Public Good versus Private Gain

is the main issue in Medical Care and in Education.

Why should shareholders of for-profit educational institutions benefit from federal grants? Taxpayer money can be used to support state universities, and the for-profit institutions should support their students by raising their own capital for financial aid. If DeVry or UofPhoenix had to provide student loans out of its own pocket, and absorb the risk of non-payment, then their educational standards would go up faster than the oil gushing out in GoM.

Battle Lines Drawn Over For-Profit Colleges - NYTimes.com: "The report, a draft of which was obtained by The New York Times, suggests a basic conflict: For-profit colleges have an obligation to maximize shareholder profits — and that mandate can conflict with the objective of federal student aid, which is to increase students’ access to quality higher education.

The Harkin report calls for-profit colleges “an important part of the mix” both because they can increase access to higher education, and because they offer “innovative options” that can make it easier for students to study while holding down a job or raising a family.

At the same time, the report says profit-making colleges generally charge higher tuition than comparable public colleges, spend a large share of revenue on expenses not related to teaching, experience high dropout rates, and, in some cases, use abusive recruiting and debt management practices.

Fueled by federal student aid, the for-profit sector has mushroomed in the last decade. While overall post-secondary enrollment increased 31 percent from 1998 to 2008, the for-profits’ enrollment grew by 225 percent.

According to the report, the publicly traded education companies have a combined enrollment of 1.4 million students in the United States. The largest, the University of Phoenix, has 458,000 students — more than the undergraduate enrollment of the entire Big 10 conference.

And at least seven of the publicly traded for-profit colleges enroll most of their students exclusively in online programs.

Federal student aid comes mostly in the form of Pell grants, of up to $5,350 a year, and Stafford loans, which students must repay after they leave college. Although the aid is meant for the benefit of individual students, the disbursements actually go directly to their colleges. In 2008-9, for-profit colleges got $4.3 billion in Pell grants and $19.6 billion in Stafford loans.

And although for-profit colleges enroll less than 10 percent of the nation’s higher-education students, they get almost a quarter of the federal student aid.

And, the report said, they have some of the highest operating profit margins among large American companies — as much as 37 percent."