The Important Difference Between For-profit and Nonprofit Colleges

Career College Central Summary:

Robert Shireman: I am sympathetic to the instinct to ignore the question of whether a college is accountable to owners (for-profit), or, alternatively, is answerable to a financially disinterested board (nonprofit or public). While there is a higher incidence of problematic behavior at for-profit colleges, there are also nonprofit and public institutions that don't do right by students and the public interest.
The term nonprofit creates the wrong impression about the restrictions that come with the moniker. The key difference is the prohibition on personal profiteering by institutional decision-makers, known as the non-distribution constraint.
The non-distribution constraint does not ensure that nonprofit and public colleges are great, but it does explain the differences we see in the decisions and behaviors of the sectors.
Because for-profit colleges have chosen to operate without the non-distribution constraint, they have a stronger drive toward efficiency and growth. At the same time they have a greater tendency to shortcut quality and engage in unscrupulous marketing. Unfortunately it's a package deal.
In a thoughtful response to my paper, Jorge Klor de Alva, former president of the University of Phoenix, says that for-profits can deliver if they can somehow be restrained from the short-term temptations that plague them. Financial aid expert Mark Kantrowitz told me something similar a couple of years ago: "The problem with for-profit colleges is that when the company sacrifices long-term success for short-term gains, they are also sacrificing students… So the key question is how to restructure the entire industry so that long-term success is never sacrificed for short-term gains." He added that the gainful employment regulation "is a step in that direction, but it's not a complete solution."

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