Are taxpayers really getting soaked by for-profit colleges?

Mike Riggs Contributor
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Things aren’t getting any easier for the Education Department. In response to objections from House and Senate Democrats and Republicans, Secretary Arne Duncan hinted last week that he would hold off on implementing new regulations aimed at restricting student loans to for-profit colleges. A new report by former Democratic strategist and economist Robert Shapiro will make moving forward on said regulations that much more difficult.

In a report titled “The Public Costs of Higher Education: A Comparison of Public, Private Not-for-Profit, And Private For-Profit Institutions,” Shapiro makes the case that for-profit colleges such as University of Phoenix Online and Kaplan don’t receive nearly as much in federal subsidies as nonprofit private colleges and public universities.

“There has been criticism recently of for-profit institutions getting a disproportionate amount of government support,” Shapiro told The Daily Caller. “But it’s clear that on a nationwide level for-profit four-year institutions receive one-third as much government support as private four-year non-profits, and only 15% of the support given to four-year public universities.”

At first glance, Shapiro’s findings seem to contradict the Education Department’s published statements, in which officials point often to the fact that some for-profit colleges derive as much as 90% of their revenue from federally administered and backed student loans.

And in fact, for-profits don’t measure nearly as well against two-year nonprofit and public institutions in terms of cost — though Shapiro claims that for-profits are still cheaper, and also that they have higher graduation rates than two-year nonprofit and public institutions.

But using publicly available data, Shapiro determined that nonprofit and public institutions — both two-year and four-year — receive far more funding in the form of government grants, state-funded scholarships, and tax subsidies.

Shapiro’s report breaks government aid into two groups: Direct support and indirect support. Direct support, of which for-profit colleges receive little, includes “federal grants, appropriations and contracts to the institution, state [and] local grants, appropriations to the institution, [and] tax liabilities.”

Indirect support is where most for-profits clean up, and includes “federal grants to students (for example, Pell grants) [and] interest subsidies for federal loans (Stafford subsidized and unsubsidized).”

While most for-profits typically receive little or no direct support, many — if not all for-profit schools — receive quite a bit of cash through federal student loans. Incidentally, direct support is the very subject of the Education Department’s stalled “Gainful Employment” policies.

While Shapiro’s study is not inherently political, the former Clinton advisor had a few choice words for interest groups looking to impose restrictions on for-profit colleges.

When asked about the high default and dropout rates seen in the for-profit industry, Shapiro charged that many public institutions fared no better under scrutiny.

“There are some public institutions that are rip-offs. There are rip-offs in every sector. There are community colleges that offer disgraceful educations, or lack of educations. The graduation rates for public and nonprofit two-year universities is comparatively worse than their for-profit counterparts,” he said.

NEXT: Shapiro defends higher default rates among borrowers who attend for-profit colleges.
Likewise, Shapiro defended higher default rates among borrowers who attend for-profit colleges.

“They’re working people. They’re more likely to come from a lower income household. The institutions don’t have private endowments and can’t provide grants,” Shapiro said. “Maybe [for-profit schools] should be criticized for that. But if you’re going to criticize the for-profit institutions for relatively low graduation rates at the four-year level, you have to criticize the two-year and four-year nonprofit schools with comparable problems.”

While he didn’t go so far as to advocate for or against the Education Department’s pending “gainful employment” rules, Shapiro thinks a more market-oriented solution very well may present itself in the near future.

“Frankly, if there’s something wrong with the graduation rates at private for-profit institutions, there will be a market response. These institutions will get fewer students until they can raise those rates. People go to the places to get certified with skills necessary for a particular profession. If the data begins to show that certain for-profits aren’t a great way to get that, students will go elsewhere,” he said.

Shapiro also rejected an idea gaining traction among educators and economists alike — that the student loan industry is a bubble in the making.

“As an economist, I just don’t see that. Is there the prospect for large losses to the taxpayers from student loans? Well, we have some losses…there are some defaults, but we get so much greater benefit as a society by educating students,” Shapiro said. “People who talk about this as a bubble don’t understand bubbles. Bubbles are based on speculation and rising prices. And we’re very close to a [price] ceiling, where the cost begins to cut into demand. As it does, prices adjust.”

The Education Department could not be reached for comment.