Technology Disrupts Higher Education for Better, for Worse and for Profit

Should educational institutions be able to financially profit from their students?

Technology has opened a can of worms that has most of higher education discussing massive open online courses (MOOCs), distance learning and other types of web-based education. As we’ve discussed many times on this site, greater access to higher education is largely perceived as a positive thing, but it does create a series of questions that do not yet have answers.

One of the questions focuses on for-profit education. The Internet has made it extremely easy to deliver education to anyone with a connection. Like many other industries, the impact of the Internet is both good and bad: On one hand, it creates endless opportunities for innovation. On the other hand, it challenges the traditional way of doing just about everything. The establishment is poised for change, but the path has yet to be determined.

Why For-Profit Education Benefits Students

For-profit education is controversial. Can a business be trusted to deliver quality education without putting profits first? According to educator, political scientist and author Frederick M. Hess, for-profit colleges have a greater incentive to be innovative, and students are the benefactors of this approach:

The watchful eye of investors can lend for-profits a healthy discipline. The prospect of returns means that promising profit-seeking ventures can offer employees lucrative long-term opportunities and can tap vast sums through the private-equity markets. For-profits have a relentless, selfish imperative to seek out and adopt cost efficiencies.

Nonprofits, by contrast, have little incentive to become "early adopters" of cost-saving tools and techniques such as online instruction. Such shifts upset relationships with vendors and routines for staff. Even enormously successful nonprofits such as Teach for America and the KIPP charter-school network tend to grow far more slowly and show much less interest in squeezing their cost structures than comparable for-profit ventures.

Read The irrational fear of for-profit education on American Enterprise Institute.

To make this model successful, degrees earned online need to earn respect from employers. If employers don’t hire the graduates of for-profit colleges, students won’t apply and the for-profit colleges fail. These colleges have plenty of motivation to make sure students are happy before and after they graduate.

Why Nonprofit Education Benefits Students

Both for-profit and not-for-profit colleges generate revenue. By definition, for-profit schools make a profit, as much as 19.7 percent on average, according to a report from the Government Printing Office. Those funds are often invested in the business, allowing for-profit schools to scale quickly with less incentive to use the funds to create a better learning experience. Some people, such as Senator Tom Harkin, believe that the for-profit model cannot work:

Harkin thinks this is a problem. For-profit companies are ultimately accountable to shareholders and investors. To stay in business, they must produce returns. Harkin's investigation found that publicly traded companies operating for-profit colleges had an average profit margin of 19.7 percent. In 2009, the Apollo Group -- the company that owns University of Phoenix -- allocated 27 percent of its revenue to profit, according to Harkin's investigation.

It’s been reported that for-profit colleges also engage in marketing techniques that don’t focus on the best outcomes for students, precisely because profits are at stake:

Another concern is how enrollment advisers were managed and paid. The [Senate’s] HELP committee found that in order to achieve company enrollment goals, recruiting managers at some companies "created a boiler-room atmosphere, in which hitting an enrollment quota was recruiters' highest priority. Recruiters who failed to bring in enough students were put through disciplinary processes and sometimes terminated."

Some companies paid recruiters based on how many students they enrolled.

Read The Case Against For-Profit Colleges and Universities on American Public Media.

The implications are clear, but the subject remains hazy for most Americans. Traditional higher education is expensive and ripe for change. But is this change best for students? Let us know your thoughts in the Comments section below.