For-Profit Schools

First and foremost, Go Badgers. Now that I got that off my chest, I want to get into for-profit education. We see these commercials constantly for DeVry University, and University of Phoenix and I never really understand who goes to these strip mall universities, and what purpose they serve. It is interesting to consider why a school would choose to be for-profit rather than the more traditional and popular non-profit structure. In theory, these schools could be very effective at offering efficient education because it would be their profit-maximizing strategy to offer the best and cheapest education. This, I think, is theory behind for-profit schools but that is not the reputation they have in our country. By looking into this issue a bit further, it is apparent that the for-profit nature often does not match well with providing education.

Information on who these schools are targeting for their enrollment can be found on their annual education reports. Skimming over DeVry’s report, I found that 52.5% of their undergrads are between the age of 25 and 39 compared to 18.3% at other national institutions. They are generally targeting adults who are employed or have families, who need a cheap and quick education. This target market makes some sense when you look at how the programs at these schools are designed (flexible schedule, cheap and quick, tailored degrees). According to this blog however, these for-profit schools are actually more expensive than many public four year colleges. Besides being expensive, students at for-profit schools on average have more responsibility in terms of student loans, and also default on these loans more often than students at non-profit schools. The for-profit Corinthian schools were recently sued by the Consumer Financial Protection Bureau for predatory lending practices, validating claims that providing education for a profit creates a conflicting set of incentives.

When looking at why these schools operate the way they do, we must understand that every decision made is being made for the benefit of the shareholders. Those in charge of these universities have the responsibility of generating profit, not providing the best educational experience it can. This incentive structure has led them to target those who are in need of a quick college education, but aren’t in the position (because of family or work) to attend a normal university. That is why they are stress schedule flexibility, and the ability for a person with other major obligations to quickly earn a college degree. These schools have found that they can cheaply offer this service by cutting operational costs, and pumping students though low quality programs at high rates. They have essentially commoditized college degrees, where they can be something you buy rather than earn. This almost sounds like the doctor who is around solely for the purpose of issuing prescriptions for drugs for a fee. These schools have found the niche in the market where they can essentially sell degrees and capitalize off of people who are in need of that service.

Although I’m sure these school can be very serviceable to people, I just don’t think that profit maximizing incentives and education align very well. When a decision is made at UPS, I know at least that they are making that decision in the attempt to better the user experience at this school, while at these for-profit schools, any decision is being made to satisfy shareholders. I think this is a case where the for-profit structure does not fit the type of service they are attempting to provide, and the underlying incentives of this structure should be considered by those thinking of attending these schools.