Study: For-profits cost taxpayers less

For-profit higher education is a bargain for the taxpayers, concludes an industry-funded study by economists Robert Shapiro and Nam Pham of Sonecon. (Go here for the pdf.) Furthermore, if President Obama tries to make the U.S. first in the world in college-educated workers, it will cost an extra $33 billion without the for-profit sector, the study warns.

For-profit colleges came under heavy attack this summer, accused of soaking up an unfair share of federal loan money, recruiting students with inflated promises and leaving graduates with debts they don’t earn enough to repay.

Is the study just industry spin? Shapiro, who served as undersecretary of Commerce in the Clinton administration and advised the Obama transition team, says, “My reputation speaks for itself.”  All the data comes from the National Center for Education Statistics, Shapiro says. “The rest is arithmetic.”

Taxpayers subsidize public colleges and universities directly; private non-profits also get some direct government funding. The for-profit sector primarily benefits from indirect support, such as subsidized student loans, some of which aren’t paid back, and federal grants to low-income students. Add it all up, subtract the taxes paid by for-profit companies, and the public cost of for-profit higher education is relatively low, report Shapiro and Pham.

Private for-profit institutions and their students receive less than 30 percent of the support per-student from all levels of government provided to public institutions and their students, and less than 48 percent of the support per-student received by private not-for-profit institutions and their students.

For-profit students, only 10 percent of the total higher education enrollment, receive 25 percent of federal loans. But they are much less likely to receive state aid, the study finds.

For-profit institutions disproportionately enroll  low-income and minority students who are eligible for federal aid, says Shapiro. “The high default rates reflect the fact that low-income students need to borrow more and their families can provide less help in paying back loans.”

The for-profit sector is more successful at graduating low-income and minority students, especially when compared to public colleges. That means meeting President Obama’s college goal would cost $42,640 per graduate if all higher ed sectors participate but $49,205 per graduate if only public colleges educate the additional students. Excluding private for-profit and non-profit colleges raises the total cost from $213 billion to $246 billion.

“At a time of spiraling higher education cost, the innovation that private operators are bringing to the sector is the only hope for expanded access to high quality education at an affordable price,” wrote Tom Vander Ark on EdReformer.

A few years ago I helped organize an effort to double the number of low income students that complete a college degree.  I asked the respected Parthenon Group to study the issue.  A Parthenon report found that most private sector providers “do a better job graduating students, deliver superior income gains, and do so at a societal cost comparable to public institutions. This is an especially important perspective, as many of these graduates represent a high-risk student profile.”

The Education Department proposed restricting student loan eligibility to for-profit colleges based on default rates and “gainful employment.” (Implementation has been postponed.) Only the worst programs — the “bottom of the barrel” — would be cut off, says Education Secretary Arne Duncan.

If that’s how it plays out, the strong career programs will survive and expand to serve displaced students. Already crowded, community colleges don’t have the space.

The industry argues the rule would limit access to career training for Americans who need it most. The Association of Private Sector Colleges and Universities, which used to be the Career College Association, is urging students to go to Washington today to protest federal regulation that “could put more than 2 million students out of higher education over ten years.”

In For-profits battle on many fronts, Inside Higher Ed summarizes the industry’s campaign against more federal regulation.

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[…] For-profit higher education is a bargain for taxpayers, according to a new study that compares public costs of the for-profit, non-profit and public sectors. […]

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[…] depends on how much time they save relative to enrolling at a crowded public alternative – for-profit higher ed can be a bargain for taxpayers, according to a 2010 analysis funded by the for-profit sector. Factoring in student loan subsidies […]

[…] depends on how much time they save relative to enrolling at a crowded public alternative – for-profit higher ed can be a bargain for taxpayers, according to a 2010 analysis funded by the for-profit sector. Factoring in student […]

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