Unhealthy Competition

A common argument for opening up regulations to encourage the growth of for-profit colleges is that resulting competition will lead to innovation, higher quality and lower prices. Yet those benefits have failed to materialize in six countries with substantial for-profit sectors, according to a new report.

The Centre for Global Higher Education, a research partnership of international universities that is based in the United Kingdom, published the 96-page report this week. It was requested by a government agency in the U.K., where the Parliament currently is mulling major legislation on higher education.

The report looks at the private and for-profit higher education sectors in Australia, Chile, Germany, Japan, Poland and the United States. It seeks to identify common characteristics across the countries, while also describing the role of private higher education (which is mostly for-profit in countries other than the U.S., which has both nonprofit and for-profit private colleges) in each nation.

One key similarity is that for-profits played a key role in expanding access to college, the report found, often for students from disadvantaged or lower-income backgrounds. The colleges also are more teaching oriented, with research mostly occurring at public institutions.

However, the paper also said for-profits typically rely on tuition fees as their key source of income, and that the sector’s expansion largely depends on access to government-funded financial aid.

As a result, for-profits are particularly vulnerable to the consequences of fluctuating student demand, the report said. That certainly has been the case in the U.S., where most large for-profits are struggling with plummeting enrollments and revenue. Some colleges in the sector have been forced to close, the report said, which “can have serious educational financial consequences for students, who risk being left in limbo.”

Tuition at for-profit colleges also tends to be higher than at public institutions. And the report said there is little evidence to suggest that for-profits in the six countries have improved higher education’s quality or lowered its price.

“Indeed, relative to the public sector, the quality of provision, especially in the for-profits, is often found wanting, while tuition fees are usually higher,” Claire Callender, one of the report’s co-authors and a professor of higher education policy at the University of London’s Birbeck College, said in a written statement. “This suggests the need for much tighter regulations in the U.K. for all private providers, and not just those receiving government funding.”

The report takes a particularly unflattering view of the rapid growth of private higher education providers in Australia, where 52 of the 130 nonuniversity providers are for-profits. (Australia has one for-profit university.) And its authors draw several parallels between Australia and the U.S.

For-profits have expanded in Australia because they are small, nimble, have strong ties with employers and offer a wide diversity of courses, according to the report. But they also charge more than double what public universities charge in tuition, the report said, and have relied to some extent on aggressive marketing to attract students who qualify for government aid but have little chance of completing.

The sector’s growth in Australia, as a result, has led to replication rather than healthy competition, according to the report, and has done little to increase participation of underserved student groups.

“This is because private for-profit providers are more expensive than public sector providers, concentrate on recruiting international students paying full fees and lack the resources and infrastructure to support disadvantaged and academically weak students,” the report said.

Solution Without Good Data?

A full stop on for-profit higher education isn’t a useful or realistic suggestion for any of the countries included in the study, said Kevin Kinser, an expert on for-profits who heads Pennsylvania State University’s department of education policy studies.

Rather, Kinser said, policy makers should use lessons from the report to try to craft regulations that directly connect student outcomes to government funding, as the U.S. has done with gainful employment rules that are aimed at for-profits and vocational programs at nonprofits.

Kinser also cited Australia’s use of risk-based approval of for-profits, which is based on their financial standing, track record and compliance with “threshold standards” for academic quality. (A major revision of that framework goes into effect next year.)

“People are going to make bad decisions,” Kinser said. “Let’s prevent them from making the worst decisions.”

Those policy levers are rare, however, in part because of a dearth of good data on student achievement, which the report said is another trait the six countries share. Kinser said the U.S. is actually the “best of the bunch” when it comes to outcomes data, despite lacking a good definition of quality.

“The lack of publicly available data, particularly on dropout rates and employment outcomes, highlights some of the difficulties faced in assessing the advantages and strengths of private providers -- in their own right, and in comparison to public providers,” the report said.

Robert Shireman is a senior fellow at the Century Foundation and a former official at the U.S. Department of Education who has long been critical of for-profits. While he said it’s clear consumers need more information about the performance of academic programs, finding useful and understandable metrics isn’t easy. For example, he said, few potential students are likely to use loan-repayment rates to make enrollment decisions.

“It’s both true and really difficult to figure out what would help,” Shireman said.

Even so, he said the new report is evidence of endemic ills of for-profits.

“The similarity of the problems,” said Shireman, suggests that there are “structural benefits” to public and private colleges that are subject to quality assurance and consumer protections.

The primary trade group for the for-profit sector in the U.S., Career Education Colleges and Universities, had a different take.

Steve Gunderson, the group’s president and CEO, said the report is mostly a rehash of the past that fails to put forward proactive solutions short of the sector’s elimination.

“While holding that up as one potential avenue, the authors fail to note what would happen to the millions of students served should our institutions cease to exist,” Gunderson said in a written statement. “It is easy to sit in an ivy tower and offer opinions about problems with institutions serving new traditional students, but it is much harder to try and serve those students in the face of ever-changing, arcane bureaucratic regulations.”