For-profit education and manufacturing

Do you dream of raking in big bucks? Well then, I’ve got news for you: Try the education field. I’m serious. Of course I’m not talking about actually teaching. I’m talking about administration. And don’t even think about the public schools. I’m not talking about Harvard either. I’m talking about the University of Phoenix, Strayer University, and other for-profit educational organizations that have been sprouting up nationwide.

According to a recent BusinessWeek report, the top executives at these schools could live the investment banker lifestyle, with huge paychecks and generous stock option packages. Last year, for instance, Robert Silberman, CEO of Strayer, got $41.9 million. Peter Sperling, vice chairman of Apollo Group, which runs the University of Phoenix, got $573.4 million in stock options.

For the record, I have no problem with the idea of for-profit educational institutions. Working adults can’t quit their jobs and attend a traditional college or community college full-time, so they choose these for-profit colleges, which often offer convenient class times. Many can get entire degree programs online.  On top of this, some unsuccessful, nonprofit educational institutions have emerged from financial strife as for-profits. That’s a great thing.



What’s not so great is that, reportedly, most students get financial aid from the government. According to the BusinessWeek article, as much as 90 percent of revenue for these institutions comes from these government financial aid programs. For-profit education industry proponents say that students, not the schools, apply for loans, so the schools don’t receive any direct government support.

But according to various reports, including a “Frontline” episode on PBS, these schools push federal aid programs hard. And it turns out that students are defaulting on loans because they can’t find work after graduating.

The situation may be changing a bit. In recent months, for instance, the government has put increased scrutiny on for-profit schools, and the industry has attempted to revamp its recruiting efforts.

Even so, the institutions’ students still are receiving federal loans. This leaves the U.S. taxpayer on the hook. This has plenty of people up in arms, and it’s led to a lot of negative press. (For just a few examples, click here and here.)

In theory, I’d still have no problem with this. I’m all for investing in education, and if taxpayers shoulder some of the burden, so be it. But my issue comes with the for-profit approach. For-profit schools serve shareholders. Shareholders benefit when more students pay tuition, be it students’ own money or (usually) from a loan. But shareholders don’t directly benefit when students find work or, for that matter, fail to find work.  After students graduate, schools have already gotten their tuition money. They’re not on the hook for the student loans.

For-profit schools also may not serve the local community with classes that industry needs, and this includes manufacturing education. Investing in fabricating equipment--welding power sources, laser cutting systems, punch presses, and press brakes--is expensive. Even if a school did invest in these systems, only so many students could operate them at a time. This certainly doesn’t serve shareholders very well, even though students may have a better chance at landing a job after they graduate, considering that, even now, manufacturers still have trouble finding workers who know their way around metal fabrication equipment.

Again, I have no trouble at all with for-profit educational institutions. They have every right to do business. It’s just where they get their money: government financial aid programs. As a taxpayer, I don’t mind investing in students broadening their skill sets; that’s something this economy really needs. But according to news reports, student default rates on loans are rising as the profits these schools earn shoot upward.

My tax money may be helping shareholders more than students.