*Doing More With Less*

That's a new book out, edited by Joshua C. Hall, and it is a collection of essays with the subtitle Making Colleges Work Better.  My essay in the volume, co-authored with Sam Papenfuss, is a look at for-profit higher education.  It's not about the recent lending scandals, but rather the general question of why for-profits do quite well in vocational areas and in areas where the student is eventually certified by relatively objective tests.  Non-profits, in contrast, remain dominant in the liberal arts and in areas where quality is harder to measure.  What can we learn from this pattern of market segmentation about a) the true nature of education, and b) trust and agency problems in both non-profits and for-profits?  These cross-sectional questions have received surprisingly little attention and for-profit education in general has not attracted much research scrutiny, relative to its size and rate of growth.  Yet these questions date back to Plato, Socrates, and the Sophists.  Overall I believe that the not-for-profit model for higher education is robust.

Here is an interesting article on the recent growth in elite for-profit schools at the high school level and below.


For-profit schools knew, on building the draft business plan, that they were going to receive criticism and scrutiny. They built from two directions-- what market is largest for education and how can measurable outcomes be used to answer critics? The latter is not a question of being thin-skinned but knowing that they face challenges from certification and regulatory efforts.

Professional areas already have specialized accreditation and graduates must be tested for subject knowledge. For-profits went where the traffic was going and used the systems in place.

(And don't get hurt tripping all over yourselves sending your donations to the government)

Robust for whom?

The taxpayers are being reamed and the students are graduating with ruinous debt and very often no job prospects that would pay as well as a California fireman.

And you've got to be kidding me if you think -- outside of the hard sciences -- the universities are uniformly producing a healthy product.

What is more, if you look at the "research" output of the non-hard sciences, its clear that much of the university is a source of societal consumption, not value-added production. Most journal articles aren't read. And among those which are read, most are not read after 2 years. And the focus in the university is on the production of this sort of "research", and not on teaching the students.

And let's do the parking test.

At firms that serve customers, the customers park in the best spots up front. The staff parks in the back our out at the edges of the parking lot.

But look at the university or the government schools.

The professors and teachers get the choice parking spots -- and the students and parents are lucky to find a parking spot out in the boonies.

We know who this system has been "robust" for.

"I believe that the not-for-profit model for higher education is robust."

And let's do the parking test.

At firms that serve customers, the customers park in the best spots up front. The staff parks in the back our out at the edges of the parking lot.

But look at the university or the government schools.

Thank you Greg Ransom. Add hospitals to the list of organizations that fail the parking test.

Tyler - Thanks for taking a look into a long neglected and very relevant issue. I'm of the belief that the for-profit education sector, at least in the United States, is severely distorted in its scope and purpose by rent-seeking in the form of federal student loans and grants.

To put it another way, instead of directly budgeting money to them like a non-profit university, government effectively subsidizes the for-profits by providing them with customers - students - in the form of loan and grant programs intended to boost the number of people going to college. I suspect that many of these customers are people who would not otherwise choose to partake in higher education without government encouragement for a variety of reasons - price as a deterrent, difficult of the admissions process or curriculum after admission in non-profits etc. This is probably especially true at the master's level and higher, where admissions in non-profits tend to be more competitive and quality-concious...hence the rise of "Get your MBA today" radio ads from for-profits offering nearly open admissions.

The few stats I have seen about the relationship between government loans and for-profits in the U.S. are staggering, as in upwards of 60, 70, or 80% of students enrolled in various for-profit education sectors are receiving federal aid of some sort. I suspect that most for-profits have large and openly corporate departments to simply assist applicants in navigating the federal loan bureaucracy, with much greater ability to take advantage of economies of scale than a typical non-profit's admissions office. The rent seeking probably appears in its most direct form through for-profit attempts to influence Congress and the Dept. of Education's regulatory involvement in higher ed accreditation and, increasingly these days, curriculum standards. The for-profits are by no means unopposed in this, hence a likely Stigler-Peltzman regulatory relationship that involves the non-profits as well. But there is also ample evidence of campaign cash coming out of the for-profit sector, with intended regulatory aims and the expansion of federal support for higher education grants and loans.

Needless to say, I'd be interested to see your take on this aspect of the for-profits!

I'll just remind people that comparing for-profits today is like looking at not-for-profits a couple decades after they first started. So, not-for-profits pundits are probably going to push the comparison of current vs current.

The problem with people like Henderson is that they sail through things like Princeton Engineering on talent, but the system never really checks to see if they like it. In fact, you aren't supposed to like it. It's a feature.

The other thing is that the cost of college is enormous. What else do we move for in order to pay them? This is sold as a feature ("vivid experience"). Maybe that's right. But maybe not.

Brad Delong says non-profit private universities are like Yugoslavian worker-owned market-socialist firms.

There is a difference between the for profits and the non-profits (although I might well conclude that the non-profits and the governmentals are also different). Look at the 10-Ks of the publicly traded for profits and you will find a couple of things. First, they take a substantial portion of their dough from governmental sources. For one of those, with gross revenues of a bit more than $4 billion - they take more than $500 million in Pells, and their students cost the government about $600 million in defaults. Their students take down an amount that is greater than their gross revenues in student loans.

The non-profits are different in two ways. First, the ratio of federal funding both direct and indirect is not as large and second, they spend a substantial portion of their activity on assuring a diverse group of students - through institutionally funded aid. Also, their graduation rates at all levels of selectivity are substantially higher.

There is one other difference - the for profits contribute close to nada on the expansion of knowledge. Their research activities both serious and fanciful is almost zip (with an emphasis on the fanciful).

To clarify, there are three segments to the higher education market: (1) for-profit schools that receive substantial government subsidies (all those Pell grants and such), (2) not-for-profit schools that receive government subsidies (still a fair amount of grants and government-subsidized student loans, plus they're not paying income or property taxes like the for-profits), and (3) state schools that are 100% bought and paid for by government. I've always found it strange that so many "libertarians" choose to teach at 100% government schools like George Mason instead of founding their own private universities that would refuse on principle to accept government subsidies, but perhaps such consistency is too much to ask for...

The nonprofit schools are at a disadvantage since most of what they do is open to public scrutiny - you can see their strengths and weaknesses. E.g., the syllabi and lecture notes are often online. Think of MIT's Open University. The public can even attend a lot of on-campus talks for free. The for-profit colleges can even build on the available non-profit material.

Perhaps the for-profits make similar info available. I've been looking, but haven't found it.

Private non-profits must even make their tax returns available. For-profits: I'm waiting.

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