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Neoliberalism and Higher Education Finance: The For-Profit Case Study


Luke Herrine (@LDHerrine) is Assistant Professor of Law at the University of Alabama and a former Managing Editor of the LPE Blog.

Betsy Devos’s Department of Education spent the summer finalizing its plans to defang Obama-era regulations strengthening consumer protection regulations of for-profit colleges. Undoing these regulations will keep federal funds flowing to companies that line investors’ pockets by imposing a lifetime of indebtedness onto working-class individuals under false pretenses. The ongoing challenges to their delay and repeal (one of which just won in district court!) are thus crucial.Image result for college

But that does not mean that we should celebrate the regulations themselves as victories for progressivism. They are a prime example of the limits that neoliberalism has imposed upon the progressive imagination. From a law and political economy perspective, it is clear that for-profit colleges have become a wealth extraction strategy in which financiers create a revenue stream by using the societal promise of class mobility as a lure to lead structurally disadvantaged individuals into unpayable debt. Shifting from a neoliberal to an LPE lens makes it clear that eliminating for-profit colleges is the first step to a truly progressive vision for the role of higher education in society.

I. For-Profits as Consumer Protection Problem

There is no question that many for-profit colleges engage in practices prohibited by consumer protection law. The general for-profit college business model, to quote an ITT Tech report to investors, is “to increase student enrollment without incurring a proportionate increase in fixed costs,” i.e. the cost of education facilities, faculty, student support, and the like. Students represent access to federal student loans and grants, to which for-profits have been entitled since the 1972 amendments to the Higher Education Act. Each student could bring in hundreds of thousands of dollars in revenue, and for-profit colleges make an average of 98% of their revenue from tuition.

But how to attract students when for-profits when seventy percent of the unprecedented rise in student loan defaults over the past decade can be attributed to former for-profit college students and these students tend to do worse on the job market than they had before enrolling?

Deception. Most for-profit colleges’ “admissions” departments are run like call centers, with quotas and incentive payments. Sales pitches frequently involve fudges and lies. Financial aid “advising” usually consists of downplaying and obfuscating the cost of attendance and the implications of taking out tens of thousands of dollars in loans. Classes sometimes consist of little more than watching YouTube videos. “Job counseling” rarely goes beyond sending links to Craigslist and I could go on.

It should be no surprise, then, that lawsuits againt for-profit colleges abound. Although Obama’s Department of Education long resisted admitting to funding consumer fraud, after sustained pressure from organized for-profit college student debtors (full disclosure again: I helped to organize those debtors), from non-profits, and from its own sister agencies, it eventually acknowledged that there were some “bad apples,” passed the aforementioned regulations, and began to discharge a small portion of federal student loans that paid for sham educations.

For the Obama Administration and for many progressive advocates, shutting down the bad apples would have been good enough. In fact, Ben Miller from the Center for American Progress has argued that properly regulated for-profit colleges should play an role in the higher education landscape by providing a vocation-focused and flexibly scheduled education not available elsewhere.

But even had those regulations gone into effect, mere consumer protection is not up to the task of taming for-profits. It fails to account for the political dynamics of regulation and the structural forces that for-profit colleges take advantage of. Without addressing these deeper problems, policymakers are just playing whack-a-mole.

II. For-Profit Colleges as a Corruption Problem

The first problem is corruption. For-profit colleges, which make most of their money from federal funding, plow millions of those dollars back into buying the favor of the politicians and administrators in charge of disbursing federal funds. And the revolving door spins freely. Betsy DeVos hired for-profit lobbyists to staff her higher education division. Members of Obama’s and Bush’s Departments of Education cashed in on their influence immediately after leaving office. Etc.

Corruption has managed to limit or eliminate not just the Obama Administration’s attempts at regulation (which were themselves resisted from within), but all previous efforts as well. It has become a ritual for one or another part of the federal government to release an investigation revealing massive wrongdoing in the industry every half decade or so since they first began receiving federal funding. Bob Shireman, who has seen this dynamic up close for many years, has concluded that for-profit college regulation takes place in a cycle: scandal, regulate, forget, repeat.

So even if one’s goal were just to keep for-profit colleges small and compliant, consumer protection regulations have proven to be inadequate. They do not address the structural dynamic in which the Department of Education provides the money and the personnel to for-profit college lobbyists.

III. For-Profit Colleges as a Privatization Problem

But why restrict oneself to the goal of weeding out the worst for-profits? What benefit do the relatively good for-profit colleges provide that justifies their expense?

For-profits tend to target “non-traditional” college students: low-income, struggling to find stable work that pays, from communities with little experience with higher education, disproportionately people of color. One common argument is that for-profits can, if properly regulated, create innovations that make education more accessible to those who have been excluded from higher education where other institutions would put up too much red tape.

But for-profit colleges have had many years to come up with such an innovation to no avail. At their best—that is, when they are not engaged in systemic fraud—for-profit colleges perform about on a par with conventional old community colleges. And community colleges consistently offer similar programs at small fractions of the cost.

No question, community colleges often have intimidating waiting lists, unintuitive applications processes, and inadequate support for students that have been subject to the failings of a segregated and unequal K-12 system. For-profits take advantage of this fact: they can direct their resources towards making applying easy and attractive rather than education. But the failures of community colleges are not due to some inherent flaw in their institutional structure—they are the result of budget cuts.

In other words, the success of for-profit colleges cannot be disentangled from the defunding and underfunding of public colleges. The sociologist Tressie McMillan Cottom usefully proposes we think of for-profit colleges a “negative social insurance program”. “Unlike actual social insurance programs”, she explains, negative social insurance “doesn’t actually make us more secure. It only makes our collective insecurity profitable.”

IV. For-Profit Colleges as a Problem of Power

Let us take another step back. Progressives and centrists in the grips of neoliberalism think of the vocational training that for-profits claim to and community colleges actually do provide as egalitarian social policy because it provides the skills necessary for social mobility. But the empirical basis for this syllogism is increasingly untenable. Evidence is piling up that a much more likely culprit for rising inequality is that which heterodox observers have long pointed towards: the increased power of capital relative to labor. Offshoring, financialization, investment in labor-reducing technologies, resegregation of schools and neighborhoods, deunionization, the evisceration of antitrust and other radical capitalist strategies have allowed owners of big firms to maintain profitability without needing to compete with each other for workers. That allows them to pay workers less and to demand more of them.

The focus on education as a driver of egalitarianism is in fact perverse. One symptom of this shift in power has been that employers can now requires that their employees have more experience and more education. Whereas many companies used to train their employees on the job, increasingly one needs a bachelor’s or even a master’s degree to even be considered for an entry-level position. As economist Marshall Steinbaum argues, this is effectively a transfer of “the costs of job training to the workforce, imposing a de facto wage reduction.” These shifts harm all except the wealthiest, and they make racial, gender, disability, and other identity-based labor market inequalities all the deeper because an educational credential is often a way for members of a disadvantaged group to attempt to guard against discrimination on the job market.

Taking into account this broader shift in power makes it clear that looking to any colleges—for-profit, community, or other—to reduce income inequality by providing marketable skills is to ask the wrong thing of them. Education, however valuable it may be, does not create jobs in itself.

V. Against For-Profit Colleges

Portraying the unconscionable practices of for-profit colleges entirely as consumer fraud takes their sales pitches seriously. For-profit colleges claim to be selling something that will help low-income people find stable, well-paying employment. Criticizing them for failing to do so plays into the idea that the point of higher education is to make us more marketable employees. And imposing market-type regulations reinforces the idea that education is basically an individual financial investment, best sold on a market, rather than a public good. It is precisely this way of thinking—call it a neoliberal concept of higher education—that has provided the ideological cover for the societal shifts that made the massive expansion of for-profit colleges possible.

Taking into account these structural shifts rather than taking them for granted makes clear that a progressive vision for higher education should have no place for for-profit colleges in it. And those who have been forced into debt to line the pockets of shareholders should be compensated. When for-profit college students organized to demand debt cancellation, they pushed the Obama Administration to canceling the debt of around 40,000 students. This is a start, but it is millions of students, not tens of thousands, who should never have gone into debt (public or private) in the first place. And those who were subject to consumer fraud should receive additional compensation for the years they wasted and opportunities they forewent.

The debts these students have incurred are just one of the injuries that decades of handing over more and more control over our society to a financialized ruling class has inflicted on poor and working class people. The goal of a progressive higher education policy must be to wrest control from them and to make education a training ground for democratic experimentation rather than a machine for reproducing hierarchy. I will take up what such a policy might look like (beyond ridding ourselves of for-profit colleges) in a future post.