Politics & Policy

The Obama Administration Attacks For-Profit Colleges

Tuition-driven schools are the latest front in the Obama administration's campaign to control as much of the higher-ed industry as possible.

Imagine for a moment you are an idealistic liberal functionary within Obama’s Department of Education. Since Inauguration Day, you’ve been part of a massive expansion of subsidies for higher education, and you’re proud of your work. The stimulus bill enlarged the higher-education tax credit and increased spending on Pell grants. The education bill that was tucked into the health-care reconciliation also expanded Pell aid and created a loan-forgiveness program for students who go into non-profit or government careers. Not bad.

Now imagine your dismay when you learn that all this new student aid is fueling a boom in enrollment, not at traditional universities and community colleges, but at for-profit schools such as the University of Phoenix and DeVry. For ideological reasons, you hate these schools. You view higher education as a right, a public good. Concepts such as advertising, charging market rates of interest, and making a profit — corporatization, in a word — are suspect in general and certainly have no place in education. And now these corporate parasites are reaping the fruits of all your hard work — taking students who should be preparing for an exciting career at whatever ACORN is called these days and turning them into accountants and criminal-justice officers and possibly even Republicans.

With that in mind, it’s easier to understand the barely veiled sarcasm in Deputy Undersecretary of Education Robert Shireman’s voice when you listen to the audio of a speech he gave to a group of state regulators last week. Shireman opened by recapping the Obama administration’s accomplishments in the area of increasing subsidies for higher education. Then he noted that, because of falling state- and property-tax revenues, state and community colleges have reduced enrollment, raised tuition, and cut course offerings. In other words, the institutions that the Obama administration prefers have been unable to capitalize on the increased demand its spending has engendered.

On the other hand, Shireman noted (somewhat bitterly) that “tuition-driven institutions didn’t [have to make such cutbacks] — because they’re tuition-driven institutions.” He then called out the for-profit schools by name, reciting the percentages by which each had benefited from increased Pell grant spending in the last year: “Corinthian Colleges? Are there some folks here from Corinthian Colleges? Corinthian Colleges: a 38 percent increase in the first three quarters of this year compared to the first three quarters of last year.” He did the same for DeVry, ITT, Strayer, and the rest of the career colleges, and when he got to the end of the list, he said, “So I wanted to begin just by thanking the for-profit industry for responding to the critical demands from people out there who need higher education. I’d like everybody to give them a hand.”

If Shireman was genuinely expressing his gratitude, it didn’t come through in the comments that followed, in which he compared for-profit schools to the Wall Street firms that melted down the economy. He analogized the accrediting agencies that validate and monitor institutes of higher learning to the rating agencies that rubber-stamped Wall Street’s complex derivative bets on the housing market, and suggested that state regulators and especially the Department of Education needed more power to regulate for-profit schools.

The markets got the message. DeVry closed down 4.8 percent, Apollo Group down 6.2 percent, Corinthian Colleges down 5.5, ITT down 6.6, etc. By the time the smoke cleared, shareholders of the top eight companies had lost nearly $1.6 billion.

Why the animosity toward the for-profit sector? With respect to higher ed, the roots are ideological. Shireman came to the Department of Education from serving as president of the Institute for College Access and Success, a non-profit that appears to want the private sector’s role in higher education to be as small as is practicable. As president of TICAS, Shireman repeatedly testified before federal and state policymakers about the dangers of private student loans and for-profit-college student lending.

“The very name for-profit bothers some people,” says Jane S. Shaw, president of the John William Pope Center for Higher Education Policy. “There’s quite a bit of competition between the community colleges and the for-profits, and Barack Obama, because of his commitment to government ownership, tends to want to see a lot more students going to community colleges and a lot fewer going to for-profits, but there’s no reason to favor one over the other. I think it’s a power grab, just like a lot of other power grabs we’ve seen over the last year.”

As with Shireman’s previous coup — the federal takeover of student lending that involved the replacement of subsidized private lending with loans from the federal government — a few caveats are in order. First, it’s true that for-profit colleges derive much of their revenue from the federal government via student aid. “Anybody who’s concerned about free markets, as I am, is bothered by the fact that these schools do depend so heavily on federal funds,” says Shaw, “but the money is going to the students, and they’re choosing those schools. The for-profits are successful because they are providing something these students want.”

Second, the for-profits do charge a lot, and their private lending does tend to come with higher interest rates than that of federally subsidized loans. And the default rates on these loans do tend to be higher, though not significantly higher, than default rates for students at community colleges. That said, private-sector schools tend to do better in regard to graduation rates and earnings increases after graduation. (With all these comparisons, bear in mind that the cohorts are not identical — for-profits and community colleges target similar, but not identical, demographic groups.)

The broader takeaway is that for-profit schools are the latest front in the Obama administration’s campaign to control as much of the higher-ed industry as possible. As with other industries, regulating the risk out of the for-profit sector also means shrinking the available choices: New rules under discussion at the Department of Education would link a for-profit school’s eligibility for federal funds to its graduates’ debt loads as a percentage of the average starting salaries in their chosen fields, an arbitrary measure that the schools say would restrict their course offerings to just a few programs. Other measures being considered would link eligibility to a 70 percent program-completion rate and a 70 percent in-field-placement rate after graduation — standards the administration would never dream of requiring of traditional universities. (Imagine the Department of Education telling Big State U that 70 percent of its “peace studies” grads must be placed “in field” or it will lose federal funding for the program.)

The lesson, as always, is that government subsidies are never no-strings-attached affairs. Once an activity is fully subsidized, it is one Bob Shireman away from being fully controlled.

– Stephen Spruiell is an NRO staff reporter.

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