Report: Nonprofit Colleges Have Higher Profit Margins than for Profits

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June 15, 2011; Source: The Chronicle of Higher Education | A recent report written by Vance H. Fried of the libertarian Cato Institute says that nonprofit colleges and universities have higher profit margins than their for-profit, and to a lesser extent their public, counterparts and charges that the excess profits from undergraduate education, estimated at $12,800 per student, are being invested in research and graduate education. This, he says, does not benefit undergraduates, a point which we bet many academics would be willing to debate. The report, perhaps predictably, suggests that federal aid to students be cut entirely, arguing that the subsidies are driving up prices. This would staunch the “transfer of wealth” from taxpayers to institutions of higher learning and, the author argues, save taxpayers $50 billion to $60 billion annually. What do you have to say about this?—Ruth McCambridge

  • Doug

    Well, I will say that the rising price of education outpacing inflation for many years was a very bad sign. The student loan bubble is likely the next unsustainable one to “pop.” And many of the for-profit operations are essentially scamming government loans to the detriment of their students. I’d deal with the for-profit operations and their high default rates first. And a lot of things might get “fixed” if people are allowed to have student loans discharged during bankruptcy — lenders including the government will have to think twice about what they do and why. Right now, they don’t have to.

  • Kevin

    The inability to discharge student loans keeps the risk low and thereby keeps the interest rates low. To allow discharge would precipitate the bubble you seem to be dreaming up.

    The fact is that most bubbles are created from hyperinflation in a secondary market (think mortgage backed derivatives or the resale of domain names etc) Because an education is an intangible, it should be thought of in much the same way that a company would think of goodwill. Occasionally such an asset loses value but it is more a signal that the student has made poor choices that have reduced the value of that education.

    The Cato Institute is not exactly free from bias. They advocate slashing public assistance of any kind. It would be intellectual malpractice to assume their analysis of the need for public funding for any major national investment stems from a serious public policy perspective. I’m beginning to wonder why so many of this blogs articles pander to ideological rather than practical solutions.