JLF Triangle Blog

How Government Subsidies Impact Higher Education

For-profit colleges have been the subject of much criticism recently. The charge is that these colleges dupe students into taking all sorts of federal subsidies and then provide a sub-par education and leave the student with massive debt while the college pockets a bunch of cash, thanks to the federal taxpayer.

George Leef of the Pope Center for Higher Education writes an enlightening piece about U.S. Sen. Tom Harkin’s investigation into this issue. According to Leef, there are indeed cases where this has occurred and they are documented in Harkin’s committee report. Leef points out, however, that the same scenario occurs at nonprofit institutions. Why? Because where there are government subsidies to be had, there will be institutions that find ways to cash in to the maximum degree possible. So why no outrage over the nonprofits too? Here’s Leef’s analysis:

 

Harkin’s report also helps to confirm the Bennett hypothesis–although that certainly was not its intention. The investigation revealed that some of the for-profits set their tuition at exactly the amount of the federal grants and loans the students are entitled to and raise it when more government money becomes available. The schools are obviously gaming the system to extract the maximum revenue.

There is a glaring imbalance in the report, however. It analyzed the infamous trio (i.e., waste, fraud, and abuse) solely in the for-profit sector, when non-profit higher education is saturated with them too. Non-profit colleges and universities also recruit students who have doubtful academic ability and motivation, with the idea that good careers await them if they get a degree. They try to fill up their coffers with as much government grant and aid money as possible and many have very low graduation rates–exactly the charges Harkin makes against for-profit schools.

Perhaps Senator Harkin only looked into the for-profit sector because he has been misled by the common perception that if a college (or other kind of organization) is officially “non-profit” it must be on the side of the angels.  Oklahoma State professor Vance Fried debunked that idea in a paper showing that non-profit colleges actually earn profits, but they’re consumed by lots of unnecessary spending. 

Both for-profit and non-profit higher education have a disease, a disease with the same cause: government subsidies. The senator believes that federal student aid is needed for our national “investment” in education, but he ignores the fact that government investments of all kinds, including non-profit college education, usually turn out to have high cost to benefit ratios.

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