Higher Education: Privatizing Profits, Socializing Loss
posted at 9:51 am on December 5, 2011 by Bruce McQuain
[ Education ]
Glenn Reynolds has an article in the Washington Examiner about how he believes the higher education bubble is about to burst. Perhaps not imminently, but fairly soon. Why? Because the value of the product doesn’t match its rising cost.
Reynolds talks about the dilution of the worth of a bachelor’s degree even while the price has risen exponentially. Something’s got to give.
But there’s no real incentive for institutions of higher learning to back off the price. Why? Because government has chosen to subsidize those prices by taking over the student loan business.
Sound at all familiar?
With no penalty for raising the price, colleges and universities continue to do so knowing full well that whatever they stick the student with that requires a loan they will get upfront. And if the the student defaults, we, the taxpayers, get stuck with the bill.
One of the big complaints about the Wall Street bailout from both sides of the political isle had to so with “privatizing profits and socializing debt”. That’s precisely what the current government loan program does as well.
Reynolds makes the argument that colleges and universities should be on the hook for the debt. After all they’re the institutions providing the product. Tying the price of the product to the worth of the product is such an old fashioned concept isn’t it? Instead this new-fangled way of doing business has led to bubble after bubble which the uninformed then try to pin on “market failure”.
In fact it is a government takeover of a market. There is no competition, no incentive to revisit pricing, no reason to worry about default. Charge whatever you like, make an outrageous profit and if the loan fails, stick the taxpayers with the cost.
Nice crony capitalist system if you can arrange it, huh?
We all know exactly how it will end up … with a big “pop” and a bunch of surprised politicians asking “how could this have happened?’
And the first words out of most of their mouths?
“Market failure”.
And what does that usually mean?
More government intrusion and control.
Then the cycle repeats.
Blowback
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Well said and ,I hope, accurate. It’s past time for the colleges to be reined in.
jeanie on December 5, 2011 at 10:15 AM
This is something of a simplistic view of the failure of colleges to produce. In order to produce a good product, you have to have good materials, and the federalized K-12 system continues to produce poor quality results. This feeds into the meme that everyone needs a college education, and voila, you have mediocrity writ large.
I’m not by any means excusing the opportunism, laziness and complacency of higher education in this situation. Government involvement has wrought ennui upon the structure of education in general. Even for profits (Phoenix and Kaplan, for example) don’t produce superior products in any greater numbers than state run institutions, so privatizing is not the only answer. Part of the promise of higher education cannot be realized because the K-12 system is broken by federal meddling and union stasis, and partly because open enrollment means that anyone who can fog a mirror gets in. Universal access and tenure for both K-12 and higher ed faculty come at the cost of mediocrity.
The education bubble has several root causes, and it seems that the harder the government tries to push its idea of education, the farther we sink into hopeless mediocrity. Student debt is a symptom, not the disease. The federal government and their puppet masters in the unions are the tumors that need to be removed in order to cure the patient.
College Prof on December 5, 2011 at 10:33 AM
College Prof, I don’t disagree with your main point, but this:
Neglects to take into account that unless for-profit institutes produce a much lesser product, they are innately superior due to the dramatic difference in cost to the student.
RachDubya on December 5, 2011 at 1:08 PM
Are you defining superior as students incuring much greater debt that taxpayers may eventually be on the hook for? The retention rate in for-profits is lower than traditional institutions, even those offering online programs. For-profits don’t produce graduates as frequently as they produce partially college-educated debtors.
College Prof on December 5, 2011 at 1:52 PM
The notion of “for profit” versus “non-profit” is a silly one. “Non-profit” organizations just internalize revenue – whether “excess” revenue beyond basic operating expenses is used for more services or used to pay fat salaries to bureaucracy and management is up to the organization, and it’s clear that many “nonprofit” colleges have done the latter. Any organization (even government orgs) has to produce enough revenue to sustain itself; whether it’s a “for profit” or a “nonprofit” is just a question of accounting.
“Non-profit organization” does not equal “selfless servants of humanity”.
foobarista on December 7, 2011 at 1:57 PM