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There goes the business model.

As ever, Barmak Nassirian says it best. Here his subject is the recent exposure of systemic corruption among for-profit universities; and Jennifer Epstein, reporter for Inside Higher Ed, rightly concludes her long piece updating the for-profit story with his remark:

“If [for-profits] really wanted to seriously enforce any kind of a code of ethics, the whole business model would be upended because the business model here is consumer fraud,” he said. “The margins involved can only be produced if you can shortchange people on the substance of what you purportedly sell, which is education.”

In other words, if they stop lying to hordes of clueless applicants in order to get them to enroll in their school — at which point investors and management at the schools enrich themselves via the federal education loans that attach to said people — if they stop doing this, their very industry collapses. I’ve just described, as Nassirian says, the for-profit business model.

UD loves the way the industry has been, throughout this inevitable congressional exposure, desperately pressing every button in the populist cockpit, hoping to get enough lift not to crash. Here’s a representative of an industry trade group back in June, before the shit hit the fan:

“Elitist Wall Street stock manipulators, rather than higher education experts, have been driving hyperbolic media coverage, creating the impression that outliers are the norm, and insulting millions of hardworking students and graduates in the process. We have every expectation that the GAO, using facts and figures, will provide a full and fair review.”

UD’s been covering the industry for years and she can’t tell you how much of this crap she’s read. Ooh that elitist Harvard with its elitist president — whose salary, around $800,000, compares curiously with the typical salaries of her for-profit peers — from five to ten million dollars a year

But they’re working hard for the hardworking real people! Why can’t ordinary hardworking American ever catch a break? It’s not insulting for CEO’s to make millions of dollars at the expense of misinformed people who want to better themselves; it’s insulting for the media to cover the story.

Margaret Soltan, August 9, 2010 4:05AM
Posted in: hoax

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8 Responses to “There goes the business model.”

  1. theprofessor Says:

    UD, many non-profits would also be out of business overnight if the students could not get government loans. There are three non-profits within fifty miles where the tuition students pay is basically what they qualify for in terms of government and state grants. In addition, every student attending Tierfour State effectively receives a $6000 annual subsidy from the taxpayers; at the state flagships, that subsidy is over $10,000, and even at the community colleges it is well over $3000. The publics and non-profit privates are exempt from taxes. Given the enormous competitive advantages they have, we should be asking why there is any room at all for the for-profit schools. Aggressive advertising and salesmanship cannot be the only answer, since we do both of those too.

  2. Margaret Soltan Says:

    Good question, tp. Let me suggest some answers.

    But first on the fact that the non-profits also get government loans. I suppose a good deal of what matters here involves rate of loan payback, rate and quality of employment, rate of graduation, percentage of the university enterprise as a whole financially dependent on the loans, quality of faculty, quality of education, nature of accreditation, and other things. Obviously what the government has finally realized with the for-profits is that its loans are being squandered on them; it’s therefore pulling back from the for-profits, which is as it should be.

    I would need to know whether a vaguely liberal arts but really mainly vocational school of the sort you’re probably describing among those three non-profits near you is paying off in any intellectual or vocational way for a serious percentage of its students. I gather that many such schools do pay off. Feel free to correct me, or to quibble about how we define ‘pay off.’

    Your other question — How, given their obvious competitive disadvantages, do the for-profits stay in business and even thrive? — is an intriguing one, and I can only, as I say, suggest answers, based on having read about the industry for five years or so.

    I do think a significant part of the answer involves incredibly aggressive, omnipresent advertising. Sure, some non-profits advertise. But they have nothing like the carpet bombing, sophisticated approach of the for-profits. Every time I press a key on my keyboard wrong, an ad for a for-profit school pops up on my screen. If, emailing on GMail, I use any word remotely related to university, a list of twelve for-profit schools shows up on the right of the page.

    I think the content of the advertising is also incredibly important. In almost every case, they’re stressing that you need to do absolutely nothing, and spend almost no time, getting a degree. People who say that the line between diploma mills and many for-profits is disappearing are right — Both offer the same something for nothing (or so it looks).

    Which leads me to my final suggestion. It ain’t a pretty one. There’s a sucker born every minute. By definition, some of the people attracted to these ripoffs are ripoffable because they’re ill-educated, with little experience of the world. They have a present-time orientation that tells them they can max out their credit cards just as they can grab a bunch of free money from some school. If there were ever an argument for consumer protection, the for-profit scandal is it.

  3. dave.s. Says:

    There they are, hoarding hordes of applicants! it’s a lovely concept. Come, little applicants. Step this way.

  4. Margaret Soltan Says:

    Thanks for pointing that out, dave. Fixing it now.

  5. Margaret Soltan Says:

    tp: Richard Posner, summarizing Steven Eisman’s argument, puts it more diplomatically:

    “…[T]he private-college industry, which is at a disadvantage in competing against nonprofit colleges because of the tax advantages, donor income, and direct state and federal support of nonprofit (including public) colleges, has targeted a class of people who cannot gain admission to those colleges because they do not meet their entrance standards. There is evidence that just as in the case of the marketing of mortgage loans during the housing bubble of the early 2000s, the for-profit colleges use aggressive advertising to attract students from low-income families that lack financial sophistication and the ability to evaluate the benefits of attending a for-profit college. These people—who may be the only people who would consider a for-profit college, because no other college would admit them—almost by definition have little information about higher education and are therefore prey to skillful marketing that even if literally truthful may create a misleading impression of the benefits of attendance at a for-profit college. For-profit colleges often pay recruiters by the number of enrollments that a recruiter generates. (The Department of Education is trying to prevent that with a new regulation.) Recruiters have been known to recruit at homeless shelters.”


  6. theprofessor Says:

    If we’re going to clean the Augean Stables of American post-secondary education, I say that we direct cleansing water into all the stalls, not the just the dirtiest ones. I don’t think that we disagree on the badness of the performance of many for-profits. I think that you are underestimating the sleaziness of what is going on in the non-profits. When it comes to making outrageous claims about employment, salaries, etc., we can probably match or exceed every exaggeration made by the for-profits, and we are rapidly catching up in terms of the shamelessness with which we do it.

    The default rates of the community colleges in this state are in general higher than those of the for-profits. ITT Tech’s campuses in this state had a default rate in 2007 of around 10%. Only a couple of community college branches did better, and most were in the 13%+ range, with one being 16%. The regional branches of the state flagships were at 7-8%. Tierfour State was nearly 6%, and the default rate of what is probably the biggest old-fashioned “business college” in the state was actually lower. The institutions with 0% defaults? Four beauty colleges, one seminary, and two health-care tech-training thingies.

  7. Margaret Soltan Says:

    tp: Here’s a useful interview with a community college person about for-profits.


  8. Clayton E. Cramer Says:

    In some theoretical way, I think for profit colleges are a perfectly valid business model. In practice, what I have seen of several of them suggests that they aren’t a great strategy. But I have to agree with theprofessor: there are a lot of nonprofit, public institutions that shouldn’t be too high and mighty about this.

    We’ve lost the model of liberal education. It is all about technical training, and whatever advantage public institutions might have in integrity is probably compensated for by the inability of the public institutions to provide useful job skills. A degree in most of the social sciences and liberal arts is far less useful than knowing how to repair an automobile engine.

    We still need a liberal arts education. But kids need to learn how to do something for which there is a job when they graduate.

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