Just how deep does the Obama administration’s hostility run towards profits and private businesses?
Policy attacks have been launched against the health care industry, assorted financial businesses, and energy companies. With massive tax increases on personal income, capital gains, dividends and estates scheduled for the end of this year, entrepreneurs and investors across countless industries also are in the sights of the Obama White House. And the president has done nothing to reduce trade barriers for U.S. businesses operating in the international marketplace.
But given President Obama’s brief voting record in the U.S. Senate and declarations on the campaign trail, none of this should be surprising. But the degree of enmity towards the private sector might be most glaringly illustrated by the administration’s targeting of private, for-profit colleges.
The U.S. Department of Education has proposed new regulations on private colleges. Some of those regulations were finalized on Oct. 28, and are set to take effect in July 2011. Unfortunately, the department’s changes on how recruiters can be paid leaves the industry with considerable uncertainty. And why the federal government is dictating how recruiters get paid at private colleges remains a mystery. Hammering out the real-world details of these new pay rules will probably involve dollars and other resources being wasted in the courts.
However, the most controversial proposal was pushed off until next year. These “gainful employment” regulations would cut off federal student aid for programs with poor student-loan repayment rates and high student debt-to-income levels.
Make no mistake, the spark for these new rules and regulations come from the administration and various congressional leaders, such as Sen. Tom Harkin, D-Iowa, who is the chairman of the Health, Education, Labor and Pensions Committee, being focused on for-profit institutions of higher learning. Harkin has called for legislation directed at for-profit institutions.
In September, Education Secretary Arne Duncan said, “Let me be clear, we’re moving forward on gainful employment regulations. While a majority of career colleges play a vital role in training our workforce to be globally competitive, some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.”
On Oct. 28, InsideHigherEd.com reported, “More than ever before, the department emphasized in a statement released to reporters late Wednesday that for-profit higher education was its target… While the department has in the past framed the rules as designed to protect the integrity of the Title IV program, the statement cites the for-profit sector’s ‘rapid growth of enrollment, debt load, and default rates’ as having ‘prompted’ the public hearings in the summer of 2009…”
Hmm, is all of this really a unique phenomenon of for-profit colleges? At a hearing in August, Republican Wyoming Sen. Mike Enzi brought up a seemingly reasonable point: “In focusing only on for-profits, we are not being objective and we are ignoring the bigger picture of what is happening across all of higher education.”
And if this is a case of a few bad actors or particular instances, why impose more regulatory costs across the board? Wouldn’t basic increased transparency and information requirements suffice?
It’s also important to clarify key points and comparisons regarding for-profit education. The Association of Private Sector Colleges and Universities, for example, raises some important points. For example, working career college students 25 years and older earn on average 24 percent more than high school graduates.
In terms of taxpayer and total costs, the association points out: “Taxpayer subsidies for traditional colleges and universities constitute far higher levels of support. For public colleges and universities, the difference in subsidy is over 13 to one ($13,920 vs. $1,011). For private non-profit colleges and universities, the difference is seven to one ($7,546 vs. $1,011). If the public subsidy is added to the average tuition of the public college to determine what the true price of providing the education would be, it becomes clear that public colleges and private sector colleges are relatively close in pricing, while private non-profit colleges and universities are much more expensive.”
In fact, private sector colleges and universities (PSCU) rank as the most affordable when compared to private, non-profit institutions, four-year public entities, and community colleges.
For good measure, private sector colleges have an average graduation rate that is three times higher than community colleges.
In addition, when talking default rates on student loans, it must be recognized that a large chunk — about one-third — of students in these private, for-profit colleges are from low-income families. Community college students, who are comparable in terms of income levels, have similar default rates. But even with higher rates of default, the association notes, “Adding the taxpayer subsidy ($1,011) of PSCU students to the average cost per student default ($3,194) is still much less ($4,205) than the taxpayer subsidy of traditional college and universities ($13,920).”
Taxpayers would be far better off if the federal government was not in the business of subsidizing higher education. But given the reality at hand, private, for-profit colleges not only serve an important part of the education marketplace and boost the earning power of graduates, but rank as bargains for the taxpayers.
So, what’s the Obama White House’s beef with private, for-profit colleges — other than that they are for-profit and private?
Keating, chief economist for the Small Business & Entrepreneurship Council, can be reached at email@example.com.