For-Profits vs. Community Colleges: Either Way, Governments Pay

There is something a bit odd about the terms on which we debate the merits of for-profit vs. community colleges: thinking of one as a bastion of private enterprise and the other as an example of low-cost provision of services through the public sector.

The fact is that both community colleges and for-profit colleges are in large measure government-financed arrangements to pay for the postsecondary training of people who can't afford to pay the costs of college and lack the qualifications to be admitted to selective institutions.

Community colleges are publicly owned and get the bulk of their financing through operating subsidies from state and local governments. For-profit colleges are privately owned and get the bulk of their financing through student aid (grants and loans) from the federal government. The grants are of course direct costs to the federal budget. Some of the loans receive in-school interest subsidies from the federal government and a significant fraction of all the federal loans to for-profit college students eventually go into default, becoming losses to the government. We think most people agree that government spending to help these low-income people is warranted.

The issues here thus aren’t really about public spending vs. private markets, but about the best ways to operate a government-financed program to provide postsecondary educational services to people who need them. This boils down to two questions. First, are such programs best run through state and local entities or by the federal government? States and localities have the advantages of being closer to the institutions they own and oversee, but the federal government has the advantage of a more reliable funding source and of the capacity to diminish inequalities based on state of residence.

Second, are these programs best provided through public operation of schools, with modest infusion of market forces through student choices among institutions, or is it better to provide these services through vouchers, backed up by a (weaker or stronger) regulatory process to provide consumer protection?

The evidence to date is that in this area of activity both models of provision are a very mixed bag. At their best, for-profit colleges show a sensitivity to the needs and lives of their students that is highly admirable and should serve as a model for other institutions; at their worst, these places can prove shockingly exploitive of vulnerable individuals.

The best among the community colleges are entrepreneurial, imaginative, and forward looking, marshaling the energy to tackle big challenges creatively. The worst are bloated, bureaucratic, and all too vulnerable to the temptations of political patronage.

The problem of how best to balance the roles of federal, state, and local financing, on the one hand, and of market regulation through vouchers and regulation vs. direct operation of institutions is fundamental. It arises not just in higher education, but throughout the governmental policy arena.

But let’s be clear: the question here is how governments can best supply educational services for people who can’t pay for them; this is not a question of public vs. private financing of education.


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