You can tell that this story isn’t going to have a happy ending. Hollie and Brian still didn’t have a place to live, so they moved their tent to campus. They cleaned themselves with water from a jug, unless a classmate offered to let them use their bathroom. After three semesters, Hollie and Brian dropped out, with no degree and a mountain of student debt. Brian later said, “What I say I got from Heald was a $16,000 T-shirt.”1
What’s outrageous is that what happened to Hollie and Brian wasn’t unique or even particularly surprising. Corinthian and other for-profit schools specifically targeted people like Hollie and Brian: individuals with “low self-esteem,” individuals with “few people in their lives who care about them,” individuals who were “isolated.” In other words, they targeted vulnerable people.2
How could Corinthian do this? “Greed,” said former California attorney general (and now U.S. senator) Kamala Harris.3 Greed was certainly part of it. But Corinthian’s actions were made possible by the profit motive that drives a segment of higher education in America. Our system of grants, loans, and tax credits has predictable weaknesses, because it operates via private enterprise. To be sure, many nonprofit schools take their educational mission seriously and admit students according to their capacity to do college work. And some for-profit schools do, too. But a system that puts blind faith in the magic of market competition makes Corinthian’s business model of recruiting vulnerable people viable.
This system of financing higher education has other adverse consequences as well. Prices at public universities and community colleges are going up far faster than inflation, fueled in part by state disinvestment in higher education and in part by the availability of student loans. As we’ve pointed out several times, this price effect is one predictable outcome of market subsidies. In the education context, subsidies give students more education dollars to spend, with the result that they tend to bid up the price of tuition. The subsidy dollars may well end up in the pockets of colleges (and student loan brokers). The result is a vicious spiral: as tuition rises, new students must take on larger and larger amounts of debt to pay for college. Given these problems, there’s good reason to consider reinvigorating the public option in American higher education.
How American Higher Education Works (and Doesn’t Work)
The structure of higher education in America isn’t simple or straightforward. There is a dizzying array of options for students—public universities, community colleges, nonprofit schools, and for-profit universities—and a wide range of options within each of these categories. Even within these categories, schools and school systems serve vastly different populations. In New York, for example, community colleges serve many students who are right out of high school—61 percent are twenty-three or younger. But in other states, older, nontraditional students dominate community colleges; more than half of students in Georgia’s system, for example, are over twenty-three years old.4
The way our higher education system is funded is also complex, with different programs layered on top of each other. Private nonprofit schools have been around since before America was a country, beginning with the founding of Harvard College in 1636. In 1862, Congress passed the Morrill Land-Grant College Act, which created public universities in states throughout the Union in order to educate Americans in general studies and agriculture. After World War II, the GI Bill sent a generation of veterans to school, and colleges and universities proliferated to meet the new demand.
In the twentieth century, funding programs for higher education expanded with each decade. In 1958, Congress passed the National Defense Education Act, which created student loans for students in areas of critical need, justified on grounds that education was a central part of beating the Soviets in the Cold War. President Lyndon Johnson expanded loan access to education in 1965 through the Higher Education Act. In 1972, Congress established Pell Grants so poor students could get an education without taking out loans.5 In the 1990s, President Clinton added the Hope Scholarship tax credit and the Lifelong Learning tax credit, allowing deductions of up to $1,500 per student.6 As a result, American higher education financing today is a combination of state, federal, and personal efforts. States fund a significant portion of public higher education, with assistance from the federal government. Students, in turn, pay tuition with grants, GI Bill funds, federal loans, private loans, tax credits, and their own money.
The American higher education system was a marvel in the post–World War II years, expanding access at affordable rates. But today the system is riddled with flaws. Part of the blame for rising prices certainly lies with universities. Schools compete for the best students and also for the wealthiest students (who can pay full freight), while giving considerable aid to a small number of students. The most egregious build “lazy rivers” and turn education into a leisure activity; more commonly, they spend considerable sums on new dormitories and facilities because students demand them. Many schools expect faculty to both conduct research and teach students, tasks that are very different. Disaggregating the functions of teaching and research could mean better quality in both categories, but it would also mean trading off some of the prestige that comes with having renowned researchers.
But these management problems are far more limited in scope and significance than underlying shifts in public policy. The single most important shift in the past generation has been severe cuts by the states in per-student funding for public institutions of higher education.7 State governments reduced funding for public universities and community colleges by 26 percent between 1990 and 2009, even as expenses were increasing.8 The result of these budget cuts has been to shift the financial burden of college squarely onto students. Tuition rose 244 percent between 1980 and 2010 at the average four-year public university.9 Since the financial crash, these trends have only worsened. In the 2015–2016 school year, forty-six states spent less per student than they had before 2009. Nine states slashed per-student spending by more than 30 percent. In that same period, tuition is up 33 percent at the average four-year public school, with rates increasing by more than 60 percent in six states and more than 90 percent in Arizona.10 Arizona actually eliminated all state support for two of its major community colleges.11
This shift in funding interacts with other parts of our system for financing higher education. Pell Grants, for example, were designed on the assumption that states would continue to provide low-cost, high-quality public education. They weren’t designed to accommodate state budget cuts, and as a result, they haven’t increased in value even as costs to students went up. In the 1970s, Pell Grants were generous enough to cover about 80 percent of the cost of tuition, fees, room, and board at a four-year public university. But with the explosion in costs, by the 2012–2013 school year Pell Grants would cover only 31 percent.12 The result is that students are taking on more and more loans. Between 2008 and 2018, total student loan debt in America more than doubled. It now stands at $1.5 trillion.13
Some federal government programs may well have contributed to the hike in college prices. The Clinton-era Hope Scholarship and Lifelong Learning tax credits primarily help middle-class students who are already able to afford an education. So instead of increasing access, they make it possible for students to afford more expensive schools than they would have otherwise attended.14 Harvard professor Bridget Terry Long also points out that schools know that students can get these tax credits, and as a result, they have an incentive to raise prices.15 This is a classic example of a problem with the market subsidies approach. Providing a coupon for higher education (as these tax credits do) just means that schools can raise prices so that students pay the same amount they would have otherwise. Instead of serving as a discount, the coupon just makes higher prices more palatable.
Most troubling, though, is how the neoliberal approach has rewarded for-profit college corporations that have exploited students, taxpayers, and higher education programs. One caveat before we go further: We’re not opposed to all for-pr
ofit colleges and universities or to all for-profit education programs. We just don’t think taxpayers should be subsidizing corporate profits for low-quality education.
We’ve already talked a little about how neoliberal ideology turned Pell Grants and student loans into a cash cow for some for-profit college corporations, with taxpayers accounting for 86 percent of their revenues and at least 30 percent of their profits. But let’s dig a little deeper. Given our system of taxpayer subsidies, the key for a for-profit college is recruiting. More students means more taxpayer money. As a result, in 2008–2009, for-profits spent 22 percent of their revenues, or about $4.2 billion, on recruiting and marketing.16 That’s more than they spent on instructing students.
But what is astonishing isn’t just how much they spent on recruiting; it is also how they recruited students. Hollie and Brian’s story is only the tip of the iceberg. An undercover investigation by the nonpartisan Government Accountability Office (GAO) found that for-profits consistently engaged in deception, fraud, and harassment.
For example, recruiters told applicants they had to enroll in the college and pay an application fee before they could even speak with financial aid representatives.17 One beauty college claimed that barbers can have an annual salary of between $150,000 and $250,000, even though 90 percent earn less than $43,000.18 Some colleges harassed prospective students who filled out online forms to show interest in attending college; one applicant received twenty-four calls within the first twenty-four hours after filling out the form—and a total of 182 calls in a single month.19
The fraud against American taxpayers was even more brazen. The GAO’s undercover applicant was told by one financial aid officer to omit $250,000 in personal savings on financial aid forms, and admissions officers at multiple schools advised applicants to add dependents on their applications for federal financial aid so they would become eligible for grants.20
In a case of perverse consequences, Congress in 1998 passed the “90–10 rule,” which required for-profit colleges to get at least 10 percent of their revenue from a source other than federal higher education dollars.21 This sounds like a smart reform, but there was a loophole: the GI Bill and military tuition assistance funds are not counted as federal dollars. For-profit colleges quickly learned that they could pass muster by recruiting veterans: for every veteran they recruit, they can claim taxpayer funds for nine other students. As Illinois senator Richard Durbin once remarked, “This is the most heavily subsidized private business sector in America.”22
The 90–10 rule encouraged the corporate higher education sector to target servicemembers and veterans with the predatory and deceptive practices they had pushed on other students. “The ITT representatives I met with told me that the military would pay for my schooling,” one combat veteran said. A few months later, he got bills for both a private loan and a federal student loan. Another veteran was told by for-profit Ashford University that the GI Bill would cover his education. He ended up with an $11,000 charge. “I felt that I have been misled, deceived, or even outright lied to in an effort to gain my contractual agreement,” he said.23 In perhaps the most offensive case, PBS’s Frontline investigators discovered that for-profit college recruiters at Camp Lejeune in North Carolina were targeting Marines who had severe brain injuries.24
For-profits tend to pad their profits by overcharging for the education they provide. A GAO report, for example, looked at costs for a student working toward a seven-month certificate in computer-aided drafting. The student would have paid $13,945 for the course at the local for-profit, compared to only $520 at the nearby public college.25 A medical assistant program cost $11,995 at a for-profit college in Illinois, compared to $9,307 at a private nonprofit—and only $3,990 at a public college.26
The results are predictable. According to a report from the U.S. Senate Committee on Health, Education, Labor and Pensions, “Ninety-six percent of for-profit students take out student loans. In comparison, 13 percent of students at community colleges, 48 percent at four-year public, and 57 percent at 4-year private nonprofit colleges borrow money to pay for school.”27 Students at for-profit institutions carry huge amounts of debt and are more likely to default on that debt (47 percent of all defaults on federal loans are from for-profit students).28 And what do they have to show for it? Often not even a useful education.
Consider Martha, who signed up for a nursing program through Everest College, part of Corinthian Colleges. She was told she’d make $25 an hour after graduating. But she never once visited a hospital, and when it came time for her “psychiatric rotation,” Everest took her on a trip to a museum of Scientology. Her classmates were sent to a day care center to satisfy their “pediatrics rotation.” Martha later attended a community college to get her R.N., and told PBS Frontline investigators that the experience was completely different. For her psychiatric rotation, she spent a month learning and training in a psychiatric hospital.29 The cost of her R.N. from community college: $3,000.
Unlike Martha, who stuck it out and earned a degree that couldn’t get her a job, many students, like Hollie and Brian, don’t finish their degrees and end up deeply in debt. Fifty-four percent of for-profit students who started during the 2008–2009 school year departed within two years—without a degree or certificate. Sixty-three percent of students in two-year associate’s degree programs didn’t finish. Students at publicly traded for-profits and students in online programs fare the worst.30 In essence, many for-profits fund themselves with taxpayer dollars, provide a low-quality education to students, and profit handsomely in the process.
With this backdrop, it is easy to see the original sin in the design of our higher education system. When we decided to invest in sending lower-income Americans to college, we used a market subsidy approach instead of directly funding public schools. This meant a huge giveaway to private colleges (both for-profits and nonprofits). The result is that the federal government subsidizes private schools even when they enroll only a tiny proportion of needy students. And it means that the federal government has only indirect influence over those institutions’ policies.
The Case for the Public Option in Higher Education
Higher education suffers from serious problems. State funding cuts push costs onto students. Tax credits mean higher prices. And for-profits exploit students in order to get taxpayer subsides. Given these problems, there is a strong case for a more robust public option in higher education. We envision a public option that would guarantee access for any American to some kind of higher education (college or technical training), either for free or at a nominal price.
There are three basic reasons to support a public option in higher education. First, it is increasingly the case that success in the workforce requires some kind of post-high-school education, whether college or technical training. Second, education is important in a republic. For self-government to work, we need citizens who are thoughtful and engaged and who have some knowledge about our constitutional system. Third, given both the economic and civic importance of higher education, access to that education shouldn’t depend on the ability to pay for it. Economic opportunity should be open to everyone, regardless of their family wealth—and democratic participation requires that everyone have an education in civics.
These justifications for a public option in education have always lain at the heart of the tradition of public higher education in America. The Civil War–era Morrill Land-Grant College Act set aside 30,000 acres of public land for each representative that a state had; the state could sell the land and use the earnings to establish a public university.31 Some of the most distinguished state universities were established as land-grant colleges: Iowa State, Penn State, Michigan State, Ohio State, Purdue, and Texas A&M. As historian Allan Nevins once put it, “The central idea behind the land-grant movement was that liberty and equality could not survive unless all men had full opportunity to pursue all occupations at the highest practicable level.”32
Opponents of a public opti
on might counter that college isn’t necessary for everyone in America and shouldn’t be forced upon anyone. This objection is unpersuasive for two reasons. Most important, this is a public option. Creating a public option for higher education doesn’t force anyone to get more education after high school. It just allows people to do it without worrying about the cost. If you don’t want to continue education after high school or if you can find a job without extra schooling, then fine—don’t go.
In addition, we don’t think the data support the assertion that college isn’t increasingly important to success in the workforce. Our argument isn’t that college or some kind of post-high-school training is essential for literally everyone. It is that this education is increasingly necessary, or at least strongly desirable. Not only do those who complete college have higher job rates than those who didn’t go to college, but the data also show that some college is better than no college.33 In other words, it is significantly better to have had some kind of post-high-school education.
The second challenge to a public option might be that higher education should not be provided for free. Critics might worry that free provision could produce perverse effects, because students need to have some skin in the game if they are to take maximal advantage of educational opportunities.
We think these arguments are also problematic. First, in other areas where a service or experience is considered necessary or strongly desirable, we have provided it for free. The most apt analogy here is K–12 education. As a country, we decided that primary and secondary schooling were critical for our people—as citizens and as workers—and so we provided as a public option through the public schools. Indeed, in the case of K–12 education, we’ve gone even further, making school attendance mandatory. For critics of public options who nonetheless acknowledge that some kind of post-high-school education is strongly desirable, it isn’t clear why it is any different from K–12 education. In fact, a public option for higher education is actually more compelling because it wouldn’t be mandatory.
The Public Option Page 14