Do you dream of raking in big bucks? Well then, I’ve got news for you: Try the education field. I’m serious. Of course I’m not talking about actually teaching. I’m talking about administration. And don’t even think about the public schools. I’m not talking about Harvard either. I’m talking about the University of Phoenix, Strayer University, and other for-profit educational organizations that have been sprouting up nationwide.
According to a recent BusinessWeek report, the top executives at these schools could live the investment banker lifestyle, with huge paychecks and generous stock option packages. Last year, for instance, Robert Silberman, CEO of Strayer, got $41.9 million. Peter Sperling, vice chairman of Apollo Group, which runs the University of Phoenix, got $573.4 million in stock options.
For the record, I have no problem with the idea of for-profit educational institutions. Working adults can’t quit their jobs and attend a traditional college or community college full-time, so they choose these for-profit colleges, which often offer convenient class times. Many can get entire degree programs online. On top of this, some unsuccessful, nonprofit educational institutions have emerged from financial strife as for-profits. That’s a great thing.
What’s not so great is that, reportedly, most students get financial aid from the government. According to the BusinessWeek article, as much as 90 percent of revenue for these institutions comes from these government financial aid programs. For-profit education industry proponents say that students, not the schools, apply for loans, so the schools don’t receive any direct government support.
But according to various reports, including a “Frontline” episode on PBS, these schools push federal aid programs hard. And it turns out that students are defaulting on loans because they can’t find work after graduating.
The situation may be changing a bit. In recent months, for instance, the government has put increased scrutiny on for-profit schools, and the industry has attempted to revamp its recruiting efforts.
Even so, the institutions’ students still are receiving federal loans. This leaves the U.S. taxpayer on the hook. This has plenty of people up in arms, and it’s led to a lot of negative press. (For just a few examples, click here and here.)
In theory, I’d still have no problem with this. I’m all for investing in education, and if taxpayers shoulder some of the burden, so be it. But my issue comes with the for-profit approach. For-profit schools serve shareholders. Shareholders benefit when more students pay tuition, be it students’ own money or (usually) from a loan. But shareholders don’t directly benefit when students find work or, for that matter, fail to find work. After students graduate, schools have already gotten their tuition money. They’re not on the hook for the student loans.
For-profit schools also may not serve the local community with classes that industry needs, and this includes manufacturing education. Investing in fabricating equipment--welding power sources, laser cutting systems, punch presses, and press brakes--is expensive. Even if a school did invest in these systems, only so many students could operate them at a time. This certainly doesn’t serve shareholders very well, even though students may have a better chance at landing a job after they graduate, considering that, even now, manufacturers still have trouble finding workers who know their way around metal fabrication equipment.
Again, I have no trouble at all with for-profit educational institutions. They have every right to do business. It’s just where they get their money: government financial aid programs. As a taxpayer, I don’t mind investing in students broadening their skill sets; that’s something this economy really needs. But according to news reports, student default rates on loans are rising as the profits these schools earn shoot upward.
My tax money may be helping shareholders more than students.
About the Author: Tim Heston
While I agree that the taxpayer money could better be used for education that places students in industries that are in need, there are larger issues at stake that are rather alarming. 2 recent events and several trends have happened that don't look too good for our higher education system:
1. The government's recent shut-down of commercial student loans. As part of a huge bill recently (financial bill I think?), the government does not allow banks or any other institutions to provide loans to students. Instead, the government is the only institution with the ability to provide student loans. This seems nonconsequential until you consider everything.
2. As this article shows, private institutions are getting much more scrutiny over the amount of loans that they receive that are not paid off. I read in another recent report that the way they classify "delinquency" is VERY misleading (you are welcome to research this) and skews the numbers.
Couple this with a growing trend of more and more students attending liberal arts colleges (Ivy leagues, state colleges, etc) and the innefectiveness of these colleges to prepare students for the real world (and landing a job) and what have I noticed? The government seems to be trying to "crowd-out" the private institutions.
This is how I see it: if they control the purse (who gets money(read:loans)) AND change the perception about providing loans to for-profits, then how will these private institutions stay in business? They can't. On top of that, since the only other major option for college is the public schools system, they have control of the next generation. They control what they learn, who gets into these "elite" institutions, and since there could be no competition, they are not held to a comparison to any other option (less efficient use of funds). I have already seen that public schools prepare their students less effectively for the real world and this could only get worse.
Of course, this viewpoint is looking a great deal into the future however this is what I see could happen.
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