College, Inc.

PBS broadcast a documentary on for-profit higher education last week, titled College, Inc. It begins with the slightly ridiculous figure of Michael Clifford, a former cocaine abuser turned born-again Christian who never went to college, yet makes a living padding around the lawn of his oceanside home wearing sandals and loose-fitting print shirts, buying up distressed non-profit colleges and turning them into for-profit money machines.

Improbably, Clifford emerges from the documentary looking okay. When asked what he brings to the deals he brokers, he cites nothing educational. Instead, it’s the “Three M’s: Money, Management, and Marketing.”  And hey, there’s nothing wrong with that. A college may have deep traditions and dedicated faculty, but if it’s bankrupt, anonymous, and incompetently run, it won’t do students much good. “Non-profit” colleges that pay their leaders executive salaries and run multi-billion dollar sports franchises have long since ceded the moral high ground when it comes to chasing the bottom line.

The problem with for-profit higher education, as the documentary ably shows, is that people like Clifford are applying private sector principles to an industry with a number of distinct characteristics. Four stand out. First, it’s heavily subsidized. Corporate giants like the University of Phoenix are now pulling in hundreds of millions of dollars per year from the taxpayers, through federal grants and student loans. Second, it’s awkwardly regulated. Regional accreditors may protest that their imprimatur isn’t like a taxicab medallion to be bought and sold on the open market. But as the documentary makes clear, that’s precisely the way it works now. (Clifford puts the value at $10 million.)

Third, it’s hard for consumers to know what they’re getting at the point of purchase. College is an experiential good; reputations and brochures can only tell you so much. Fourth–and I don’t think this is given proper weight when people think about the dynamics of the higher education market–college is generally something you only buy a couple of times, early in your adult life.

All of which creates the potential–arguably, the inevitability–for sad situations like the three nursing students in the documentary who were comprehensively ripped off by a for-profit school that sent them to a daycare center for their “pediatric rotation” and left them with no job prospects and tens of thousands of dollars in debt. The government subsidies create huge incentives for for-profit colleges to enroll anyone they can find. The awkward regulation offers little in the way of effective oversight. The opaque nature of the higher education experience makes it hard for consumers to sniff out fraudsters up-front. And the fact that people don’t continually purchase higher education throughout their lives limits the downside for bad actors. A restaurant or automobile manufacturer that continually screws its customers will eventually go out of business. For colleges, there’s always another batch of high school graduates to enroll.

The Obama administration has made waves in recent months by proposing to tackle some of these problems by implementing “gainful employment” rules that would essentially require for-profits to show that students will be able to make enough money with their degrees to pay back their loans. It’s a good idea, but it also raises an interesting question: why apply this policy only to for-profits? Corporate higher education may be the fastest growing segment of the market, but it still educates a small minority of students and will for a long time to come. There are plenty of traditional colleges out there that are mainly in the business of preparing students for jobs, and that charge a lot of money for degrees of questionable value. What would happen if the gainful employment standard were applied to a mediocre private university that happily allows undergraduates to take out six-figure loans in exchange for a plain-vanilla Business B.A.?

The gainful employment standard highlights some of my biggest concerns about the Obama administration’s approach to higher education policy. To its lasting credit, the administration has taken on powerful moneyed interests and succeeded. Taking down the FFEL program was a historic victory for low-income students and reigning in the abuses of for-profit higher education is a needed and important step.

But the administration has displayed no similar enthusiasm for addressing the many problems in the traditional public and non-profit sector where most students actually go to college. Attacking corporate interests is good politics for a Democratic administration. Challenging the academy to do a better job of teaching students and helping them graduate is a much bigger lift. But that’s what will have to happen if the administration is serious about meeting its 2020 goal for college completion. The clock is ticking, and the easy targets are only going to last so long.