Misdirected Rebukes: For-Profits Aren't the Real Problem

Ashley Thorne

A recent NBC special on for-profit colleges struck a familiar note: for-profit institutions exploit students by luring them with federal money and providing them with a meager education. 

The program highlighted complaints against for-profits: They are in it for the money. They target veterans to get government funding. They go after poor people—one former recruiter said she and her colleagues were told to aggressively pursue anyone with “a pulse and a Pell.” Many students “over-borrow by taking out loans to cover things beyond their tuition.” 

NBCnews.com quotes Eric Jaso, an attorney who helped draft a “safe harbor” regulation to protect loan-borrowing students: 

“When you pay people on a commission basis to recruit students, bad things happen,” Jaso said. “Students are unqualified. They don't stay in school, they don't graduate. They don't get good jobs. They don't pay back their student loans, and the taxpayer suffers. That's what this is all about.” 

(It is not clear whether any for-profits are actually paying recruiters on a commission basis, a practice which is illegal in the United States.) 

Last week, the Senate Health, Education, Labor, and Pensions Committee released a lengthy report which “found that most for-profit companies devote more resources to attracting students than they do to instructing them.” 

The committee chairman, Tom Harkin, argued that for-profits pursue students who often don’t know how to benefit from higher education: 

For-profit colleges disproportionately enroll nontraditional students from disadvantaged populations, Senator Harkin said, but “if that's who they're going to recruit, they have to build into their system decent support services to help those students.” 

Harkin’s report has met with some criticism. Richard Vedder writes, “In a sense, Harkin is comparing apples to oranges” when he measures the spending on recruitment and instruction at for-profits and not-for-profits. “The attack on the for-profits is an attack based on ideology, a dislike of capitalism, more than on a comprehensive and objective concern for students.”

The NBC special and the Harkin report, however, do highlight a real problem. The pursuit of profits, while not bad in itself, can induce greed, and unbridled greed can lead to some shady habits. That’s often the case with the for-profit colleges that take advantage of students’ naivety and the government-backed loans that come with each enrollment. Student loan debt is a huge problem for the United States, but for-profit swindlers aren’t the whole story. 

Vedder writes, “Are there fly-by-night operators in the for-profit sector? Yes, and they should not receive federal subsidies. But that could be said about some traditional schools as well.” 

Non-profit colleges are also in it for the money. They hike up tuition when they receive federal funds and fail to pass savings on to students. The accusation that recruiters target low-income individuals and veterans is another misdirected rebuke. Rock Center’s segment includes a clip from an Obama speech to veterans in which he said, “You’re dealing with folks who aren’t interested in helping you. They’re not interested in helping you find the best program. They are interested in getting the money. They don’t care about you; they care about the cash.” 

While the President may be correct about for-profits’ motives, he sidesteps the fact that the expansion of government into the business of higher education is what caused the problem in the first place. The G.I. Bill, initiated by Franklin Delano Roosevelt in 1944, and the Higher Education Act of 1965 set in motion the system of federal funding for certain kinds of students. So the U.S. government created a system of powerful incentives for recruiting students who come with federal money—and then it reacts in moral outrage when innovators act on those incentives. This is a case of unintended consequences of government intervention. The very people the feds sought to help end up being the ones taken advantage of. (Another example of this is laws requiring generous maternity policies for employees, which can make companies reticent to hire women.) 

In any case, if students are going to take on large loans to pay for their education, they should know more in advance about what this choice means. President Obama’s April speech to veterans included an announcement that he would sign an executive order that would help protect students from too easily becoming debt victims. The order would require colleges participating in the GI program to supply veteran students with a “Know Before You Owe” guide informing students about how much debt they will incur. Such a guide would be at least one step in the right direction, although it might not prevent students from rushing into big loans. 

Why do so many students go into such deep debt so blindly and come out on the other side dazed and disillusioned? A big part of the reason is that they have been bombarded with the message that in today’s world, the only path to success is through college. They haven’t been told that they can consider other options. President Obama’s big goal is to have dramatically larger numbers of students enroll in higher education. The trend toward this so far has caused an inflation of the bachelor’s degree to the point where it no longer signifies a special achievement. The push to get just about everyone to go to college heightens the anxiety that “I’ll be a failure if I don’t” and drowns concerns about student loans in the swift-moving current of the college track, which sweeps people away with words like “investment.” 

So let’s recap. The government sets up federal funding for higher education. It tells students that they have to go to college to succeed. Then when for-profit colleges do everything they can to capture that funding and students do everything they can (including going deeply in debt) to avail themselves of the means for success, the government castigates the for-profits for using federal mechanisms to victimize students. 

According to the Rock Center article, officials at for-profits say they provide financial aid counseling but in the end, the students are the ones responsible for making their own choices. 

The Senate report recommends 

prohibiting colleges from using federal financial-aid dollars for marketing and lobbying, calling for more transparent disclosures of the cost of attendance, and requiring the Education Department to better track student outcomes. 

These sound like good suggestions, but they won’t prevent the unintended consequences of what the federal government is doing. It is simultaneously pushing everyone into college and then slapping them back. The federal government has created a system of perverse incentives in which it channels into college people who are either not ready for it or not right for it. They take on massive amounts of debt, learn little while in college, and have difficulty getting jobs and paying off their loans. 

This is the story of college today, and not just for-profit college. Pushing people into junk education is a problem; whether the junk is for-profit or not-for-profit is irrelevant. Ultimately Harkin’s report and other attacks on the for-profit sector are an attempt to deflect attention from a bigger problem: the rapidly plummeting value of a college degree.

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