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The Department of Education Cracks Down on For-Profit Colleges

Should Washington scale back its huge college subsidies instead?

by
Clayton E. Cramer

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June 19, 2011 - 12:00 am
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It is actually happening: the U.S. Department of Education is preparing to impose “gainful employment” regulations on for-profit colleges. These rules require that before students can receive federal grants or student loans at for-profit colleges, graduates of those schools have to be employable in the fields for which they have trained.

I currently teach at a public community college. I have taught at a state university and at a for-profit technical school. There is nothing improper about the idea of a for-profit educational institution — but for-profit institutions have a different, sometimes troublesome set of incentives that aren’t shared by public or non-profit private colleges.

Employees of for-profits often have bonus or stock option arrangements associated with the corporation’s performance (and sometimes even with a particular campus’ profitability). This can create incentives to mislead or overstate how effective the training will be. PBS had a disturbing Frontline last year, “College Inc.”, that showed examples of for-profit colleges using distasteful techniques to lure in students — more akin to loan sharking and used car sales than education. This is especially worrisome because the student is usually paying his tuition with federally insured or direct federal loans, government grants, or G.I. Bill benefits. The for-profits have strong incentives to get students in the door and to pay the tuition. There is no financial downside if, after playing “Pomp and Circumstance,” those students end up with no job but keep the huge loan payments.

Let me be clear: Public institutions and private non-profits also turn out plenty of graduates who can’t get jobs — especially right now. The incentives are not quite as direct, but a college president with 20,000 students gets a higher salary than a president with 5,000 students. The fact that the Department of Education thinks that this problem only applies to for-profits suggests that there are other incentives in play here besides just concern for students.

For example, for-profits are usually not unionized, while public colleges usually are. More directly, and unsurprisingly (considering that this is the Chicago Mob Administration), “a Wall Street short seller with no background in education” was a witness in Congressional hearings looking into this problem. It appears that someone might have been planning the short selling of for-profit colleges, while persuading the Department of Education to impose regulations that would impair their profitability. The Department of Education’s inspector-general is looking into this very convenient coincidence.

For-profit colleges like to say that they are working with an “at risk” population. This is a polite way of saying that there are many black, Hispanic, and white students from lower socioeconomic backgrounds who have little chance of being successful in a conventional college with conventional academic expectations. My teaching experience at a for-profit generally fits this. I had a number of students who were in over their heads when they were in high school. As near as I could tell, the other instructors where I was teaching were trying as hard as I was to provide useful job skills, but Ovid’s famous aphorism — “the workmanship exceeded the quality of the materials” — still came to mind.

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