Society and Culture, Education

Reaching for the panic button in for-profit education

Image credit: Clairity (Flickr) (CC BY 2.0)

Image credit: Clairity (Flickr) (CC BY 2.0)

The Obama administration is not known for its friendliness toward for-profit companies in education. During the administration’s first term, many other Democratic lawmakers have joined in supporting “gainful employment” regulations and competitive grant restrictions that inhibit for-profit involvement. In fact, the day after President Obama won his bid for re-election, for-profit colleges’ stocks declined—a clear sign of investors’ concern over what will come from another four years of Obama’s policies.

Should investors be worried? Based on the most recent Education Insider report put out by WhiteBoard advisers, yes. A striking 21% of respondents feel that for-profit college groups should “panic!” about what will happen to them during Obama’s second term. Combine this with general public hesitation to support for-profit K-12 schools (for more on this, see AEI research fellow Andrew Kelly’s paper), and for-profits’ future in education looks limited.

Critics hear arguments about efficiency or productivity, and assume that for-profit companies are out to destroy public education at the expense of student success. Yes, for-profit education companies deserve scrutiny in the public square. As in many industries, the incentive to grow rapidly and to contain costs can, at times, lead dubious actors to market themselves in deceptive ways or to cut corners with the services they provide.

But suspicious actors are not unique to the for-profit industry. Players in all sectors of education make moral compromises that distract from student learning. School boards struggle with cronyism, and some cash-strapped non-profits launder money. The larger question is not whether for-profits are morally “good” companies, but whether free enterprise can play a valuable role in serving the public’s interests in education. Inviting for-profits into education requires considering two key points:

  1. We often over-inflate the significance of tax status. By assuming that for-profit implies morally corrupt, we unfairly conclude that a company cannot both turn a profit and benefit students. Conversely, assuming that governmental or non-profit tax status indicates moral superiority discourages rigorous evaluation and accountability. Perhaps this would be a more compelling conclusion if more than 34% of our fourth-graders performed at or above the Proficient level.
  2. Public hesitation should impel for-profit accountability. The traditional metrics of for-profit performance (such as market shares or revenue margins) don’t overlap with the public’s concerns for high-quality education. And when for-profits examine student outcomes, public distrust gives incentives for the companies to downplay the results. Unappealing findings may further undermine the already-tenuous public support of for-profits in education. Instead, a system of robust public accountability is in the best interests of both the companies and the students.

As reactions to Obama’s re-election show, for-profit success relies on public perceptions. A decline in stocks should be as detrimental to their bottom line as poor student outcomes. Right now, for-profits have no incentive to treat the two scenarios as equal, and this will only worsen if the public and policy makers continue to equate for-profit with evil. What if, instead, we created policies that encourage for-profits to link higher student performance with higher stock value? Rigorous evaluation and transparency in accountability can do just that. When communities know how well a school performs, their satisfaction will translate into confident investors and higher stock value.

Excluding an entire industry from providing services to a struggling education system minimizes our chances to discover new approaches to old problems. But, by reframing the debate as one focused on quality and outcomes for all education providers—governmental, non-profit, and for-profit—we may well find a way for all types of providers to improve America’s schools.

For a provocative conversation on this topic, led by a panel of prominent practitioners, join the AEI Education team on Monday, November 26, 10am.

For more papers on this subject, explore the “Private Enterprise in American Education” project.

3 thoughts on “Reaching for the panic button in for-profit education

  1. “For-Profit” and education DO NOT mix! A for-profit company’s #1 priority is, what? Making profit – DUH! I don’t want MY tax dollars that SHOULD be used to educate America’s future leaders, entrepreneurs, and workforce going into the pockets of investors. Government should HIRE the people with the innovative new ideas concerning education and let them reorganize our educational systems. But the goal of any tax-payer supported educational institution should be educating its students NOT returning profit to its investors. Short-term cost savings measures can increase profit but cause long-term harm to a generation of students (harm that may not be apparent for a decade or more). Why can’t EVERYONE see those two goals conflict?

    • I agree! You CANNOT compare community colleges or state universities to the for-profit scam schools. For-profits receive up to 99% of their total income from governmental sources whereas the real colleges do not. The for-profits are not even providing any type of a good education either, this has been proven over and over again. All the for-profits need to be SHUT DOWN so they can no longer continue to ruin students’ lives and fleece U.S. taxpayers.

  2. One of the things that the article does not mention about “non-profit” companies (including government-run schools) is that left over money that would be classed as “profit” (net remainder after expenses) is simply SPENT one way or another. Um, redecorate the lobby, pass out bonuses, fund a BIGGER funding raising campaign. The LAST thing a “non-profit” business (e.g., school) does is reduce expenses. Or improve its products.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>