Profit or Not?

profit-or-not

If you can’t beat them, join them. The solution, or perhaps at least a smart business strategy, is to convert from the for-profit sector to the nonprofit sector.

 In an era of increased regulation and speculation, some career colleges have made the jump to nonprofit status. So, is it nobler to be profit or not-for-profit? That is the question only you can answer.

Read the entire article featured in Career College Central Magazine, March 2015  page 28.

This idea causes me to become a little … irrational. Regardless of which flavor institution you might be, forprofit or nonprofit, at the end of the day you have to make more money than you spend in order to stay in business. The more money is called profit, and our modern political society has deemed it the new four-letter word. (Yes, I know profit has five letters, but this is my article and four letters is rational in my irrational world.) In the late 1970s, the federal government began a campaign to encourage equal access to higher education by creating regulations to make college loans accessible to more students. What next occurred in higher education is the business concept called supply and demand. Institutions from both sides of the for-profit/nonprofit aisle could now raise tuition, because more lenders were willing to lend money to more students. A golden business practice for creating more revenue is to raise prices at a time when customers are having no difficulty buying products and services at current prices. So when more money becomes available at current tuition prices – raise tuition. That is exactly what the for-profits and nonprofits did. When the tuition bubble visibly broke around 2011, the nonprofits felt the first sting. The wider availability of higher education to every student did not produce lower tuition costs. Imagine that: The higher-education industry has a strong capitalist business mindset.

When the tuition bubble visibly broke around 2011, the nonprofits felt the first sting. The wider availability of higher education to every student did not produce lower tuition costs. Imagine that: The higher-education industry has a strong capitalist business mindset.

The money problems quickly began to unfold. The states were the first to pull back funding. In 2011-12, college appropriations were reduced by 7.6 percent, the largest recorded decline in a half century, according to William Elliott, Melinda Lewis, Michal Grinstein- Weiss and IlSung Nam in their article “Student Loan Debt: Can Parental College Savings Help?” In 2010, the Obama administration, seeing the potential impact of the grumbling that was occurring in the states, attempted to reduce the effects of the anticipated state funding cuts by releasing the highly controversial Gainful
Employment Rule (GER) and a strategy to overshadow the effects of the easy money from the 1970s that resulted in higher tuition costs.

The Gainful Employment Rule was designed to create career colleges and training programs that could better prepare students for gainful employment – a great idea, but one that did not materialize. What happened instead was that the U.S. Department of Education decided to track the relationship between the debt students sustained and their earned incomes after graduation, as well as their rate of student loan repayment.

A catch-22 is an unreliable situation from which an individual cannot escape because of contradictory rules. By this definition, the GER is a catch-22. Under it, if a higher-education program graduates a large number of students with high debt-to-income ratios, that program may become ineligible for participation in federal student funding. Yet this higher-education debt-to-income ratio requirement is unfair.

The American Association of Community Colleges (AACC) comprises nearly 1,200 two-year colleges, according to the AACC. Many of the students at these colleges are part-time students working full time or full-time students working part time. Many of these students’ employers provide education benefits that significantly offset the student’s tuition costs. Because of this, the ratio between the level of debt these students sustain and their earning incomes after graduation is spectacular. The rate of student loan repayment is equally spectacular for only a fraction of the for-profit community.

The nonprofit public sector was measured by the U.S. Department of Education to be twice as good as the for-profit private sector. I would hope so, because in reality, the nonprofits and for-profits are in two different leagues. The metric itself is out of control and would not pass under any real scientific scrutiny, but again, this is government and politics. It is like the joke about the job-seeking accountant: Two plus two equals whatever you want it to. But the reality is that whoever owns and controls the metric manages the results, and the for-profits receive less-favorable marks in the higher-education catch-22.

The economy has been in decline, and institutions of higher learning are indeed businesses. Now with a decline in public institution enrollment and fighting for market share, the government comes to the rescue with the GER. Don’t take it personally – it’s just business mixed with politics. Further fueling the drama, college tuitions are still trending up, lenders are
lending less, and declining family incomes are making even less money available for students attempting to enroll today.

Now we have the perfect storm in higher education, including the decay of the purchasing power of financial aid. Again from the Elliott article, just 10 short years ago, the maximum allowable Pell Grant covered 98 percent of the average tuition and fees at public fouryear institutions; in the 2012-13 academic year, this figure dropped to 64 percent. All we really know is that the current system of debt-to-income measurement does not match reality, because again, nonprofit and for-profit institutions are not in the same league.

Even so, the metrics are driving change, and the GER holds for-profit programs to a higher standard than nonprofit programs. The U.S. Department of Education’s own performance data indicates that the average debt-to-earnings ratio for all Bachelor’s degree graduates in their first year of repayment is 13 percent, versus 12 to 16 percent for nonprofits. Yet under the GER, for-profit colleges and universities would be held to an 8 percent standard. Why the different standards? The Association of Private Sector Colleges and Universities (APSCU) challenged the GER on exactly that issue, and the court agreed, throwing out the rule. In its comments, APSCU cited the U.S. Department of Education’s use of “misleading” statistics in formulating the rule, including the claim that 72 percent of for-profit college graduates earn less than high-school dropouts. This casts doubt on the U.S. Department of Education’s neutrality. In my opinion, there is no conspiracy theory here; it is simply an example of the manner in which the government conducts business – nonsensically
and inefficiently, all while creating regulations that keep it in the regulation-creating business.

If you can’t beat them, join them. The solution, or perhaps at least a smart business strategy, is to convert from the for-profit sector to the nonprofit sector.

Rupert Murdoch said, “The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.” Our for-profit private sector understands moving fast to market, and fast is the countermeasure that negates the catch-22 every time.

by AMERICAN WRITER
Dr. Pietro Savo © 2015

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About Dr. Pietro Savo

Dr. Pietro (Pete) Savo is a Principal Consultant with over 28 years of diverse experience in Business Strategy Improvement (BSI), Leadership Development, Operations, Engineering, Manufacturing, Quality Systems, Material Management, Supply Chain, Union Shop and consulting environments. Pietro created the term Manufacturing Research Practitioner ™ as the foundation for his Doctoral thesis dedicated to improving the United States Manufacturing Industry.  Dr. Savo has lectured at, Boeing Aircraft, Lockheed Martin, Rolls Royce, Northup Grumman, Raytheon and United Technologies on various subjects such as Lean Thinking, Leadership, Team Building, Quality Systems ISO Registrar Selection and Root Cause Analysis. Taught Root Cause Analysis for American Society for Quality (ASQ). Customized Training Specialties Leadership & Culture & Conflict Resolution Made Simple Root Cause Analysis (RCA) Problem Solving & Mistake-Proof It! Lean Manufacturing & The 6S's: Workplace Organization Evolving Quality Systems ISO 9001:2000/AS 9100:2000 Industry Evolution Building Business with the United States Government and Prime Contractors New Project Bidding Team Improvement Training “Know Your Front End” Published: Root Cause Analysis System for Problem Solving and Problem Avoidance Published: PERFECTION - 10 Secrets to Successful Lean Manufacturing Implementation. United States Navy Veteran View all posts by Dr. Pietro Savo

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