The Continued Assault on For Profit Education

Jeff  Carter
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Posted: Dec 27, 2011 12:01 AM

For profit education has been demonized over the past couple of years by the Obama administration. In the past few weeks, I have seen that attack take a different turn. In front of the Chicago Economic Club, Chicago mayor Rahm Emanuel said we need to make a larger investment in community colleges.

The larger investment in community college education is not really an investment in education at all. It’s a carefully planned attack against for profit colleges veiled in the “invest more in human capital” vein. For a free market fiscal conservative, it’s a sticky tightrope to walk when you criticize their rationale.

Amid a myriad of problems in American education, there are two that potentially can be answered by community colleges. One, as Erik Hurst correctly analyzed, there is a mismatch right now in our economy between the skills of the labor force and the needs of the business world. It is one of the contributions to our high unemployment rate. Second, the amount of debt that our college graduates assume to get their degree hampers their ability to take risk and work once they graduate. By the way, this has a corollary with government debt and the US too.

Community colleges can be a great solution to the crippling amount of student debt that we are seeing as the cost of education spirals higher. For a variety of reasons, I went to a community college for two years before finishing my degree in the College of Business at Illinois. I graduated debt free, and it made a huge difference in my career. Because I didn’t have to burn through money paying off loans, I was able to take a lot of risk early in my life that helped me later on. Using a community college for your first two years can be a great, economical way to get a college education.

However, that’s not the target market for the Democrats. They are targeting the unskilled labor force that is unemployed. The idea is to retrain them and get them employed into jobs that the private market needs. It’s a noble goal, the real question is should government be behind the satisfaction of that goal? Maybe it’s a deeper question that that. Why haven’t the community colleges already responded to the forces in the market to tailor their curriculums to the needs of the market?

For profit colleges (FPC) have an entirely different set of forces that determine what courses and degree paths they offer. If they don’t offer degrees that allow their students to quickly monetize their investment, they go out of business. FPC’s must respond quickly to market changes by designing and implementing new programs so they can compete with all other forms of education.

After speaking with a person from a for profit college, I found that their thinking was very similar to a start up. They put out a product, and then keep iterating it based on feedback from students and employers. FPC’s are forced to be on the cutting edge of changes in the market because both sides of their supply and demand equation expect it. FPC’s aren’t unionized with legacy teachers unions. They can be run far more efficiently than community colleges.

When you invest in human capital, it’s an investment for life. All of the certifications and degrees you get throughout your life travel with you from job to job. That’s why private employers have found that it is a more efficient use of capital to decrease the amount of tuition reimbursement employees get for outside education. If they do reimburse, they tie it to time of future employment so the company gets a return on investment.

The employee does have opportunity costs. They have to put in the time and effort to get the certification or degree. But the benefit to them is they can take that shingle and get a better job somewhere other than where they are working today. They might be able to raise their wages in their current situation by pitting one employer against another if their degree is valuable enough.

In many cases, tuition reimbursement is creating grade inflation too. If colleges know that students will not get paid for classes they take when receiving a low grade, colleges have an incentive to give higher grades to keep revenue coming in from employers. Lower grades put more economic responsibility on the student, and too many low grades will hurt the supply chain of students coming in from private company tuition reimbursement programs. Grade inflation can affect both community colleges and FPC’s similarly.

Are FPC’s perfect? Not a chance. They have their own problems. But at least when they have problems they can go out of business. That’s not the case for community colleges.

I don’t think the goal of the Democrats is to create a better match between the market and community colleges. The real goal is to increase government spending on teachers unions that populate the community college campus, and to increase the unionized administrative jobs that will be created to support the increased spending at community colleges. It’s also to take unskilled labor and retrain them so they are prepared to take unionized jobs in emerging industries like home healthcare. Having a high unemployment rate along with a poorly trained workforce just gives them a convenient excuse to advocate for higher spending. They are simply trying to expand their base.

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