Imagine a business that rakes in billions of dollars in taxpayer funds, but provides its customers with a defective product that fails for more than half of them--though that track record hasn't stopped the business owners from enjoying ever-increasing profits.
Sounds like the parasites of Wall Street or the insurance industry, doesn't it?
But according to a U.S. Senate report, the same is true of a growing number of colleges and universities--the expanding sector of higher education that is run for profit.
The Senate report is a shocking exposé of a new growth industry that turns out to be another scheme for the 1 percent to make money at the expense of some of the most vulnerable people in society.
But anyone who investigates the for-profit college scam will be struck by something else, too--the abuses of College Inc. are extreme examples of a trend toward privatization and business-like operations throughout all of higher education, which threaten to undermine the system as a whole.
For-profit colleges are capturing a greater share of students nationwide. Over the past 10 years, the for-profit higher education industry has tripled in size, with fall enrollment growing to more than 2.4 million in 2010. That increase is seven and a half times faster than the 28.8 percent increase in enrollment at public colleges, according to the College Board.
This is despite the fact that for-profit colleges are more expensive than even the most prestigious public institutions. Bachelor's degrees average $62,702 at for-profit institutions, versus $52,522 at flagship state public universities. The average associate degree at a for-profit college costs $34,988, more than four times the $8,313 at the average public community college. Certificate programs at for-profit colleges average $19,806, compared with $4,249 at community colleges.
Although the profits generated by for-profit colleges end up in private hands, the vast majority of revenues come from the government, in the form of federal grants and federally guaranteed student loans. According to the Harkin report, the Apollo Group, the largest of the for-profit education companies and operator of the infamous University of Phoenix, "$3.1 billion in federal student aid, in addition to $46 million in military education benefits...86.8 percent of the company's revenue, and $925 million of their profit, is attributed to federal taxpayer sources."
At the same time that states, pleading poverty, are slashing public university budgets and the federal government now charges interest on loans to graduate students while they're in school, more than $30 billion are funneled each year to for-profit colleges from the federal government, in the form of grants and loans.
Despite paying (and borrowing) significantly more, students at for-profit schools are less likely than their counterparts at public four-year institutions to leave school with a degree. Of the nearly half a million students who enrolled in an associate degree program in 2008-09, the report found that nearly two-thirds (62.9 percent) had dropped out by the middle of 2010. Over half (54.3 percent) left their bachelor's degree programs by that point.
And studies show the benefits of a degree from a for-profit school are likely negligible. A study published in June by two Boston University economists found that while those who get degrees from public or private non-profit colleges and universities experience significant benefits, including higher wages and lower unemployment, students who attended for-profit universities don't. As Time magazine reported:
The [Boston University] researchers found that six years after they enter college, for-profit students are more likely to be unemployed--and to be unemployed for periods longer than three months. And, further, if they are able to find a job, students who attend for-profits make, on average, between $1,800 and $2,000 less annually than their peers who attended other institutions.
This isn't surprising given how little of their inflated tuition prices for-profit colleges actually spend on students' educations. The Senate report estimates average per-student spending at for-profit colleges to be just over $2,000 in 2009--and some spend much less.
For example, the Apollo Group, which "educated" over 500,000 students in 2010, spent just $892 per student on instruction. According to its own estimates--which the bosses at the University of Phoenix reserve the right to change at any time--a bachelor's of arts degree at the school will likely cost over $10,000 per year, while a bachelor's of science degree runs nearly $15,000 annually, well over 10 times the amount spent on teaching.
Far from being the most efficient way to deliver a service, as proponents of free enterprise like to claim, market-based, for-profit approaches to higher education result in massive waste. Instead of student instruction, the bulk of tuition money goes to marketing to bring in new students, multimillion-dollar salaries for top executives, lobbying politicians and, last but certainly not least, profits.
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