For-profit universities are not inherently bad

It is with good reason that for-profit universities have become in recent years a punching bag for the Federal Trade Commission, state government boards of inquiry, assorted litigants, and the media. Today’s for-profit universities are largely inhabited by short-sighted leaders who make lofty claims about vocationally relevant education while at the same time milking the working poor, the harried single parent, the returning veteran, and, particularly, the possessor of government loans.

But it doesn’t have to be this way. For all their problems, for-profit universities are not inherently bad — just empirically bad. There is no insurmountable barrier to for-profit universities doing better for their customers and for society.

The so-called “tax-paying” colleges and universities are largely — almost entirely in many cases — dependent on government funds provided indirectly through transfers from federally subsidized loans and Pell grant programs designed to create opportunity for students. Yet federal data reveal that for-profit universities spend less on instruction than they receive in federal aid on a per-student basis. They also spend far less than traditional public and private universities on instruction — nearly $6,000 less per student than public schools and more than $9,000 less per student than private schools.

The outcomes are bad for students and their taxpayer backers. Data from the National Center for Educational Statistics show that students at for-profit institutions are far less likely than those at traditional universities to reach graduation. The six-year graduation rate of full-time, first-time undergraduates who began seeking a four-year degree in the fall of 2005 was 65 percent at traditional private schools, 57 percent at traditional public schools, and 42 percent at for-profits. According to the Oakland, Calif.-based Institute for College Access and Success, for-profit universities account for a relatively small portion of the nation’s college students (13 percent) but nearly half of all defaults on federal student loans (46 percent). According to a 2011 report, the average debt-to-degree ratio among four-year for-profit institutions was $43,383 compared with $21,827 for corresponding traditional public universities and $16,247 for private nonprofit universities.

Clearly, for-profits are not performing as we would want. So what would good, socially valuable for-profits look like? They would play to their undeniable strengths — and stop trying to be what they’re not.

Whatever route they take, for-profit universities should first consider embracing their capitalistic identity rather than hiding from it. In some cases, for-profits operate under names that powerfully project an image that distances them from their corporate DNA. America Public University is not a public university nor is the American Military University a part of the military. Both are subsidiaries of West Virginia-based American Public Education, Inc., traded on the NASDAQ as APEI at about $34 per share at the time of writing this article. Columbia Southern University is not an extension of the Ivy League beyond the Mason-Dixon line but rather a standalone Alabama-based for-profit. The New York- and New Jersey-based for-profit Berkeley College evokes the familiar abridgment of University of California at Berkeley as just “Berkeley.” The Minnesota company doing business as Brown College is not to be confused with the exclusive and prestigious Brown University that has been situated in Rhode Island for 250 years.

If for-profit models are deliberately and voluntarily adopted and, as their champions claim, if they provide solutions to the ills facing traditional American higher education, why are so many for-profits anxious to project themselves with the labels and signals easily confused with the traditional institutions with which they avowedly compete? Why not project the virtues of American enterprise by showcasing meaningful differences?

To this point, for-profit universities have, by and large, been all about teaching and have had little to do with research, sometimes actively discouraging it. This makes sense: Even if for-profit universities were, by sheer power of the dollar, able to attract a handful of the world’s leading researchers in physics or chemistry, it’s unlikely they would invest in incredibly expensive research equipment and resources. For-profits can’t succeed in traditional scientific research, but they could invest in something much more valuable to the typical undergraduate: cooperative research aimed at student needs.

It could range from learning how to develop a market plan, to survey research, to elementary metrology, to handling research medical lab specimens, to developing code that someone can actually use. The research doesn’t have to be original or published, and no PhD is required. It’s the sort of learning transmitted for centuries by guilds and, for a much briefer period, labor unions. Some countries, like Germany, do a much better job than the United States in developing a broad-based approach to hands-on, vocationally oriented, apprentice-like education. If for-profit universities could develop cooperative research and training programs, providing job skills and incentives that would likely boost their anemic graduation and placement rates, no one would begrudge their extreme dependence on Pell grants and veterans’ benefits.

A for-profit institution could also develop the capacity to quickly build technical training programs in critical fields where the knowledge needs are fluid. In traditional public and private universities, faculty committees oversee curriculum change. While faculty oversight ensures that the frontiers of robust scientific knowledge are integrated into student learning, faculty committee forms of governance are often ill-suited for quick response to changes in market demands for trade and craft knowledge. These forms of knowledge play an important role in economic growth and stability.

One for-profit exemplar, New York’s Flatiron School, focuses exclusively on one topic: web development. Students lean to code in a host of common web and mobile environments. The focus is on competency and credentials. The structure of their course offerings is simple and allows for constant updating of the curriculum in response to developments in the field. The curriculum is easy to teach. The knowledge attained is important and of high market value across nearly every sector of the modern economy. The Flatiron School has a job placement program and gives students a tuition refund if they use it.

For-profit universities should also focus heavily on the remedial market. Despite the apparent lack of interest among faculty at traditional public and private universities in providing remedial education, it remains vitally important, given how many students enter college unprepared for college-level work. By working as a complement to traditional education, as opposed to being a poor substitute, the education consumer wins, and the for-profit thrives.

Another domain where for-profits stand to make money and add social value is the “spot market” for education. For-profit higher education companies can nimbly and quickly expand geographically in ways that traditional public and private universities generally cannot. Laureate International University has taken mobility to a global scale, with operations in some 75 institutions across 30 countries.

One of the biggest problems facing American higher education is a lack of diversity in institutional forms. Accordingly, we see little value added by for-profit universities that aim to replicate traditional universities, a perspective supported by data. But while these institutions are empirically bad, they are not inherently bad, and there are many pathways to enhancing social value.

Barry Bozeman is a professor of public management and technology policy and director of the Center for Organization Research and Design at Arizona State University. Derrick Anderson is an assistant professor in the School of Public Affairs at ASU.