PBS Frontline Story on For Profits-Showed on 3/1/11

Actually, ALL state universities and community colleges would shut down, as none of them would be able to absorb a 60-75% reduction in their operating funds. Some private NFP would be significantly affected, but most would not have to shut down, as their main source of income is tuition. However, if students at these schools no longer had the option for government backed grants and loans, those who were unable to secure private loans could not attend school. The same would be true of students atteding FP schools. The main difference is that more lower income students attend FP schools, so there is a higher rate of students seeking loans and grants,

That is true. However, the rioting in England due to that country's inability to sustain its economic model of higher education shows that there are limits to what a government can do. Also, a country may be able to fully support a few state educational institutions, but when you look at the U.S., with its 6,000+ higher education institutions, that would be quite a daunting task. As it stands, my colleagues at state colleges and universities are truly suffering and trying to make the best of severe budget cuts due to lowered allotments of taxpayer funds.

For-profit universities do not receive public funding like public colleges and universities do. The public colleges and universities receive annual allotments of funds from the government that they do not have to repay. This is also true of public K-12 schools.

Private universities (both non-profit and for-profit) rely on tuition as their major source of operating funds. Students who cannot pay tuition in cash either pay for it on credit, take out loans (backed either by a private bank or the government) or rely on grants or scholarships. When it comes to federally-backed loans (e.g. title IV student loans), the government (not the school) decides how much money the student is eligible to receive. The student receives the loan money and determines what to do with it (e.g. pay for tuition, books, insurance, car payments, food, etc.). When students graduate, they make decisions about their debts (rent, car payments, credit cards, student loans, etc.) The student, not the school, decides whether the student will repay his or her debt. Schools do not defualt on loans, people do. A person who decides to stop making payments on a student loan is no different than a person who decides to stop making payments on a home loan or a car loan. The difference, of course, is that Senator Harkin and his ilk are not suggesting (yet) that realtors or car dealships be ineligble for government-backed loans if their customers stop making payments.

Underlying a for-profit university's model is that they can meet their students' needs and extra money generated becomes profit (just like any other business). This, apparently, is only evil if applied to education, but not to any other sector. The model for non-profit private schools is that they meet their student's needs and extra money generated becomes higher salaries and goes toward the school's endowment. For-profits operate via tution charged to their students. The money that students make to pay tution can come from many different sources, including government-backed loans.

I would think that defaulting on a loan is exactly the same, regardless of the item for which you borrowed the loan. I see little difference in defaulting on a Lexus SUV versus a Kia sedan, other than the cost of the two items. The idea that graduates of for-profits have diminished opportunities to get out of debt is so laden with variables that differ from one student to the next that the statement is ridiculous. A student graduating with a buisness management, technology or nursing degree from a fot-profit school may not have "diminished opportunties," compared to the non-profit graduate in medieval studies, English literature or sociology.

Student pay tution and a certain amount of that tution goes to physical facilities, faculty and staff salaries and benefits, profit and other costs. I wonder, how do you account for the fact that "non-profit" private schools are often (if not mostly) MORE expensive than for-profit schools?

Fully virtual schools might have some lower overhead, but most for-profits are not vitual. The majority of for-profit colleges and universities are not publcly traded corporations.

I agree with you that students should consider their educational options and choices wisely.

 

I don't think that's entirely accurate. I know Indiana University only receives ~20% of its funding from the state. I suspect the University of Michigan receives an even smaller proportion of its funding from the state.

 

Since someone here mentioned Senator Harkin I felt obliged to toss in a few thoughts of my own. First, anything Senator Harkin has to say regarding for profit schools is akin to listening to the KKK regarding a company's equal opportunity policy. He’s neither credible nor unbiased. One of Senator Harkins biggest contributors as published are the University of Iowa who in turn get exclusive research grants, almost tailored made for their school. Among his other contributors are multiple law firms, some of which are not even in his district and any of which who may represent any number of clients.

I suspect but cannot prove that a certain famous hedge fund manager, Mr. Steve Eisman likely has our good senator neck deep in his pocket. Mr. Eisman is famous for his ability to short sell and make a killing off of everyday investors like you and me and yet it was he, not an industry expert in education, that Senator Harkin asked to testify before a Senate committee regarding for profit education.

If you’re wondering why Eisman would even care it works something like this. Eisman’s group borrows stock from a mutual fund company or other investment firm (usually managed ala your 401K). He then sells the borrowed stock at a high value anticipating the value of the stock will drop. When the stock drops, he buys it back and gives it back to the original lender at the reduced value and keeps the difference. The trick is, if the stock goes up in price the hedge fund loses money. So in essence hedge fund investors (the wealthy) create a crisis to drive a stock value down and sell it back at a depressed value screwing over the everyday investors, you and me and anyone else with a managed retirement account with holdings in education (of which any well managed, diversified portfolio likely has).

So saying that Senator Harkin or the expert witness, Steve Eisman are simply doing their sainted duty to the betterment of the everyday student is a stretch.

Another issue that is highly misleading is the rate of default. The U.S. Department of Education has an official stance that any loan that goes overdue during the first three years and is not current at the time of the 36th month is a “lifetime default” and they basically assume the taxpayer is on the hook for that. What they fail to take into consideration is that those who default will have their wages garnished, their tax returns seized and their federal benefits denied until the full amount with interest and penalties is fully paid. Basically anything short of dying will not get you out of a student loan. You cannot default through bankruptcy and sooner or later you will pay that money back. The default rate should be measured in decades, not months. Their current data is worth almost nothing. A private enterprise would certainly not get off the hook with their investors that easily by only forecasting the life of a loan at 36 months, I don’t know how the government can.

If they want to fix the student debt issue, selectively enforcing policies on for profit schools is not only damaging to education as a whole, but simply does not fix the problem even as ill defined as it currently is.

If they want to really fix the problems they must reintroduce risk back into the student loan markets by placing student loan debts back under the jurisdiction of the bankruptcy courts where they belong.

Second, the government should lower the ceiling on total loan debt allowable and follow this all the way to capping at a semester level. It’s no mystery why so many schools both for profit and non-profit find their tuition rates conveniently in line with the cap a student may borrow from Title IV lenders.

Anyhow I’ve researched and written on this topic for way too long. You can check out my former blog for more (My Bellevue University Experience) suffice to say this debate is largely manufactured to be exploited for financial gains. That’s not to say there isn’t a student loan crisis, there most certainly is. But like most things in Congress nothing will be done about it until the smoke vanished due to all the flames (like Social Security). Meanwhile it is a position that can be exploited over and over to make money off of a fairly isolated market that is easy to vilify.

Make no mistake, “non-profit” does not mean that nobody profits.

 

I stand corrected. My figures reflected community college figures, rather than state university figures, which vary by state and by university. for example, here is the funding breakdown of North Carolina State University:

• 42 percent from state appropriations
• 19 percent from contracts and grants
• 18 percent from tuition and fees
• 15 percent from auxiliaries (including a wide range of activities such as dining and parking)
• 4 percent from gifts and other sources
• 2 percent from federal appropriations

 

Friendorfoe's post is spot on. With all due respect to Senator Harkin, the good Senator has no experience whatsoever in the private sector. His entire career has been in the political sector. Other than a less than two-year stint as a private attorney (after he lost his first election), he has never done anything to generate a profit.