ITT Tech shows perils of for-profit
The news left tens of thousands of students stunned: Just as the fall semester was starting, ITT Technical Institute, one of the nation’s largest chains of for-profit colleges, shut down all its campuses, stranding some would-be graduates a few months shy of a diploma.
As wrenching as the closure is, though, it should have happened sooner. Like Corinthian Colleges, a for-profit chain that collapsed last year, ITT Tech was forced to the brink because the Obama administration has cracked down on an industry that thrived on shady practices. Those colleges have made their money by recruiting desperate and vulnerable students of modest means and charging overly high tuition rates.
For-profit colleges deliver very little of what they promise. You’ve no doubt heard some of their ads pledging lucrative careers in a growing field of endeavor — health care or technology, perhaps. The truth is that workers who attend for-profit colleges often end up earning less than they did before they pursued a degree, according to a study by the National Bureau of Economic Research.
There is a lesson here beyond the fortunes of for-profit schools. For all the worship of capitalism in the American psyche, the simple truth is that the profit motive doesn’t work everywhere. While the drive to make money can spark innovation, spur economic growth and fuel general prosperity, it can also corrupt entire enterprises. Not every sector of the economy ought to be privatized.
Higher education provides as good an example as any of the corrupting potential of capitalism. The United States already operates one of the best systems of higher education in the world; that’s why our colleges and universities attract so many foreign students. And for all the outrage, completely justified, over student debt, the nation also operates a system of affordable community colleges.
But back in the 1990s, liberals joined conservatives in their enthusiasm for privatization, which led to an explosion in the growth of for-profit schools. Investors camped out. Private equity groups swooped in. The industry had to deliver more and more profits.
But teaching — actually teaching students a skill, a craft, a vocation — is hard work that doesn’t promote easy profits since most students can’t afford to pay exorbitant rates for college. Indeed, most public colleges don’t charge enough tuition to cover their costs. State legislatures need to make up the rest.
So how did the Corinthians and ITT Techs of the world deliver the profits they promised? A few years back, now-retired Senator Tom Harkin, an Iowa Democrat, launched an investigation into the industry. He found that associate-degree and certificate programs at for-profit colleges cost about four times as much as those at community colleges and public universities. He also found a system that was abusive and fraudulent.
For-profit schools send their recruiters into working-class neighborhoods, where they home in on desperate adults yearning for stable jobs with better wages. They inflate their job placement numbers, promising that a degree will pave the road to prosperity. The recruiters use hard-sell techniques that maximize federal grants and loans — that’s where most of their profits come from — and then encourage prospective students to take out more loans if federal aid doesn’t cover their costs. As a result, many of those students end up without degrees but head-over-heels in debt.
The strategies used by for-profit colleges may represent the profit motive run amok, but the demise of ITT Tech still serves as a reminder that capitalism is no cure-all. Some enterprises should be run like a business — appliance stores, technology companies, aircraft manufacturers — with all the risks and rewards that generally apply. But there are other undertakings that merely serve a public good. Trying to wrest a profit from those will only result in exploitation.
(The same applies, by the way, to for-profit operators of charter schools serving grades K-12. While the fast majority of charter schools are run by non-profit organizations, a few states have encouraged for-profit companies to take over schools. The result has been shabbily run classrooms that drain taxpayer dollars.)
Capitalism certainly has its place. But it doesn’t deserve to be worshipped as a god doling out good things to all. The profit motive doesn’t improve every endeavor. Instead, it simply pollutes some enterprises that it should not touch.