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Who Profits?

May 5, 2014, Vol. 19, No. 32 • By ANDREW FERGUSON
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The new regulations will force many schools away from nontraditional students toward those—whiter, richer, younger—who pose less risk of default. Students who want to prepare for valuable but low-paying jobs in education or social work will have more difficulty finding a program to train them. Duncan’s regulators are silent on where the nontraditional students are supposed to go. The rules will severely restrict the variety and flexibility of higher education options, and the market failure that the for-profits are meant to correct will reassert itself. As the Harvard economist David Deming told the New York Times, the proprietaries “are reaching students in a different way, opening in places where there are no community colleges. They are filling in the cracks.” The cracks will reopen.

Perhaps most galling of all, the caricature of for-profits that undergirds the new rules—of a rapacious industry encouraging students to take on mountains of debt for worthless degrees—can be applied, with equal force, to many nonprofit colleges and universities too. Both sectors of the higher education industry have become ravenous creatures of the federal government, hopelessly dependent for their survival on federally guaranteed loans and grants. While the regulators penalize the for-profits, the nonprofits are free to spend their guaranteed loans and grants on new athletic centers, lavish food courts, designer dormitories, world-class sports teams, and other First World amenities in hopes of attracting still more students who will, in turn, take on still more debt. The difference is that for-profits are candid about their goal of making money. Anyone who has walked across a handsomely landscaped traditional campus lately will recall the wise man’s admonition: “Nonprofit” is a term of art in the tax code, not an operating philosophy.

Of course, we would do well not to romanticize the for-profit college industry. More rigorous self-policing might have saved it from the worst of the regulations’ effects. And the biggest and most successful of the companies are owned in large part by Wall Street investment banks and hedge funds, not well known for their charitable outreach. But these guys do know how to play defense. They have spent lavishly on Washington talent to press their case to Congress, with varying degrees of knowledge and sincerity. The left-wing gadfly David Halperin has gleefully documented the range of celebrities whose pockets have filled with the industry’s silver: from Colin Powell to Bob Kerrey to Lanny Davis to Wesley Clark to the education reformer Michelle Rhee. It’s easy to view the dispute between the for-profits and the buttinski educrats as another Battle of Stalingrad: Both sides deserve to lose. But the students don’t, and they might if Washington wins.

The power grab by the education bureaucracy is best understood in procedural and institutional terms. It is an extension of the imperial style that President Obama has used ever since the Republican takeover of the House in 2010 made executive-congressional cooperation messy and unpleasant and, in most cases, impossible. The executive is seizing territory that is rightly Congress’s—territory that should be shaped through political rather than bureaucratic means. Here as elsewhere, however, the administration doesn’t want to be troubled with the messiness of democratic process. As one excited, if slightly indiscreet, activist put it when the regulations were issued: The best thing about them is “the plan can be implemented without any congressional involvement.” How nice for the president and his regulators.

This is why Alexander’s elegant solution strikes the right note. He suggests scrapping the new regulations altogether and addressing the loan-default problem in a new Higher Education Act. The act is where the department claims its statutory authority lies anyway. A reauthorization is already grinding its way through the Capitol Hill scrapple factory, and Alexander calls for a top-to-bottom rewrite rather than a revision around the margins. The principles of a new act, he says, were once explained to him by another university president: “Autonomy. Competition. Choice. Excellence.” Who could argue? “And,” Alexander goes on, “I would add one more—Deregulation.” This is a spirit foreign to the existing Higher Education Act, and to the new regulations.

We can only admire Alexander’s ambition. A rewrite will be a huge undertaking. But then higher ed—for-profit, nonprofit, or anywhere in between—is a huge business. If you’ll forgive the expression.

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