Corporate, Domestic, Ethics, For-Profit, Investors, Legislation, Recruitment, Required, Retention Rates, University & College - Written by on Tuesday, September 20, 2011 7:00 - 0 Comments

NYT’s Joe Nocera Decries Decline of For-Profit Colleges

The New York Times OpEd columnist Joe Nocera writes a defense of For-Profit colleges Sept. 16 in The New York Times, “Why We Need For-Profit Colleges.” He runs through some of the typical background of lawsuits, misdeeds etc. and offers some standard fare industry defense. But then he moves beyond that and mentions a few key financial players in the space and their thoughts on the way forward. We find those parts and his Nocera’s ideas interesting. Here are some highlights of his arguments:

No one is much willing to listen to its defenders, who point out, for instance, that higher default rates are inevitable given the higher-risk populations being served, or that state schools also receive enormous taxpayer subsidies that just don’t happen to be as obvious, or that the allegations hurled at the for-profit schools are sometimes overblown or unfair. Educating the poor and the working class is something that should be encouraged, rather than scorned, they say. Jeffrey Leeds, whose private-equity firm owns a big chunk of Education Management, says, “Our mission is straightforward, and one we are proud to take on — to help students, typically nontraditional students, successfully complete college programs with workplace skills that enable them to get good jobs in a tough economy.”


The bad part, of course, is that capitalists will always behave more or less like greyhounds chasing a mechanical rabbit, motivated by whatever incentives are put in front of them. Just as the federal government created perverse incentives that helped bring about the subprime crisis, so have the government’s rules for the for-profit industry unwittingly led to its excesses. When industry reaps all the profit from student loans and the taxpayer has to pick up the losses, how can we be surprised when things turn out badly? What is needed now is creative, enlightened policymaking that will change the incentives so that good outcomes matter more than sheer volume.

Recently, the Department of Education issued a series of regulations that are supposed to do just that. Unfortunately, the new rules are cumbersome, complicated — and more than a little punitive. The most controversial of them, known as the gainful employment rule, is built in part on the actual earnings of all the graduates of a given for-profit college. Yet, astonishingly, the schools themselves are never allowed to see the income numbers of individual graduates because the government considers them private. Rules like that aren’t likely to help fix anything.

There is an easier way. Robert Silberman, the chairman and chief executive of Strayer Education, widely regarded as one of the better for-profit companies, suggests replacing the plethora of regulations with two simple changes. First, he says, the government should force the for-profits to share in the losses when a student defaults. And second, the government should set up a national eligibility test to screen out students who lack the skills to attend college. Would there still be defaults? Of course. But plenty of students at nonprofit universities default, too. Silberman’s solution would help ensure that both the government and for-profit companies are taking smarter risks on the students they enroll and educate.


Joe Nocera BIO:

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