Profit/Non-Profit - A Critical Difference

I had an opportunity to have dinner with two well placed administrators from for-profit schools. As we talked, I asked them: "Both of your institutions are focused on a high growth model. What would happen if you couldn't grow your enrollments?"

Both admitted that as publicly traded firms, they have to grow to satisfy their stock holders. If they can't generate enrollment growth in one area, they simply have to shift to another area (or geography). Growth is a necessity for the firm, whether it is socially desireable or not.

Herein is a key difference, in my mind, between for-profit and non-profits. Non-profits don't have to grow. Many non-profit colleges I know have "target" enrollment sizes for their campus - and are satisfied to stay at that level. "Growth" in such a school comes from qualitative improvements in programs and responding to stakeholder needs, not in dollars and sense.

Regards - Andy

 

I think there are extremes in every subsection of higher education. This post is a bit all over the place, but I'll blame the sinus headache.

Even though they are heavily subsidized, non-profits (aka tax-exempt institutions) keep raising their tuition at a rate that far exceeds other cost of living indicators. They are growing their endowments and actually gain prestige the more they charge. They are simply not distributing profits to stockholders, but they are making a profit and have demands in place to do so. College presidents are fundraisers. Trustees are expected to do the same.

Tax-paying for-profits are meeting a need of a portion of the market, therefore gain that market's business. They have investors and tuition and use that as the majority of their operating budgets. They have no direct subsidies to offset costs. Even in Title IV, new institutions have to put up financing up to the full amount they will allow borrowers to borrow. It may get more students in the seats and increase access for students who can't pay outright, but they are under a different financing process than non-profits. The beginnings of Title IV are not cash-cows...

There is nothing stopping a non-profit from adapting its business model and targeting nontraditional students or meeting their needs. If they can do it better for a lower price, they'll gain the students. As more states cut funding, this creates a stronger revenue stream for these institutions. Only now, in tough economic times, are schools relying on tuition for operations. Tuition is not an indicator of the real costs to teach students. There are few incentives for efficiencies in most non-profits until their funding is slashed, then few seek them out, instead, they simply raise tuition. For profits can't operate that way.

There are some great books out that cover the topic in depth. I think there are individuals in every part of higher education that will do anything to enroll more students, gain arbitrary rankings, be the most selective, etc. Anya Kamanetz's book DIY-U: Edupunks, Edupreneurs and the Coming Transformation of Higher Education talks about it a bit, and has a great discussion of the history of American higher ed as well.

There are for-profit branches of non-profits that we don't talk about. There are quality programs in every part of higher ed; there are craptastic examples as well. I think there are those who have seen the last decade of tremendous growth in publicly traded colleges who think they are cash cows, but the big publicly traded companies are the minority. Many of the other things that have been hitting the news lately in regard to for-profits are things that established universities would balk at if we required:

* Will you make enough with your degree in Latin/East African tribal dance/Shakespeare/anthropology to repay your student loans? (Asked as a theatre/anthro double major at a small liberal arts college...)
* Will you have job skills when you graduate?
* Is college about outcomes assessment and demonstrable learning outcomes or is it about a process, socialization, a socio-economic stratification that allows us to distinguish between those who can finish an arbitrary task and those who cannot?
* What happens if someone is not college material? How do they gain job skills? Can they attend a proprietary institution to gain those skills? Can they qualify for federal aid to do so?

There's a great blog post over on the Chronicle that points out that the difference is not the business model or the tax status of institutions-- it is the way we look at all programs. No one is asking for job conversion rates of graduates of small liberal arts colleges or if so and so should really maybe not get his PhD in Classical Languages because it is not a growth field and he might not be able to get a job.

If it were really some altruistic thing, we'd see acceptance of all forms of learning, totally free universities, dropping college costs and forgiveness of student loans. Why are higher ed admin programs teaching entrepreneurship and public/private partnerships?

For-profits see a broader student population, see merit in providing access to a wider range of learners, unlike the most selective schools that may have name cache, brag about their incoming test scores, how selective they are, etc. but can't necessarily demonstrate that they teach their students any more.

 

Don't worry MC, Skynet understands all these things.