Thursday, 16 August 2012

Education and profits: a troubled relationship

By Carlos Fortin

As I left Chile for the UK last month, an intense public debate was taking place on the issue of profit in higher education. Mass student demonstrations were demanding the banning of universities run for profit.

The issue has a specific connotation in the Chilean context. Chilean law already forbids profit in higher education; any surpluses generated by the operation of universities must be reinvested. However, many private universities have circumvented this through creating separate companies that own the buildings and facilities and rent them to the university; profits are then transferred to the linked company through the leasing arrangements. Universities also outsource services such as computing, transport and security to firms controlled by the owners of the university. The students are demanding an end to these legal subterfuges.

But the debate is more general. It has to do with whether the profit motive is acceptable at all in the field of university education. Some defenders of the neoliberal economic model in place in Chile are arguing that, far from closing the legal loopholes, what should be done is to authorise explicitly the existence of for-profit universities. They maintain that the ban runs contrary to the principles of freedom of education and freedom of enterprise. Furthermore, they point out that it has been the possibility for universities to operate with commercial criteria, including outsourcing, which has led to a spectacular growth in their numbers; from fewer than ten in the 1970s to nearly 60 today, thus opening up higher educational opportunities for large sections of the youth previously unable to attend university.

The counter argument is that the mission of universities is educational and formative, and their goal is academic excellence as distinct from money making. If commercial interests are allowed to intervene, they are likely to end up dominating decisions with the consequent erosion of academic quality. This is particularly likely if, as is the case in Chile, some of the universities have been purchased and are run by international investment firms attracted by the country’s large academic market which has a yearly turnover of about $2 billion, realising profits that could reach 18 or 20 per cent.

There is some evidence for the proposition that universities run for profit in Chile have lower academic standards, even to the point of their graduates finding it difficult to have their qualifications recognised in the labour market. The evidence is, however, essentially anecdotal. By contrast a recent report by the Health, Education, Labor and Pensions Committee of the United States Senate provides harder proof of the shortcomings of the for-profit system in the US.

The Committee carried out an in-depth investigation of 30 for-profit colleges and found that there were significant problems in the way of substandard academic offerings, high tuition and executive compensation, low student retention rates and the issuance of credentials of questionable value; and that they are related to the for-profit status. Specifically:
  • large numbers of students at for-profits colleges fail to earn credentials - 64 per cent dropout rate in associate degree programmes - and this is linked to the small amount of money those colleges spend in teaching;
  • for-profits colleges devote substantial resources to non-education related spending, in particular marketing and dividend distribution. In 2009, the examined companies spent $4.1 billion or 22.4 per cent of all revenue on marketing, advertising, recruiting and admissions staffing. Profit distributions accounted for $3.6 billion or 19.4 per cent of revenue. In contrast, the companies spent $3.2 billion or 17.7 per cent on teaching;
  • particularly bad is the performance of publicly traded chains and colleges owned by private equity companies, which accounted for 76 per cent of the sector’s enrolment in 2009, because investors in those colleges often seek quick returns. Tuition increases are often implemented to satisfy company profit goals, and internal discussions among for-profit executives regarding tuition often revolve around how best to justify tuition increases.
The report concludes that, unless there are significant reforms, the sector will continue to turn out hundreds of students with debt but with no degree or a nearly worthless degree. It gives strong ammunition to those of us who feel that when it comes to profits and higher education – with apologies to Kipling - never the twain shall meet.

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