One of the signature legacies of the Obama Administration will be the hobbling and dismantling of the for-profit education industry. Regulations by the Education Department, aided by reckless investigations by Democratic senators, have forced the closure of one large company, Corinthian, and dramatically shrunk others, including the famous University of Phoenix. Now a major effort is underway to destroy the accreditor of many for-profit schools.
Although the department’s discriminatory attacks go well beyond the bounds of acceptable “governmental regulation,” the Department of Education has a clear conscience. Why? Because it believes that education should be a public endeavor or at least not tainted by a search for profits.
A side benefit to the department from the destruction of the for-profit sector is that many students will now be forced to go to public universities and thus boost flat enrollments there. That will enable those schools to expand, even though the cohort of 18-year-olds in the country is on the decline. It will justify such eye-popping actions as the planned the $1.14 billion plan to expand the University of California, Merced (at a time when the University of California system is crying poverty).
Furthermore, the Education Department self-righteously plans to reimburse students who were “cheated” by the for-profits, and thus were unable to finish their education—in the case of Corinthian, because the Department forced it into bankruptcy. Such reimbursement is all in a day’s work for the Obama administration; it is used to giving away taxpayer money.
The Department of Education has another reason to kill the for-profit sector. It’s an embarrassment. It is, after all, a creature of the federal government. The easy availability of federally backed student loans, offered without regard to whether a student was suited for college, enabled the for-profit sector to grow. Private companies took that money, innovated in online education (which public universities are still struggling to master), and grew to the point where they enrolled ten percent of all students. That era is ending.
The birth-to-death process reminds me of rent control in New York. Created in the 1940s, supposedly to help people who would suffer if rents rose, rent control spawned shocking distortions. When landlords couldn’t maintain apartments because their income was so low, they were treated as slumlords, with government prosecution, bankruptcies, and abandonment of apartment buildings. The government issued pages and pages of regulations specifying what tenants and landlords could and could not do. For years, well-off celebrities like Mia Farrow and Cyni Lauper rented apartments at far below market prices. Animosity between tenant and landlord became the norm. What had begun as a “generous” gift to poor and middle-class residents became a nightmare.
And that is the case with federal intervention into the education business,. What sounded generous — the guarantees of federal loans that started in the Higher Education Act of 1965 — had enormous unintended consequences. The Department of Education is out to extinguish one of them.