The profit motive in higher education

This infographic summarizes a report on for-profit higher education issued late in July by the Senate Health, Education, Labor and Pensions Committee, which is headed by Iowa Democrat Tom Harkin.  It shows that, on average, for-profit higher education is a really bad deal.

The profit motive works well when it is aligned with the interest of customers.  Manufacturers that make good computers, refrigerators  or automobiles make higher profits in the long run than manufacturers that make bad products.  People have the information—from friends and neighbors or maybe from Consumer Reports—that enables us to make an intelligent choice.  With for-profit health insurance providers, on the other hand, there is no good way to tell a good one from a bad one except by experience, in my case painful experience.  In health insurance, there are conflicting incentives—to build a reputation in the long run, or to maximize short-run profits by minimizing payouts.

The short-run incentive for for-profit colleges is to find the right balance between maximizing enrollment and maximizing tuition, neither of which is necessarily related to providing a good education.  Probably there are for-profit colleges that do provide a good education, but, if so, it would be hard for students and their parents to figure out which ones they are.  There is a seller’s market for higher education, because young people believe they have no economic future without the credential of a college degree.  The credential, not the education, is the product, and, as the infographic shows, the for-profit colleges do a poor job even at providing the credential.

For-profit is not the same thing as private enterprise.  The report showsed that for-profit colleges get the majority of their revenue from Pell grants, Defense Department education grants, GI Bill aid and other government sources.

Click on The For-Profit, HIgher-Education Industry, By the Numbers for more facts and figures from Suevon Lee of ProPublica.

Click on Harkin: For-profit colleges a terrible deal for more facts and charts from Dylan Matthews, and links to the original report, on the Washington Post’s Wonkblog.

Below are charts with more facts and figures about for-profit colleges.

Click to enlarge.

Click to enlarge.

Tags: For-Profit Colleges, Harkin Committee Report on For-Profit Colleges, Higher Education, Senator Thomas Harkin