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The Cato Institute has a new paper out essentially accusing all universities of being for-profit and concluding that public policy should therefore, “encourage competi¬tion. Regulations should not favor nonprofits over for-profits.”
According to the paper, by Oklahoma State University’s Vance Fried:
Undergraduate education is a highly profit¬able business for nonprofit colleges and universi¬ties. They do not show profits on their books, but instead take their profits in the form of spending on some combination of research, graduate edu¬cation, low-demand majors, low faculty teaching loads, excess compensation, and featherbedding. The industry’s high profits come at the expense of students and taxpayer.
Oversight of federal student-assistance programs is laudable, but should not be limited to for-profit colleges. Federal aid to nonprofit colleges should also be a matter of great concern. Indeed, tax¬payers’ annual commitment to nonprofit schools is much higher than it is to for-profit institutions.
This is an interesting point, and kudus for Fried for trying to figure out a way to really reduce the cost of college, but this very long-term thinking (reduce the cost of college by massive deregulation) is very theoretical and has never been tried anywhere. In fact, the United States has far more colleges than anywhere else on earth and they’re still the most expensive. Why is that?
Furthermore, this “nonprofit colleges make some money too” point this isn’t really much of a surprise. Yes, if an institution’s make money and then reinvests that money into the organization, in the form of infrastructure, faculty benefits, etc. that might be a waste of money, but it’s hard to really demonstrate it. Spending money on research, graduate education, low-demand majors, low faculty teaching loads, and generous compensation is just what research universities do. That’s not wasteful by definition. Indeed, those things benefit students, though admittedly it’s more indirect than actual undergraduate teaching.
Universities might cost too much, but then just explain why they cost too much. Every organization has overhead. Profit is money paid out to the owners. The money colleges have in excess of the “true” cost of educating students, which Fried assumed at $8,000 a year, for some reason, is reinvested in the institution. That isn’t profit; reinvesting money back into the institution is the definition of nonprofit behavior.
That’s fine if Cato thinks universities are overpriced (they certainly cost more than many Americans can afford) but find a real way to argue that. This is just stretching profit to the point where the word has no meaning.
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theDeMBA on June 17, 2011 7:53 PM:
I had the good fortune to spend some time at Yale, and I can guarantee that the 'profit' to Yale was pretty good, if measured by the (full boat) tuition - professor cost allocated to me - reasonable sqft cost per student - allocated maintenance etc.
On the other hand, they had a Gutenberg bible. I was getting my MBA, but that made a huge impression on me. They brought in lecturers of the highest caliber, and I got to ask them questions (lecturers who were worth a lot more than the paltry honorarium that Yale paid them.) They had great study spaces. They attracted professors who were some of the most intellectually engaged people I have ever known. Much of the campus is beautiful. They two years I spent their rate highly in my list of life experiences.
Yale has been reinvesting 'profit' for 300+ years; maybe some of it was a 'waste' at the time but I would never argue that the institution is overpriced.
pinacacci on June 18, 2011 1:41 AM:
I was talking to my prof the other day, and he was telling me how he was continuing a research project this summer even though there's no grant for it and he's not being paid. I would say the the academics I admire are definitely not doing it for the money. I wish they had much, much more cash.
pinacacci on June 18, 2011 1:54 AM:
Really I should have pointed out though that I am defending professors' pay although the original article didn't imply that tuition increases were due to that at all. I have heard professors lamenting that admin were getting pay increases at the same time as professor raises were getting reduced or positions were being cut.
Neil B on June 18, 2011 3:31 PM:
The whole point of the article becomes noxiously clear once you realize that the very purpose of Cato is to shape the dialog for an agenda, not to provide good-faith evaluation and advice.
Michael Wilkerson on June 20, 2011 10:21 PM:
Neil B has it right. There's a big growing movement to deny college to kids whose families aren't wealthy. "College isn't necessary, it's too expensive, it's not for everyone, etc." These studies, books, papers, and news headlines aren't emanating from nowhere.
Of course college is outrageously expensive. that's the price of the states walking away from their public universities, in which they once so deeply invested. If we had a government that could get anything done there would (and could) be a national solution. But at the moment, the solution seems to be: shut down colleges and keep the rabble from getting too much education.