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How Obama's War on For-Profit Schools Harms Low-Income Students


SeeThruEdu. July 8, 2014.

The Obama Administration has achieved an ideological victory at the expense of many poor younger Americans desirous of a higher education. It has managed to kill off a major player in for-profit higher education, Corinthian Colleges. The Administration obviously despises for-profit schools, believing profit has no role in an educational milieu, in keeping with the socialist leanings of the President and many of his supporters. It declared war on the for-profits in 2009 when it appointed Robert Shireman to a supervisory role over the market-sector schools, and has continued the battle since. The President has found support in Congress, most conspicuously from soon-departing Senator Tom Harkin. The battle has been waged on several regulatory fronts: the so-called 90-10 rule, state authorization requirements, and “gainful employment” regulations are three important examples. Thanks in part to Republican pushback, some judicial reverses (the Obama administration seems increasingly disdainful of the rule of law if recent court decisions are any indication), and more vigorous lobbying by the industry, the Administration has not been able to deep six the entire for-profit sector, but it is not for a lack of trying.

            It is true that for-profit schools typically graduate a smaller proportion of students than other institutions, and their loan default rates are often likewise high. But in very large part that reflects the fact that those attending for-profit institutions are disproportionately poor, working students with families, a demographic whose academic success is, not surprisingly, not very high. It is indeed the cohort that the Obama Administration professes to want to serve –first generation college students from impoverished backgrounds.

            If the federal government is going to lend money to students (I wish it did not, leaving that to the private sector), it should treat educational service providers equally. If it, for example, finds Corinthian Colleges wanting because it has too many students who are not “gainfully employed,” fine ---if it applies the exact same standard to, say, the University of Texas at San Antonio, or Wayne State University. My reading of the evidence is that a majority of the problem with loan defaults and college dropouts occurs at traditional not-for-profit institutions, many of them explicitly public schools. Why should the decision over providing assistance to college students be determined by the organizational structure of the school –not-for –profit private, not-for-profit public, or for-profit school?  Why shouldn’t it be simply based on the performance of the school?

            I am the first to acknowledge that, indirectly, for-profit schools are heavily dependent on the government: tuition fees financed by federal assistance are a large majority of revenues. If I had my way, the federal government would exit or dramatically retreat from the student financial aid business, and I would predict this would have all sorts of long-run positive effects, beginning with an end to tuition price inflation –but it also would mean fewer for-profit schools. But that is not the world that we are in. If government is going to provide funds to students regardless of their academic potential or their likely financial ability to repay the loans, then they should provide those funds indiscriminately to students attending accredited institutions (although accreditation itself is still another problem).

            If the federal government genuinely wanted to reduce taxpayer losses associated with its lending programs, it could easily do so by requiring all schools to have some “skin in the game,” picking up some of the losses associated with defaulted loans.  After all, college admission decisions implicitly commit the federal government to make loans. If schools admit large numbers of obviously unqualified students, or those who major in subjects with little real-world labor market demand, they should have to pay meaningful amounts back to the Feds if disproportionate numbers of students default on the loans. A “skin in the game” rule would hurt for-profits in terms of enrollments, but it would have a similar effect on other schools appealing to students who clearly are academically and financially at risk.

            The Obama Administration wants to have it both ways. It claims it is helping poor, first generation students gain “access” and achieve the American Dream. But many colleges don’t want to serve huge numbers of those students –they drag down college graduation rates, lower college rankings, and arguably discourage other, more able students from attending. Success for colleges is measured in part by the number of students turned away, not the number accepted. The market sector schools have profits as their bottom line, not selectivity based on denying admission.  Accordingly, by bashing for-profits schools the Obama Administration is biting the hand of many feeding knowledge to the poor.

            I think we on balance are hurting poor people with our “access for all” strategy. We lure large numbers into failure, leaving them with big debts. Recent analysis the Center for College Affordability has done using county-level data suggests that when college attainment is low, expansion of enrollments increases income equality, but that when it gets high, further expansion actually reduces it. I think current policies are perverting the American Dream. But if we are going to pursue them, do so equitably for all educational service providers.