Friday, February 28, 2014

For-Profit Higher Education And Income Redistribution

I can recall magazine ads when I  was much younger that offered a test that a young person could take to determine whether the person had artistic ability.  Of course, the test was designed so that everyone who took the test would benefit from the "art school" that designed the test. A high pressure salesperson followed up on each lead produced by the ad.  Eventually, the "art school" disappeared because the family had to come up with cash to attend the "art school".  The federal government has changed that dynamic by providing financial aid to students recruited by for-profit schools that have the same goal as the "art school" that I described.  This article is about ITT which advertises that it can provide an education program that will allow its graduates to obtain high paying jobs.  The students take out government supported loans and most of the students either fail to finish the program or they fail to get the promised jobs when they "graduate".  ITT makes a profit and the students are saddled with a debt that cannot be eliminated under bankruptcy law.  This result is not unanticipated by ITT which estimates a 64% default rate on the student loans.  The taxpayers end up funneling money to our modern version of the "art school" that was unable to benefit from government income redistribution.

ITT is not unique in this redistribution game.  Several other for-profit colleges are under investigation for playing the same game.  They are simply doing what they are supposed to be doing.  That is they maximize profits with the help of government funding.  Under the doctrine of consumer sovereignty the consumer bears the responsibility for making rational decisions.  Republicans tend to support the movement to for-profit schools, and many democrats are reluctant to take on the lobbies that support them. 

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