Just a few rotten apples?

US for-profits are a mixed bag but they meet a real need, says Alan Ryan

September 2, 2010

I miss the smell of cordite and the whistle of bullets as the UK higher education system repels threats from yet another round of cost-cutting, but not the annual silliness as the A-level results come out. Have standards collapsed? Undoubtedly. Are our young people wonderful? Undoubtedly. Can we imagine turning away 60, 70, 120 or 200 thousand would-be students? Undoubtedly not. What are we to do? Heaven knows; actually, the answer is to borrow the California Master Plan and try not to mess up the public finances like California has done.

It has been interesting to watch reactions to the suggestion that the American "private for-profit sector" should ride to the aid of beleaguered English higher education. The suggestion comes just as the owners of for-profit institutions in the US are getting a real beating from Congress and the Obama administration, and all sorts of wickedness have come to light. Many opponents of David Willetts and Vince Cable complain about "Americanisation" and "privatisation", as though these are one and the same, but most American academics hate the for-profit sector even more intensely than the British do.

The US scene is complex: there are some 4,391 institutions that award a degree of some sort - associate, BA or higher. The whole system enrols some 17 million students. Public and non-profit private institutions are evenly balanced, 1,737 to 1,745, with an additional 909 for-profit institutions, two-thirds of which offer an associate degree or a qualification "related to" healthcare, engineering or business. Another 2,285 for-profit institutions enrol half-a-million students on non-degree courses.

"American" does not mean "private", and "private" does not mean "for-profit". Non-profit private colleges dominate liberal arts colleges; they outnumber public colleges by 541 to 152. What boggles the minds of British observers is the "faith-based" colleges - there are more than 300 of them - that teach any number of variations on Christian and other faiths; my favourite is the missionary college in California that teaches its students glossolalia - speaking in tongues.

The public sector includes giants such as Miami-Dade College, and many of the private colleges are tiny. But there are monster for-profits, too, of which the University of Phoenix is the biggest, with almost half-a-million students, slightly more than the California State University and slightly fewer than the State University of New York. Nonetheless, even though enrolments at for-profit institutions giving four-year degrees have more than tripled in the past decade, while everyone else has grown by about a fifth, they produce only 5 per cent of graduates with BAs; public and non-profit institutions produce 65 and 30 per cent respectively. For-profits' share of "associates" is greater - 17 per cent, with non-profits hardly featuring.

Most for-profit institutions are owned by a dozen or so investment groups, although Kaplan, which was set up to help high-school students to improve their SAT scores, is owned by The Washington Post. There's a lot of money to be made, and private equity has been buying up for-profit colleges; their managers make a lot more than university presidents, who are themselves not exactly underpaid. BPP is owned by the Apollo Group, which owns Phoenix. Both Kaplan and Apollo operate in several European countries.

For-profits meet a real need; they provide a mixture of online and face-to-face teaching, allow students to get a degree while working, and reach students that traditional higher education doesn't. In principle, there's no reason they shouldn't do a decent job and make a modest profit. So why are they unloved? There are three main reasons.

First, traditional academics think they inspire a "race to the bottom" in academic standards and salaries. They certainly operate by hiring adjunct professors, offer little job security and tailor what they teach to how they can deliver it. How much worse that is than what goes on elsewhere is another matter.

The second reason is more cogent; it is said that they recruit students on a false prospectus. By claiming their degrees will result in higher earnings, they induce students to sign on for a degree and take out loans to pay for it, but do not deliver what they promise - the well-paid jobs are not there, so students end up with large debts and low incomes. If their degrees have a poor reputation anyway, the situation is dire. How valid the charge is, is something Congress is investigating. Graduation rates are low, at about 25 per cent, although there is some dispute about the figures and they are not much worse than the 29 per cent in public institutions collectively. But the rate is pretty awful compared with the 50 per cent at good public universities, and pathetic against the Ivy League's 95 per cent.

The third complaint is the killer. These institutions get 90 per cent of their income from publicly funded loans to students; and the default rate is enormous. Their students take out 7 per cent of all student loans and have 44 per cent of the defaults. The institutions keep the money, but the students are liable for the debts, no matter whether they get a job or not.

The spotlight is on the recruiters who are paid to bring in the customers. Taxpayers and students have a lot at stake. If recruiters have been pressuring students, and providing them with a misleading picture of their future prospects, it is a fraud on the taxpayers, and a particularly unkind fraud on students who are generally hard-up and ill-educated. What everyone wants to know - and what Willetts is no doubt asking - is whether there are a few rotten apples in the sector, or whether the whole barrel is bad. There are certainly enough conflicts of interest to keep regulators busy.

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