America Lags in Private Higher Education

By Richard Vedder

I learn from INSIDE HIGHER ED (by way of Whiz Kid Jim Coleman) that a majority of the college students in Japan are enrolled in private institutions, and private enrollments are soaring in Latin America, Asia, and even pars of Africa. While many of the students attend "traditional" not-for-profit schools, the for profit sector is booming. Every time I talk to people in Randy Best's higher education shop, it seems that at least one of the principals is in South America working on some deal.

I am reminded of a friend of mine who started a for-profit university in Peru, and named it Saint Ignatius of Loyola University, got huge enrollments, and made lots of money. Carlos (my friend) was sued by the Catholic Church for misuse of the name, but it was determined that the church had no trademark on the name, and besides, the good saint has been dead for zillions of years. But his name made some money for Carlos (former Finance Minister of Peru).

The irony of it is that barriers to entry into this form of education are probably greater in the U.S. than in nominally Communist China, and certainly greater than in several Latin American countries. We are a nation known as the bastion of free enterprise, the leading nation in the world for demonstrating the powers that a rule of law, private property rights, and free markets can have in providing material success. Despite many rules and regulations, private for profit higher education is doing well in the U.S. But as governments strain to meet the obligations of a aging population and the national security imperatives in a world of wacko terrorists, perhaps it is time to unleash the powers of capitalism in higher education to a greater extent, with the for profits picking up more of the business of educating our youth beyond the secondary level.

Operationally, this means state governments gradually retreat from the business of subsidizing universities, and those universities convert to private status on a not-for-profit or, better yet, for profit basis. The faculty will scream, the employee unions will yell, the students will initially complain. But state governments could term financial liabilities into assets by selling schools. The teaching and research functions could be separated into two entities. Students would go to a for profit University of Michigan, and faculty could work part time at a subsidized University of Michigan Research Institute that would be separate. The taxpayers of Michigan could receive probably $3 billion for the University of Michigan name, which could be added to the existing endowment and used exclusively for scholarships for Michigan students, providing perhaps an average $8,000 in assistance for 50,000 students attending the U of M in Ann Arbor and beyond. Low income kids could attend for nearly nothing. Crazy? Most great innovations are viewed as "off the wall" at first. They could even privatize the sports programs, making them transparently the semi-pro operations that they are now in all but name.