out for-profit companies by name, ticking them off one by one—from Kaplan to DeVry, Strayer to the University of Phoenix. With heavy sarcasm he “congratulated” them for the large number of students they had recently enrolled, despite “these difficult economic times,” and expressed mock admiration for the size of their revenue streams.  

Then he dropped the sarcasm and compared the schools to the financial companies that had run amok before the collapse of 2008, and reminded them, pointedly, of the severe regulations that might be imposed as a consequence.

“Nice business you got there,” Shireman seemed to be saying, sniffing the carnation in his lapel. “I’d hate to see anything happen to it.” 

Meanwhile, PBS’s investigative program Frontline made for-profit colleges the subject of a breathless report that was intended as an exposé. The Education Department announced an investigation into the private accrediting agencies that decide whether proprietaries are eligible to accept federal loans. A raft of new regulations was handed down, with another one—which proprietaries say will force the closing of several school programs—set to be issued this fall. 

Democrats on Capitol Hill responded on cue. The House Committee on Education and Labor held a hearing at which the chairman, George Miller, disparaged the very notion of “education for profit.” Proprietary schools, he’d discovered, have obligations to “shareholders, profit margins, the stock markets,” and other things that are tainted by commerce and money-grubbing. A few days later, Miller joined with a pair of Senate pashas, Richard Durbin and Tom Harkin, in asking the General Accountability Office to commence a “review” of the entire industry. Harkin followed up last week with a committee hearing of his own, featuring a parade of witnesses who likened proprietary colleges to a criminal enterprise.

What brought all this on? Like an idiot, the proprietaries have been making too much money—and making it, moreover, at a moment that promises to be a hinge point in the history of American higher education. Last year President Obama set the goal of making the United States the world leader in the percentage of population with college degrees. He has put the muscle of the American taxpayer behind his vow. The amount provided in federally subsidized college loans and grants nearly doubled last year; similar increases in operational funding have flowed to community colleges. At the same time, the federal government did away with the private bank programs that traditionally handled college loans and transferred control to the Department of Education. 

The government is inducing more adults than ever before to go to college, and to the horror of the Mr. Fixits, the students are grabbing their loans and enrolling in the wrong kind of schools. One fourth of all adult undergraduates are going to a proprietary institution. At present trends, that figure will rise to 42 percent by the end of the decade. Unless something is done.

Enrollment has surged despite the high tuitions that proprietaries charge. Average tuition at a for-profit is roughly twice that of public schools (state universities or community colleges), and roughly half that of private, nonprofit schools. The Mr. Fixits, being government guys, suspect a trick. Miller, Shireman, and the others see the surging enrollments (and surging profits) as the result of market manipulation, misleading advertising, and deceptive recruitment practices—one more instance of the confidence game that is free enterprise, the ongoing cycle of exploitation of the weak at the hands of the powerful. 

An industry as vast as proprietary education will have its share of predators and sleazeballs, but you can find simpler explanations for the popularity of for-profits. They offer a flexibility and convenience that’s unavailable at most nonprofits, whether state-run or private. They offer multiple locations with uniform fees and credit hours. Rolling admissions allow students to begin study whenever they’re ready. For-profits offer a higher percentage of night and weekend classes and make greater use of online teaching. Schools like these are designed to appeal to a single-parent or an adult working full time. 

The flexibility does not extend to the curriculum, however, which may, paradoxically, be another advantage proprietaries enjoy over their nonprofit peers. There’s something refreshingly no-nonsense about the for-profits, especially to anyone familiar with the airy, free-floating curriculum found in nonprofit schools. The liberal arts are rarely indulged. Course work, with some exceptions, is directed toward the practical goal of learning how to do a job, as a medical technician, a nurse’s aide, a paralegal, so as to fix oneself on the first or second rung of the ladder to a decent living. There aren’t many “History of Ideas” majors at DeVry.

The nontraditional population also explains why for-profit students are more likely to default on their student loans. Receiving 20 percent of all federal loans, for-profits account for more than 40 percent of the defaults. Their students usually have many more of the risk factors—lower incomes, unconventional family and work arrangements, past involvement in drugs and drink—that lead to high default rates. The same students with the same profiles would default at roughly the same rates whether they were enrolled in nonprofits or for-profits. 

Yet the Mr. Fixits cite the default rate as an excuse to tighten regulatory control and thereby, they say, save the taxpayer money. It is an irony of the Obama era that an industry could be faulted for educating the disadvantaged citizens who are supposed to be the primary object of the president’s concern. But government subsidy follows a peculiar and pitiless logic, under which the hobbling of a private business can be cast as an act of fiscal responsibility, and private citizens, receiving a subsidy in hopes of bettering themselves, will be allowed to better themselves only under approved conditions. 

We should quickly stipulate that for-profit colleges are hardly delicate flowers of free enterprise. They are creatures of government subsidies without which they would become unrecognizable. And they are happy to meet the government on its own terms. 

Recently the industry’s trade group, the Career College Association, hired the Podesta Group to defend their cause against the coming Democratic onslaught. The firm is run by Anthony Podesta, a longtime professional Democrat and the brother of John, who was President Clinton’s chief of staff. This year CCA made sure to invite President Clinton to speak at its annual convention, for his customarily mind-boggling fee. The subject of his speech was “Embracing Our Common Humanity.” He assured the attendees that they were okay by him. 

According to Bloomberg News, the CCA also hired the lobbyist Paul Braithwaite, the former director of the Congressional Black Caucus. The University of Phoenix hurried to donate $1.25 million in college scholarships to the Congressional Black Caucus Foundation. After careful study, the caucus, through several of its members, expressed disapproval of the administration’s campaign against for-profit education. 

However the campaign turns out, we are unlikely to hear an answer to the most interesting question it has raised: Why single out the proprietaries for special attention? 

Both kinds of colleges, for-profit and nonprofit alike, rely for their existence on government subsidies, and both use the easy money to insulate themselves from market pressure. Both enjoy the inflated administrative salaries and bloated management that such insulation makes possible. Both are certified by the same inbred and lackadaisical bodies of accreditation. Both resist submitting themselves to objective measures of performance and quality. 

And both, at their worst, are a swindle, enticing innocents into programs to which they’re poorly suited, for which they’re badly prepared, and from which they depart with slim chances of gainful employment, dangling nearly worthless degrees in such subjects as culinary arts, photographic composition, and English. What is sometimes true of the University of Phoenix is often true of Amherst and Ohio State. 

In fact, the only genuine difference between the two kinds of college is this: One kind earns a profit. And nowadays that’s enough to make you suspect.

If the administration gets its way and the regulatory regime continues to tighten, the for-profit education industry won’t cease to exist. More likely it will regress into a form of state capitalism, as a kind of public utility: utterly dependent on government subsidy, hence utterly submissive to government authority, which can set prices and profit margins. The health insurance industry, with the passage of health care reform, is halfway there already. 

And the sphere of private activity continues to shrink.

 Andrew Ferguson is a senior editor at The Weekly Standard and the author of Crazy U: One Dad’s Crash Course in Getting His Kid Into College.

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