AEI Provides Balanced View Of For Profit Colleges: Neither Good Or Evil

Frederick M. Hess, director of education policy studies at the American Enterprise Institute (AEI), announced today the launch of a new AEI research project to examine the role of for-profit companies in public education. The goal of Private Enterprise in American Education is to research, study, and determine what role for-profits can play in meeting America’s twenty-first-century educational challenges.

The role of for-profit companies in public education has attracted increased scrutiny over the past few years. In the world of charter schooling, for-profit providers are lambasted and sometimes prohibited. In higher education, for-profit institutions have grown rapidly, enrolling millions of nontraditional students and earning enmity, suspicion, and now investigative and regulatory actions in Washington. When it comes to student lending, teacher quality, and school turnarounds, policymakers routinely favor nonprofit or public alternatives.

As this controversy heats up, a discussion of how to harness the potential of such providers, while erecting the incentives and accountability measures needed to ensure a level, dynamic, and performance-oriented playing field, is sorely lacking. Through a series of reports, AEI’s new Private Enterprise in American Education project will contribute needed clarity to this discussion.

“It’s time to pivot away from the tendency to reflexively demonize or celebrate for-profits. This series aims to understand what it takes for for-profits to provide quality and cost-effective education solutions to as many students as possible,” explains Hess. “At the same time, we need to be thoughtful about how we guard against the incentives for-profits may have to cut corners in the name of increased profits.”

In the first report in the series, “Beyond Good and Evil,” Michael Horn of the Innosight Institute explores the controversy surrounding for-profit companies in US public education. He notes that:

• For-profits companies are not inherently good or evil; they are motivated by incentives, and do what they are asked to do by their customers—not more or less.
• There are far fewer inherent and predetermined differences between for-profit companies and their nonprofit counterparts than many assume.
• The biggest differences between for-profits and nonprofits stem from their fundamental corporate structures, which determine what they do with their profits and which opportunities look attractive. This affects their ability to attract capital and the scale of their projects.

“Michael Horn’s paper is a terrific contribution to this new series,” continues Hess. “He explains why policymakers and reformers who castigate for-profits or nonprofits as inherently bad or good are mistaken. He warns that it is not about whether for-profits are “bad” or “good,” but about how they are structured, what incentives they are given regarding consumer satisfaction, and what regulatory structures and shareholder demands they have to face.”