THE CHRONICLE OF HIGHER EDUCATION: For-Profit Colleges Fare Well in Report's Analysis of Costs to Students and Taxpayers

By Scott Carlson

Government should focus more energy on getting colleges to retain and graduate students, it should scrap its current methods for gathering data on colleges, and it should throw more support behind lower-cost, nontraditional colleges, like for-profit institutions.

These are just some of the conclusions of a report released today called "Who Wins? Who Pays? The Economic Returns and Costs of a Bachelor's Degree."

The report is based on a study that attempts to tally the costs of higher education to taxpayers, as well as the benefits in salary that students reap, from various kinds of educational institutions. It was written by Mark Schneider, the vice president of American Institutes for Research, and Jorge Klor de Alva, a former president of the University of Phoenix who is now president of the Nexus Research and Policy Center. Nexus, which "seeks to do research and promote policies that improve the proprietary education sector," is supported by the Apollo Group, which owns the University of Phoenix, and by the foundation of John G. Sperling, the university's founder. (The center has governance independent of its financial supporters.)

As the numbers are presented in the report, for-profit institutions come out looking like a very good investment—for taxpayers and students.

Within the first 10 years of completing their programs, graduates of for-profit institutions get wages that are comparable to or better than those earned by graduates of competitive and very competitive public and private colleges, the report says. Lifetime earnings don't compete as well, but are still comparable to those of graduates of noncompetitive or competitive private institutions.

Clearly, the authors say, college graduates, regardless of sector, are the winners referenced in the report's title.

As for who's paying for those degrees, the authors say that is a more complicated question.

To assess taxpayer costs, the researchers considered direct government support (such as Pell Grants), government subsidies (like state appropriations), foregone taxes through exemptions to public and not-for-profit institutions, and so on, and calculated the costs of a degree per full-time-equivalent student.

From these numbers, the report concludes that the annual net cost to taxpayers of a bachelor's degree per full-time-equivalent student is nearly $8,000 at a nonselective or less-selective public institution, and around $1,000 at a nonselective or less-selective private institution. For each student who attends a for-profit institution, however, taxpayers see a gain of nearly $800 annually, the report concludes.

"Strictly from a taxpayer perspective, for-profit institutions represent a better deal than tax-exempt not-for-profit or public institutions," it says.

In terms of lifetime costs to taxpayers versus taxes paid by graduates, the most competitive and least competitive public colleges came up as representing a net loss. For-profit colleges, however, yielded a net gain of about $60,000 per degree, while more competitive not-for-profit colleges yielded more.

The report also says that taxpayers are "investing far more for each bachelor's degree awarded by the most selective institutions than they are investing in educating students in less selective institutions."

"But even as taxpayers funnel more money to more selective institutions," the report says, "the number of students from low-income families who benefit from these higher subsidies declines."

Return on Investment
The authors acknowledge that with economic metrics as a frame, the study of costs and benefits is limited from the outset. For example, even a noncompetitive nonprofit institution can offer a rich civic and cultural education that for-profits tend not to offer and that may not be accounted for in terms of salaries and taxes.

Those are important issues, Mr. Klor de Alva said, "but that is for another report."

"Ultimately, so many parents and students say, 'I am going to college because I want a decent life, I want a job and a salary,'" said Mr. Schneider in an interview. "For taxpayers, that is also a fundamental thing: Is there a return on this large investment? That is what we are concentrating on."

The report provoked a range of responses from higher-education observers. David A. Longanecker, president of the Western Interstate Commission for Higher Education, who reviewed a draft of the report, said that Mr. Klor de Alva and Mr. Schneider made an "honest effort" that used the best data available. "They came at this with a perspective, no doubt about it, but the perspective defined the question rather than the research," he said.

Dennis P. Jones, president of the National Center for Higher Education Management Systems, who had also reviewed a draft, said that the study was "well done," but that the authors "reach to make a point" in places. For example, he took issue with the use of foregone taxes, a major part of calculating costs, which he said was speculative.

He also criticized the authors for "their real inability to recognize either graduate students or research functions in the upper echelons of institutions," which he said leads to overstating the costs of higher education to taxpayers.

"As soon as you start talking about institutions that have much broader missions than undergraduate education, the public support is much harder to sort out, and I don't think they have resolved that by any means," he said.

That point was echoed more harshly by Richard Ekman, president of the Council of Independent Colleges. "It has the trappings of a scholarly analysis, but in many ways it is asking the wrong questions," he said.

He pointed to studies that show that traditional liberal-arts colleges educate a large chunk of underprivileged and first-generation students, but without the high loan-default and dropout rates that have dogged the for-profit sector. The report's authors avoid addressing those problems, he said.

Mr. Ekman was also perturbed by what he thought the report implied about investment in public institutions. "Are they proposing that we close public universities? That the only thing of value here is getting people through the system?" he said. "Surely society has a stake in the very highest quality research universities, so it's no surprise that governments would want to invest in them."

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