Why We Need For-Profit Colleges

Last month, a company called Education Management Corporation was sued by the Department of Justice. Education Management is a for-profit education company; in fact, it is the country’s second-largest such company, with more than 150,000 students attending classes on more than 100 campuses, where it offers degrees in business, accounting and nursing, among other subjects.

According to the government, Education Management had a "’boiler-room’-style sales culture." Its recruiters used "high-pressure sales techniques, and inflated claims about career placement to increase student enrollment, regardless of applicants’ qualifications," as The Times put it in an article about the lawsuit. And it supposedly paid recruiters bonuses based solely on how many students they enrolled — which is against the law.

Although Education Management vehemently denies the charges and vows to fight them, this is hardly the first time a for-profit university has been accused of impropriety. Indeed, during the last half-dozen years or so, scandal has dogged the industry. In recent years, Kaplan, a division of the Washington Post Company, faced allegations that it recruited unqualified students and had an unacceptably high percentage of defaults on its student loans. This summer, it settled a lawsuit (without admitting wrongdoing) that claimed it failed to place students in externships.

The allegations all stem from one essential fact: The for-profit college industry makes its money by recruiting students — overwhelmingly poor and working-class students — who must draw from the federal till to pay tuition. In many cases, as much as 90 percent of the revenue of a for-profit college company comes from the federal government, in the form of Pell Grants and student loans. The more students the companies enroll, the more federal money they get — and the more profit they make.

This has led to a widespread view that the for-profits will do just about anything to get that federal money. Although for-profit colleges enroll 12 percent of the nation’s college students, they soak up about 25 percent of the federal government’s student-aid budget. Fewer than half the students who enroll in the four-year for-profit schools graduate. Roughly 47 percent of those who were paying back their loans in 2009 defaulted by 2010.

The shadow of scandal has, in turn, done a lot to color the way the larger society thinks about the industry. No one is much willing to listen to its defenders, who point out, for instance, that higher default rates are inevitable given the higher-risk populations being served, or that state schools also receive enormous taxpayer subsidies that just don’t happen to be as obvious, or that the allegations hurled at the for-profit schools are sometimes overblown or unfair. Educating the poor and the working class is something that should be encouraged, rather than scorned, they say. Jeffrey Leeds, whose private-equity firm owns a big chunk of Education Management, says, “Our mission is straightforward, and one we are proud to take on — to help students, typically nontraditional students, successfully complete college programs with workplace skills that enable them to get good jobs in a tough economy.”

Instead, the industry’s transgressions have led many critics to conclude that the only way to “fix” for-profit education is to get rid of it entirely. One such critic is Steve Eisman, the famous short-seller and hero of Michael Lewis’s book “The Big Short.” Last year, he said in a speech that the for-profit education industry was “as socially destructive and morally bankrupt” as the subprime-mortgage industry. Having bet against for-profit education stocks, he then made similar remarks in Congressional testimony. Not surprisingly, this caused more stock declines in the sector.

All of this obscures what really ought to be the most important fact about the industry: the country can’t afford to put it out of business. On the contrary, America needs it — and needs it to succeed — desperately.

To start with the obvious, a college education has never been more necessary for a decent life in America. Many manufacturing jobs now demand a level of skill and education that virtually requires a college degree. A lot of white-collar employers won’t even consider a job applicant who hasn’t graduated from college.

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