The Magazine

Who Profits?

May 5, 2014, Vol. 19, No. 32 • By ANDREW FERGUSON
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A raft of new Education Department regulations has been bobbing among the roiling waters of American higher education for nearly a month now, and perhaps the most sensible reaction to the controversy comes from Sen. Lamar Alexander—a former governor, college president, and secretary of education. His simple but elegant option: Stop. Then start over.

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Lamar Alexander

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The new rules work the way government regulations often do. They address a genuine if relatively small problem with a large and bafflingly complicated solution aimed at one business sector currently disfavored by government while leaving another sector, as needful of reform but favored by government, entirely alone. Just another day at the office.

The unlucky targets of the regulations, which have been in process since not long after President Obama took office, are the nation’s roughly 3,500 proprietary colleges and universities. “Proprietary” is the term that these privately owned and operated businesses prefer to use to describe themselves. The regulators prefer to call them “for profit” colleges and universities. “He who controls the language controls the issue” is a timeless maxim of Washington disputation. Regulators and activists—and journalists, too, of course—use the phrase “for profit” to suggest that something vaguely disreputable is going on. Moneymaking to the progressive mind is grubby and low class, so distant in spirit from the pristine, rarefied air of real education.

What the for-profits do is not pristine or rarefied, but it is necessary and in a way even noble. They correct a failure in the higher education market by serving nontraditional students that other post-secondary schools haven’t reached. Today more than 13 percent of the students enrolled in degree-granting post-secondary schools attend a for-profit program. As a group the students are heavily weighted toward what the trade calls nontraditional: veterans, oldsters, the disabled, single mothers, and people who are already employed but seeking new jobs in new fields. The vocational schools and community colleges that would normally have been expected to serve them are at capacity already and in many cases shrinking. California, for instance, cut more than a half million students from its community college system between 2009 and 2012.

The proprietaries have strengths and weaknesses compared with their public counterparts. They are more flexible in meeting the irregular needs of nontraditional students, in scheduling and location and the ability to adjust to new kinds of jobs and new technological demands. At for-profits the completion rates for one- and two-year certificate programs are nearly 10 percent higher than in comparable public schools. At the same time, the rate at which students default on their (taxpayer-guaranteed) student loans is scandalously high: 26 percent, compared with 10 percent at community colleges and 4 percent for four-year students. Like most other businesses—even nonprofits!—the trade has drawn its share of con-men and bunco artists.

From these unhappy facts—and from a rich store of real anecdotes—activists and their surrogates in the bureaucracy have formed a caricature of a rapacious, fly-by-night industry urging the little people to take on loads of debt, snuffling up piles of government loans and grants, and then leaving them helpless, with worthless degrees, no job prospects, and loans they have no hope of repaying. The caricature is four parts ideology to one part fact, but it serves its purpose of legitimizing the federal intervention that activists and bureaucrats have agitated for.

The intervention here is 841 pages of draft regulations issued for public comment last month. They are endlessly, mysteriously, often pointlessly complicated. To simplify as much as possible: The government will effectively shut down for-profit programs that don’t meet its newly minted criteria for acceptable levels of student debt. A school’s average student debt, for example, may not exceed 8 percent of students’ total income or 20 percent of their disposable income, even if they pay back their loans in full and on time. Any school with a student-loan default rate higher than 30 percent will no longer be eligible for the loans, putting it out of business. The new restrictions, says Education Secretary Arne Duncan, will likely shutter 20 percent of for-profit programs and place another 10 percent on a path to closing. Note that traditional nonprofit schools are exempt from the new rules, regardless of their student debt levels or default rates.

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