They Just Don’t Get It

Sen. Tom Harkin has issued his final report on for-profit higher education, a book-length indictment of one-tenth of American higher education, the for-profit sector. Obviously I have not had an opportunity yet to read the full report (I’ve been traveling for the past week or so), but from news reports alone, I see huge problems with it, much of it related to either an ignorance or contempt for how the capitalistic system of free enterprise does a very good job of delivering the goods—lots of them—in America. It is market-incentivized ingenuity and enterprise that leads millions every decade to migrate here to enjoy the fruits of the labor of American capitalism.

To be sure, the report concedes that for-profit education is here to stay, and even acknowledges that several providers (e.g., Strayer Education) have done a relatively good job, and others are at least making some positive moves (including Apollo, the owner of the University of Phoenix, the market leader). But the report appears far more negative than positive, while essentially ignoring problems with marginally performing public institutions that, unlike the for-profits, receive direct taxpayer subsidies.

A central point of the Harkin report is that at a big sample of for-profit institutions, over 40 cents of each dollar collected goes for marketing expense or profits, meaning a somewhat lower proportion goes for instruction than at a typical not-for-profit university. The inference is that students and learning are neglected.

This is a meaningless comparison on lots of grounds. Let us take profits. First, the 19-cent profit margin reported is pre-tax—unlike other colleges, the for-profits pay income taxes, some of which subsidize their competitors. Second, the not-for-profits have vast expenditures for constructing buildings, etc., not counted in operating expenses. Profits are a market-based assessment of the cost of the use of capital resources by private entrepreneurs. Given the risks associated with doing business (some of it imposed by Senator Harkin himself), the profit margin for the for-profits appears to be roughly in line with other parts of America’s capitalistic system. In a real sense, the for-profit higher-education sector uses honest accounting rules, the traditional sector dishonest ones, often not properly accounting for depreciation of capital or, especially at state schools, honestly assessing pension liabilities. In a sense, Harkin is comparing apples to oranges.

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