Paper Towels, Crony Capitalism, and For-Profit Higher Education

April
2012
Phil Smith, Executive Committee Member

Just washed my hands; my hands are wet. I need a paper towel. I’m sliding my hand under the “electric eye.” Why isn’t a paper towel sliding out? This dispenser must be broken. I’ll try the next one. Damn, it’s not working either. Wait, maybe it’s just empty. I’ll try the next one. Unbelievable! I’m in a major, metropolitan airport and not a single paper towel dispenser is working. Nobody else is getting a paper towel either; we’re all having to drip dry. Argghh! Good thing I’m wearing jeans today…

Many of us have experienced frustrations like the example above, and not just in airports. The problem seems endemic, perhaps even getting worse. In spite of advances in paper towel technology, we are frequently confronted with the lack of paper towels.. There are roll dispensers, mechanical dispensers, and electric ones that sense whether my hands are above, below, or in front of it, not to mention the hand blower and its variations. Regardless of the technology, the problem persists.

How have we gotten into this situation? Imagine that your job is to purchase paper towels for the restrooms in your company or organization. You will be approached by various salespeople who will encourage you to purchase their brands of dispenser, which incidentally requires their brands of paper towel. In truth, there is really very little room for improving the functionality of paper towels themselves. To make a profit on such a quotidian commodity, it must be packaged in a way that gives the appearance of cost savings or providing some other benefit.

Of course, marketing a product this way is not illegal, and companies are free to risk their bottom line by providing poor paper towel service. The money is theirs, the choice is theirs, and the consequences are theirs. When the purchasing institution is a public organization; however, the money comes from taxpayers, and taxpayers experience the consequences of the purchasing decisions. Choices made with public dollars require additional scrutiny and care.

The situation becomes even more complicated when salespeople lobby government leaders. Imagine a group of paper towel lobbyists arguing for legislation that mandates sensor-driven paper towel dispensers. While they might phrase this lobbying in terms of the public good (e.g., reducing overall paper waste), such a government mandate would be very lucrative to some paper-towel companies. Public institutions would be forced to buy one set of products over another, regardless of whether the product provided additional functionality or service.

When private financial interests have the ability to influence the allocation of public assets and resources, the possibility of collusion between government leaders and market players arises. When such collusion does occur, economists and other writers use the term crony capitalism to label it.

Over the years, the press has been replete with examples of crony capitalism like the infamous $600 toilet seat, the $225 screwdriver, and other examples of corporations overcharging the government. While sensationalized in some cases, these examples do serve as important reminders of the need for vigilance with the use of taxpayer money, especially when public money intersects with private profit. The potential for abuse or at least conflict of interest is high. As academic senate leaders, we owe it to our students, our communities, and ourselves to analyze how taxpayer dollars for higher education are being distributed and whether they are being distributed wisely and for the public good.

In the last few years, we have seen an increase in the number of for-profit colleges and universities in the United States. In and of itself, schools seeking to make a profit is not a problem. If individuals want to use their own money to attend a for-profit college or university, the money and the choice is theirs. But it is becomes the taxpayers’ business when a for-profit college or university makes its money from student financial aid grants and loans supported by public funds.

Consider the following recent statistics, reports, and observations about for-profit colleges and universities and their operating practices:

  • For-profit education costs students more. According to data released by the U.S. Department of Education, in 2007-08, full-time students at for-profit schools paid an average of $30,900 annually compared to an average of $15,600 and $26,600 for public and private nonprofit universities respectively (Lauerman, 2011).
  • Students at for-profit institutions default on federal student loans at higher rates than those at public and private nonprofit institutions. Reuters reports that for-profit student loan default rates increased from 11.6% to 15% from 2008 to 2009, well above the overall student loan default rates of 7% to 8.8% for the same time period (“Default rate at US for-profit schools up to 15 percent”, 2011). According to a recent investigation by Senator Tom Harkin’s office, “nearly half of all federal student loan defaults occur at for-profit schools, although the schools have only 10% of higher education students” (Cauchon, 2011, Paragraph 6).
  • For-profit institutions reportedly use deceptive and high pressure marketing techniques to increase enrollment. (See Government Accountability Office, 2010). Some U.S. Senators are urging the Secretary of Veterans Affairs to trademark the term “G.I. Bill” to help protect veterans from misleading or predatory marketing by for-profit colleges. Senator Richard Blumenthal cautioned Connecticut veterans, ““Beware of misuse of the G.I. Bill label. Deceiving veterans seeking a career path for financial gain is a reprehensible scam that makes some of these for-profit colleges more con artist than educational institution. The web, phone, and other advertising tactics employed by these companies cause personal and financial harm to brave men and women seeking to better themselves with the benefits they fought so hard to earn. Preserving the G.I. Bill as a symbol of what we owe our veterans after their service is essential to keeping faith with them and with American taxpayers” (Blumenthal, 2012, Paragraph 3).
  • Faculty at some for-profit colleges and universities report pressure to lower standards to keep students enrolled. In a series of interviews given to The Chronicle of Higher Education, “current and former professors from a wide range of for-profit colleges said they were pressured—and in some cases ordered—to offer extensions, forgive plagiarism, and inflate grades to keep students enrolled and the federal aid flowing” (Field, 2011, “Rewarding Retention” Section, Paragraph 14).
  • For-Profit colleges have tremendous lobbying resources. According to The New York Times, for-profit colleges’ and universities’ lobbyists spent more than $16 million dollars to fend off new regulatory restrictions on federal student aid for programs that make false and exaggerated claims about future employment after completion (Licthblau, 2011). Lobbyists for the trade group Association of Private Sector Colleges and Universities include former congressional and Washington leaders such as former Senate Majority Leader Trent Lott and Tony Podesta (Kirkham, 2012).

 

Perhaps alternative explanations exist for these data points, but taken together they imply the use of public funds for private profit without providing enhanced value or functionality. In an era of tight budgets, it is even more important that the state and the country be good stewards of taxpayer dollars intended to support higher education. As academic senate leaders, an important question for us to ask is whether for-profit colleges and universities are the higher education equivalent of the latest, glossiest, promising-improved-outcomes-but-really-less-functional paper towel dispensers. And if so, do they deserve taxpayer-funds in the form of federal and state financial aid dollars?

References

Blumenthal, R. (2012, March 4). Deceptive practices targeting G.I. benefits, calls for action. Retrieved March 19, 2012, from http://blumenthal.senate.gov/newsroom/press/release/blumenthal-warns-veterans-of-deceptive-practices-targeting-gi-benefits-calls-for-action-

Cauchon, D. (2011, October 18). For-profit colleges focus of student loan issue. USA Today. Retrieved March 19, 2012, from http://www.usatoday.com/news/education/story/2011-10-18/student-loans-for-profit-college/50819470/1

Default rate at US for-profit schools up to 15 percent. (2011, September 12). Reuters News Service. Retrieved March 19, 2012, from http://www.reuters.com/article/2011/09/12/education-forprofit-idUSS1E78B0UY20110912

Field, K. (2011, May 8). Faculty at for-profits allege constant pressure to keep students enrolled. The Chronicle of Higher Education. Retrieved March 19, 2012, from http://chronicle.com/article/Pawns-in-the-For-Profit/127424/

Kirkham, C. (2012, February 17). For-profit college chiefs unwind at lavish Tahoe resort. The Huffington Post. Retrieved March 19, 2012, from http://www.huffingtonpost.com/2012/02/17/for-profit-college-chiefs-lake-tahoe_n_1283331.html

Lauerman, J. (2011, May 25). For-profit college costs surpass nonprofit peers in U.S. study. Bloomberg. Retrieved March 18, 2012, from http://www.bloomberg.com/news/2011-05-26/for-profit-college-costs-surpass-nonprofit-peers-in-u-s-study.html

Lichtblau, E. (2011, December 9). With lobbying blitz, for-profit colleges diluted new rules. The New York Times. Retrieved March 19, 2012, from http://www.nytimes.com/2011/12/10/us/politics/for-profit-college-rules-scaled-back-after-lobbying.html?pagewanted=all

United States Government Accountability Office. (2010). For-profit colleges: Undercover testing finds colleges encouraged fraud and engaged in deceptive and questionable marketing practices. (Publication No. GAO-10-948T). Washington, DC: US Government Printing Office. Retrieved March 19, 2012, from http://www.gao.gov/new.items/d10948t.pdf [Testimony before the Committee on Health, Education, Labor, and Pensions, U.S. Senate, Wednesday, August 4, 2010.]

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