Quality and Profit in Higher Education Really ARE Inversely Related

One of the long-held beliefs in some corners of our society is the Free Market Faith: that introducing a profit motive (along with appropriate competition) can make anything better. Those who belong to the Free Market Faith are generally found in certain wings of the Republican party, although not all Republicans share this belief and there are plenty of Libertarians (and probably a few Democrats) who do.

In the realm of higher education, this Faith has been one of the few shreds of protection for the for-profit education sector. If it weren't for Free Market Faith folks, the for-profit college industry would be in even worse shape, seeing as how they offer a worse product at a higher price than one can get from existing universities and community colleges (h/t to Steve Greene for spotting that article for me). But there are still enough state governors and legislators who, as Faithful Adherents, want to give these poor free-market upstarts a chance.

In the realm of traditional higher education - that is, our long-standing universities and colleges that are collectively the envy of the world - there has long been a concern that for-profit means "low quality". This argument bleeds over into debates about online education, which is a separate question entirely. But because for-profits are private entities, we don't often get to look inside their books to see if there really is a trade-off between the quality of education and an institution's ability to make money.

Now, thanks to the Securities & Exchange Commission (and some excellent journalism from the Chronicle), we get to peek into at least one of these creatures' books. Some of the highlights:

In 2012 the Western Association rejected Ashford [for regional accreditation], saying the university had a high turnover of students, a vastly inadequate number of full-time faculty and student-support staff members, and inconsistent quality and rigor in its curriculum. 

Since then, however, the university has hired an accreditation insider as its president, slashed its admissions staff, and put more employees to work in areas meant to ensure students’ academic success. Those changes were enough to satisfy the Western Association, which last year awarded Ashford initial accreditation. 

But on Wednesday, financial data in the SEC filing from Bridgepoint revealed just how much the changes had affected the company’s bottom line. 

Instructional costs and services now account for more than half of the company’s expenses, compared with nearly a third in 2011. 

"In the second half of 2012, the company began to increase its instructional costs and services costs in direct response to … accreditation efforts," Bridgepoint said in its filing.
At the same time, operating profits have fallen from nearly 30 percent to less than 8 percent, Bridgepoint reported. 

And the effort to improve quality has had another price, the company said, in declining enrollments and revenue. The company brought in 20 percent less revenue in 2013, compared with 2012—a decline of nearly $200-million.

For-profits are learning what those of us in real universities have known for a long time: providing a quality education is not a cheap undertaking, and the more you cut corners the more you are likely to be stiffing your students to line your own pocketbook. Yes, universities today can be criticized for spending money on things they don't really need, or for having too many administrators, or for slowly walking away from tenure-track faculty. But for all of the arguments about "bloat" in our public universities, legislators should take a good hard look at the alternative at the other end of the spectrum: low quality, high drop-out rates, lousy outcomes, and massive student debt to pay for it all. These supposedly "lean" for-profits turn out to not be such a good bargain.