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Non-Profit vs. For-Profit Education

September 25, 2010

David Brennan, founder of White Hat Management, a for-profit company based in Ohio that owns and operates Charter Schools, was attacked by the Governor of Ohio who said, “I will not allow David Brennan to make a profit on the backs of the school children of Ohio.”  That theme has been echoed by political appointees in the Obama administration and in Congress where Sen. Dick Durbin (D-IL) and Sen. Tom Harkin (D-IA) have led the charge against bad practices of major for-profit education companies.

Though the U.S. Department of Education’s Bob Shireman and Senators like Dick Durbin and Tom Harkin are reckless in ways that remind us of Cuba’s Fidel Castro, Hugo Chavez of Venezuela and numerous East European apparatchiks in thrall to the former Soviet Union, there is a general consensus that for-profit companies ought not to be engaged in policy research, elementary and secondary education and, of course, higher education.

Those institutions that for-profit entrepreneurs touch are somehow tainted.

Non-profit research organizations such as the Big Three—Brookings, Heritage and AEI—are not tainted.  They are not-for-profit institutions that conduct research, hold conferences and publish books and newsletters.  Each has a unique perspective that reflects their political alliances.  All are politically attuned and have access to policy-makers—or convey the impression that they have access—and influence the making of policy.

That, of course, reveals the dark side of this non-profit universe.  In order to attract tax exempt donations they need to impress their donors.  Corporations that operate in regulated industries—are there any industries not regulated?—understand that they can gain access to policy makers by supporting the research organizations with the best “access.” And in order to give the impression of continued access, it is necessary for these institutions not to complain.  Most do more than that and become accomplices. The shameless behavior of AEI during and immediately after the Bush Administration set a new standard for slavish obeisance.

The benefits are obvious, however.  The Big Three research organizations hold court in luxurious buildings where they regularly salute those in power or with access to the powerful.  The left-wing of American politics had half a century to fine tune this relationship of non-profit institutions to the powerful.  From the New Deal through LBJ’s Great Society, the revolving door was open to those in government who aspired to a life “after government.”  Foreign Service and military officers who made Ambassadorial or Flag rank were assured that there was a nice office for them to visit before lunch and Congressional staff of powerful Committee chairmen easily stepped into research posts where they could wait for a call from the White House.

Today the halls of the Big Three are filled with former White House aides and political appointees and  ambitious “fellows” positioning themselves for appointments in the next Administration.

Take a step or two down the street, however, and you can visit the real “for-profit” offices of lobbyists who are very open about their influence and who set the price for access.  For really good access the price is $100,000 a month which is about what it costs to put your name on a granite tablet at the offices of the Big Three.

I fail to see the difference between lobbyists who charge their clients a fee in exchange for access and a donation to a non-profit organization that gains access to White House or regulatory agency heads. Maybe some feel better about their “investment” because one is tax exempt, but both tax exempt donations and lobbyist’s fees are business expenses.

This brings me to my topic of non-profit vs. for profit education.

Public education, except at community colleges, is not what it used to be.  Tuition, room, board, books and fees at Penn State, Colorado University-Boulder and other “public” research universities cost as much as many non-profit universities.  So where is the “public” in those public universities?  The presidents of public universities draw down salaries that are the equal of executives at for-profit companies, and the Faculty members of these institutions have the power of corporate Trustees, the workload of millionaires, and salaries comparable to high paying professions requiring skill and training.  Where is the “non-profit” in that set up?

At the level of elementary and secondary public education, superintendents and principals are very well-paid and tenured teachers in public schools enjoy job security greater than the children of for-profit company owners.  Pension plans assure that they retire as millionaires.  Where is the non-profit in that setup?

That calls into question, therefore, the attempt by the Obama Administration to break the system by which for profit colleges provide their students with direct student loans and grants.  Is there a difference between what goes on at Penn State and at the University of Phoenix?  If there are differences, they are not related to the “public” status of Penn State.  The University of Phoenix operates at a profit, efficiently uses its resources, attracts more students than all the state universities in Pennsylvania and, apparently, satisfies them or they wouldn’t return.  The president of Penn State has a president’s box at Penn State’s football stadium that can accommodate 300 guests and the president of Notre Dame travels in a private jet.   The offices of these non-profit university presidents are luxurious. Where is the non-profit in that?

What causes the Obama Administration concern is that for-profit companies profit from a system of U.S. government tuition assistance programs.  At the end of their Fiscal Year, they have profits that could be utilized by government agencies to “do good.”  So, by cutting off their access to these programs, there will be more money for the Obama White House to spend on stimulus programs.  In other words, those profits belong to the government and it is the Obama Administration’s desire to confiscate that money. Right now there is a very good chance they will succeed, perhaps not 100% but by 75%.  For example, current regulations allow for-profit education companies that participate in Title IV programs to derive up to 90% of income from federal government loans.  Cut that back to 75% and you change how these companies operate.  Or, deny eligibility to for-profit companies with student default rates that exceed 30% and limit how much a student at a for-profit institution may borrow to a percentage of income that his chosen vocation pays.  Then, encourage the Department of Defense to limit how much tuition assistance service members may use to pay for tuition at for profit institutions.  Active duty U.S. military personnel currently may apply $250 per credit hour toward tuition.  Cut that to $100 per credit hour for military personnel attending for-profit colleges.

Though this may sound like something that Venezuela’s Hugh Chavez thought up, Chavez is more direct. He simply closes down private colleges.  In the United States where private sector education is the equal of public education, the Obama Administration intends only to close down for-profit private education.

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