For Whom the Pell Tolls

By Richard Vedder

Doug Lederman had a very well written article for INSIDE HIGHER ED last week on Pell Grants, starting with the interesting observation that the top 10 institutions in terms of Pell Grant recipients are mostly for profit schools.

Some seem to be horrified by this. Sandy Baum, who is the Higher Education Establishment's favorite economist, worries about the high debt carried by students at for profits. Debts are higher because these institutions do not get the government subsidies that community colleges and four year universities do and thus charge higher tuition. She does not seem to rejoice in that the total cost to society of educating a student at one of these institutions is typically LOWER than at traditional schools, in keeping with the "taxpayer be damned" attitude of most university administrators. Worries are expressed at how the for profits work hard to assure that their applicants get federal financial aid --much more so than the not-for-profits. As Don Heller at Penn State notes, the for profits should be praised for this, and traditional universities should learn from the for profit model.

Basically, the problem is the traditional schools have largely ignored the poor. They are more expensive to teach (e.g., need more remedial training), tend to drop out more, hurting college rankings, and want to take courses when the faculty want to be playing golf, reading books, watching PBS, or otherwise amusing themselves (evenings and weekends). The for profits are consumer oriented, the not for profits are not.

The for profits thus are rapidly gaining market share --reaching out to those who want training, servicing the first generation college students, etc. They often teach intellectually lowbrow vocational stuff like hair styling or truck driving, and often give certificates instead of diplomas. But apparently their students get jobs. They are serving a need, and their enrollment growth relative to traditional schools suggests that they are relatively popular. The not-for-profits have only themselves to blame for their disdain and neglect of this segment of the population.

The dilemma for the Obama Administration is this. The president is a socialist who despairs at capitalist involvement in many things, including education (for example, in his efforts to remove private firms from the subsidized student lending program). He views high profits as something obscene, and not serving a public purpose. Yet he also wants to target more assistance and get more attendance from the very segment of the population that is been aggressively served by the for profits. If the Obama Administraiton cracks down on the for profits on ideological grounds, it jeopardize its goals of increasing low income participation in higher education.

I suspect the real battle between the not-for-profits and the for-profits will accelerate when the latter companies increasingly target traditional age students and when, perhaps, they start offering more up scale settings for middle class students -- Yuppie U. As the 19 to 24 year old population shrinks, the introduction of new competition from the for profits will be too much for many of them to take, and I suspect that they will try to restrict federal lending to students at these institutions, use accreditation to restrict entry, etc. It is my hope that they lose this battle, since the for profits are modestly but importantly forcing the traditional schools to be a little less inefficient and indifferent to the needs of the public. Stay tuned.