“If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.” This is the government’s view of the economy, according to the late President Reagan. The Department of Education (DOE) is clearly using this flawed approach as it pursues regulation of the highly successful for-profit university system.
Higher education enrollment increased by 31 percent from 1998 to 2008. During this same period, enrollment at for-profit schools, such as DeVry University and the University of Phoenix, rose a staggering 225 percent. These schools are meeting market demand by offering working adults and low-income individuals the opportunity to receive an education often unavailable to them through traditional higher education institutions. During a recent Senate hearing addressing oversight for for-profit colleges, Senator Tom Harkin (D–IA) said:
For some students, the for-profit higher education system has worked well. The flexible schedules, convenient locations, and online offerings allow working adults to finish their degree while also meeting family and job responsibilities.
However, despite its rapid growth and success, the for-profit system has drawn some criticism. High loan default rates and graduation rates lower than those in the traditional higher education sector have fueled criticism among skeptics. These concerns have prompted government regulators to investigate the flourishing industry. But government attempts to alleviate the problems would dramatically alter the for-profit university system if the onerous new regulations are implemented.
Senator Michael Enzi (R–WY) urged caution in addressing problems so as not to unintentionally harm students in legitimate programs. Enzi said similar problems at non-profit institutions should also be addressed. Unfortunately, the DOE appears to be ignoring this prudent advice.
In an attempt to regulate the industry, the DOE is citing the Higher Education Act, which requires for-profits to provide “an eligible program of training to prepare students for gainful employment in a recognized occupation” in order to accept students who use federal student loans through Title IV funding. The plan is to cut federal aid to for-profits if graduates on average spend more than 8 percent of their entry-level salaries on loan repayment. But the proposed rule would act as a price control on tuition charged at for-profit colleges, essentially forcing for-profits to lower their tuition in order for students to continue programs such as nursing or health technology fields. As a result, many for-profit schools would have to close their doors—completely eliminating educational opportunities for thousands of working adults and low-income students.
This is a classic example of the problems associated with price controls. Price controls prevent markets from reaching equilibrium and create market shortages. The lower tuition imposed by the government would create too much demand and too little supply in the for-profit system, thus preventing the market from reaching equilibrium. Because the demand far exceeds the supply, a shortage of for-profit universities would occur. There would not be enough for-profit schools to meet the needs of all the students who wish to attend.
The consequences of this regulation fly in the face of the higher education goals President Obama set forth. Instead of attacking the for-profit sector with price controls and the burden of more regulations, the DOE should make information about tuition, earnings, and college debt more available as it promotes student loans to prospective students of both for-profit schools and traditional universities.
James Hall is a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm