The for-profit trade-school industry is booming, but this growth has not been earned by free-market means. The giants of for-profit education have grown fat on a steady diet of government credit, ultimately hurting students. FULL ARTICLE by Aaron Smith
Source link: http://archive.mises.org/12506/the-bubble-in-for-profit-schooling/
The Bubble in For-Profit Schooling
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I started teaching economics recently at one of these for-profit schools: ITT Tech. The material is excellent and equal to anything I have seen at state schools. The problem is with the students. As our director told us, the top third of high school grads go on to the best state schools; the middle third go to community colleges, and the bottom third go to private schools such as Phoenix and ITT. Our students could not get into the upper schools, and if they did they would fail. But these students desperately want a college degree; society tells them they are nothing without one. They can’t even apply for most jobs without some kind of degree. And the Feds are willing to loan them the money.
However, some of these students may just need a second chance. They tend to be older than students at state schools because they worked for up to a decade. The average age is about 26. So maybe these students have learned something about study, work and the value of education. The for-profit schools are organized around the working adult, so it’s much easier to hold a job and get a degree. Yes, the success rate is low, but some students do succeed. They regret their failure in high school and these schools are the only second chances that these people have.
I agree completely that we should get rid of student loans. The system is corrupt and harmful to students and tax payers. Also, we should privatize all college education. There is no reason whatsoever for the state to run colleges. If they want to subsidize education, provide vouchers.
Are vouchers an alternative?
I’m not advocating vouchers. I don’t think the state should pay for anyon’s education. All I’m saying is that if the state is going to subsidize education vouchers are a better way to do it, especially for college. As for the first ammendment argument, do those who give to their local church out of their social security check violate it? The greater harm is done in the forced redistribution of wealth, not in what the receivers of that distribution do with it.
What about tax credits to help people fund their education?
If people are paying taxes, then it is not a subsidy because you’re getting your money back. If someone doesn’t pay taxes, then it would be a subsidy and not a true tax credit.
People get tax refunds who don’t pay income tax, and these are called “tax credits” yet they are functionally “subsidies.”
This is my understanding of subsidies versus tax credits. Any help or clarification would be welcomed.
You’ll never hear me argue that any decrease in taxes is bad (I don’t care what the means are). A “tax credit” may, however, lead to poor financial decisions. Would I have purchased a new home if it weren’t for the new homebuyer’s tax credit? The same would go for an educational “tax credit”; it seems to create false demand in the same fashion artificially cheap credit does.
Am I off base?
Not at all. Tax credits for specific activities do create incentives to overconsume in that arena. We have been conditioned to think that a tax deduction results in savings when in reality, it’s paying far more than what is actually being saved. $1,000 in deductions for someone at the 15% tax bracket only saves $150, but the taxpayer is still out $850 that would have otherwise not been spent had the illusion of the tax savings not been in place.
“I agree completely that we should get rid of student loans. The system is corrupt and harmful to students and tax payers.”
I agree that government should provide more funding to universities and students. but student loan is still helpful to many students who need help to pay for their college education. Also public college education works well in many countries, why not in the state?
Look at the Study Abroad Industry here in the US to get an idea where some of this money is going. US Study Abroad providers charge up to 50% or more than what it would cost if a student registered directly with an overseas university and residence hall. Most US universities study abroad offices then receive a paltry “administration fee”, or should I say kickback, for each student that they refer to the affiliated study abroad provider. This system assures that the US student will have his overseas academic credits transferred, but should a system so corrupt be funded by student loans?
Very solid article. Most graduates of public high schools are completely unprepared to become productive members of society. After a few years of rolling around the bottom of the economic ladder, many realize a degree is necessary to advance. These private schools help those people. However, as with so much else in life, the Feds manage to distort – and thus destroy – this market. A shame.
I digress with a typical story: I ordered a breakfast sandwich at a fast food place this morning. (I didn’t have time to make a proper breakfast at home.) The total was $2.58. I gave the gal $3.08, because I am collecting quarters for the meters downtown. The look of sheer terror on her face spoke volumes about our beloved publik skools. Finally, after re-ringing the transaction so the register would spit out the correct change amount, she handed me two quarters. I then noticed her badge. In block letters it said MANAGER. The future is bright indeed.
Perhaps she was confused by the true value of the .08 cents and was trying to calculate its melt value in order to provide you accurate change? Or not.
The article would be more compelling if written by someone not up to their elbows in the only completely socialist institution in the US – public schools. The poor souls at these institution feel so inadequate they use government to force people to use their “service” and then use government to force people to pay for it whether they like it or not! At best students exit this system with a highly cynical attitude regarding government schools, at worst they end up like the fast food employee described by HL.
Obviously government loans distort the economics of any industry they touch and should be eliminated. But the “for-profit” schools benefiting from this subsidy do not use govt. to force attendance nor to force payment. And to that extent they are responding to the market. A far cry from the insidious nature of public K-12 where lotteries are sometimes used to ration enrollment at the marginally better public schools. I agree with fundamentalist, the “for-profits” offer a second chance for students who were educationally abandoned by publik schools.
I am currently working towards my doctorate in management at a CEC-owned School (Colorado Technical University, CEC’s only fully-accredited school), and the dropout rate is very high. While the level of effort required for the work is very high and no different than a public university, many students cannot complete/comprehend the work.
What the school does, as part of its business model, is implment lower admissions standards in order to pad the bottom line. So, they get 2x as many students as they would with higher standards, and half as many finish. Those that would have been able to finish at a public university do end up graduating.
They also take advantage of federal aid programs, and are heavily-dependant on GI Bill benefits. My GI Bill Benefits pay for 100% of my degree (about $18,000 a year for 3 yrs).
I think that these schools would still be around if it weren’t for the federal aid, but their enrollment would be reduced. I think that they would still be around because they offer a flexibility in class schedules that public colleges do not.
The government is forcing the misallocation of capital to subsidize students to obtain college degrees. Since the government is not raising taxes to actually pay for this, but instead borrowing the money, we will be paying for someone else’s degree for many years. No one has pointed out that there are millions of Americans with college degrees who do not have a job. It is analogous to subsidizing builders to construct more houses with the current glut of homes on the market.
“In essence, FFA allows for-profit schools to increase their prices significantly above what they would be in a true market.”
does anything prevent for-profit schools to increase their prices in your true-market SCENARIO???
could ffa provide the so-called for-profit school to develop infrastructure to reduce tuitions??? greater non-commuter class acess reducing travel and parking fees?? aloowing moms to cook, feed a child while sitting back down at a laptop resource??? could ffa dollars provide that???
BTW, the textbook for the micro class has been a pleasant surprise. It touches on macro several times and is very close to Austrian econ in approach. It makes it easy to slip in the Austrian business cycle frequently.
It’s my perception that the effect of federal financial aid on tuition prices is not restricted to for-profit schools. For years financial columnists and others have lamented the rate of price increase in tuition compared to the general rate of ‘inflation.’ Their advice to students/parents is to seek more financal aid to keep up. Publicly subsidized schools price their tuition based on market forces, just like for-profit schools.
is there a distinction between a govt service and something that is subsidized?
police are a govt service, primary and secondary schools are a govt service…yet amtrak can get a subsidy? to keep it ‘open’ rather than amtrak just being a service like an interstate hwy.
“is there a distinction between a govt service and something that is subsidized?”
not really once something get a subsidy it becomes controlled by government
“police are a govt service, primary and secondary schools are a govt service…yet amtrak can get a subsidy? to keep it ‘open’ rather than amtrak just being a service like an interstate hwy.”
amtrak gets subsidized because its a government owned corporation when it took federal loans and federal aid in its beginning in 1971
All of Amtrak’s preferred stock is owned by the U.S. federal government. The members of its board of directors are appointed by the President of the United States and are subject to confirmation by the United States Senate. Common stock was issued in 1971 to railroads that contributed capital and equipment; these shares convey almost no benefits but their current holders declined a 2002 buy-out offer by Amtrak
thus showing there is no difference between something that is subsidized and a govt service
ok, thanks. i wasnt sure about amtrak.
it still seems different to me however.
many private road constructon comapnies get contracts to build the roads but not own the roads form govt but is that a subsidy??
state universities are owned by the govt and are funded via taxation and tuition???
many parks are govt owned and are maintained via taxation but also have entrance fees???
and famr subsidies i am not sure how they differ. i guess a farm owner could still go belly up with a subsidy of some sort but a state university may be in a differnt position economically.
“Tax credits for specific activities do create incentives to overconsume….”
is that possible. is the tax credit just less income taken or is it returning more than what was actually taxed???
wouldnt that likely create a better chance to fulfill a desire (via a purchase) rather than a so-called overconsumption??
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