Study on the Public Cost of Higher Education Shows Public Institutions Receive More than Three Times the Taxpayer Support of their For-Profit Counterparts

Sep 28, 2010, 15:29 ET from Sonecon

Sonecon Analysis Compares Government Funding Levels and Taxpayer Burden across Public, Private Not-for-Profit, and Private For-Profit Institutions

Analysis Includes both Direct and Indirect Government Support and Subsidies

NEW YORK, Sept. 28 /PRNewswire-USNewswire/ -- The American taxpayer actually pays three times more to educate students, on a per-student basis, at public post-secondary institutions than for students at private for-profit colleges, according to a newly released study, "The Public Costs of Higher Education: A Comparison of Public, Private Not-for-Profit And Private For-Profit Institutions."

The study was conducted by Dr. Robert J. Shapiro and Dr. Nam D. Pham for Sonecon, a leading independent economic advisory firm.  It was commissioned by Kaplan, Inc., DeVry Inc. and Education Management Corporation (EDMC).  Unlike many recent studies that focus solely on indirect support through federal grants loans to students, this study considers both direct and indirect government sources, including federal, state and local government grants, appropriations and contracts with institutions, the taxes paid to government by the different types of institutions, as well as the indirect government support.  This indirect taxpayer support is provided through government grants and loans to qualified students, who are free to use the funds at the institution they choose.  The direct government support is provided to the institutions themselves, to support and subsidize their operations.  Unlike most studies, the analysis also examines four-year, two-year, and less-than-two-year institutions in each class of institution (public, private not-for-profit, and private for-profit) separately and in combination.

"There is an erroneous perception that for-profit institutions cost American taxpayers significantly more money to educate students than their not-for-profit counterparts," said Shapiro.  "The analysis dispels this view and finds that American taxpayers actually spend three times as much to send a student through our public colleges and universities, and twice as much to support a student through our private not-for-profit schools, as they do to send a student through our private for-profit institutions.   We also calculated that it will taxpayers $33 billion more to carry out President Obama's proposal to create another five million associate degrees and certificates if only public institutions are allowed to participate, and private for-profit and not-for-profit institutions are left out."

At a for-profit institution of higher education, the student bears a larger share of his or her costs and risks, since the largest form of government support for the education comes in the form of government loans to the student.  This is in contrast to traditional colleges, universities and institutes, for which taxpayers much more of the costs and risks associated with student outcomes, by providing large, direct operating support and subsidies, in addition to student financial assistance.

The analysis also found that for-profit institutions enroll larger shares of minority and low-income students; and that "at-risk" or "high-risk" students are significantly more likely to graduate if they enroll in a private for-profit institution than in a public college or university.

Among the study's top-line findings:

  • Private for-profit institutions and their students receive less than 30 percent of the combined support from all levels of government, on a per-student basis, provided to public institutions and their students, and less than 48 percent of the support per-student received by private not-for-profit institutions and their students.
  • For every dollar in direct government support for private, for-profit institutions, per-student, public institutions receive $19.68 per-student and private non-profit institutions receive $8.69 per- student.
  • Taxpayers spend, on average, 6.5 times more to educate a student at a four-year public university than to educate a student at a four-year for-profit institution.  Similarly, the total taxpayer cost for a student attending a private, non-profit college is three times greater than the taxpayer cost for a student attending a for-profit school.  For two-year institutions, taxpayers spend nearly twice as much per-year to support a student at a public school as at a for-profit institution, and 45 percent more per-student at a two-year private not-for-profit institution as at the private for-profit school.
  • In contrast to public and private not-for-profit institutions, the operations of private for-profits are not exempt from taxation; These institutions pay taxes at all levels of government which, in the aggregate, actually exceed the direct support they receive from government.  In 2008, for-profit educational institutions paid nearly $1 billion in taxes, or an average of $549 per-student.
  • The total direct support provided by all levels of government to four-year private for-profit schools, therefore, is negative: These institutions pay $22 more per-student in taxes than they receive per-student in direct support. By contrast, four-year private not-for-profit schools receive $4,765 per-student in direct support and four-year public institutions receive $13,240 per-student.
  • The total indirect taxpayer support provided by all levels of government in loans and grants to students at four-year institutions is roughly comparable:  $2,416 per-student at private for-profits; $2,301 per-student at private not-for-profits; and $2,300 per-student at public institutions.  This per-student taxpayer cost for loans and grants to students at two-year private for-profit institutions is also comparable to the same support for students at two-year private not-for-profit schools.  The cost of this indirect support for students at two-year public institutions, however, is lower.

Taxpayer Implications of President Obama's Proposal to Expand Enrollments in Higher Education

The Sonecon study also considers the public costs of President Obama's ambitious education goal of producing five million additional associate degrees and certificates from two-year and less-than-two-year public institutions.  Factoring in an average graduation rate of 32.4 percent for two-year and less-than- two-year institutions, roughly 15 million students would have to be enrolled to meet the President's stated goal.  The analysis found that the cost to taxpayers of meeting this goal would be $246 billion if only public institutions participate, compared to $213 billion if all three classes of institutions—public, private not-for-profit and private for-profit—all participate, based on their current shares of total enrollments.  The $33 billion saving to taxpayers is driven by the lower taxpayer cost per-student at for-profit institutions versus public institutions ($3,628 vs. $6,919) and the higher graduation rates at two-year for-profit institutions (65%) versus public two-year schools (28%).

Measures of Confidence

This study on relative costs to taxpayers of the different classes of institutions can be viewed along with other research that measures quality and outcomes for students attending these institutions.  A March 2010 study by The Parthenon Group titled "Perspectives on Private Sector Post-Secondary School," for example, found that after graduating from private for-profit schools, students experience average income gains of 54 percent; compared to average income gains of 36 percent for students graduating from public institutions.  In addition, an analysis of the federal loan recovery program prepared by the Office of Management and Budget (OMB) found that the government makes money on the total loans it issues, including those that go into default. The recovery rate for all student loans on a combined basis is 122%, according to OMB assumptions underlying their 2010 subsidy estimates.


About the Study

The Sonecon study draws on the full academic literature on the costs and economics of higher education, as well as advanced statistical analysis of the public databases of the Department of Education on student enrollments, graduation rates, loans, grants, and defaults, as well as all forms of federal, state and local spending for higher education.

The study was co-authored by Robert J. Shapiro and Nam D. Pham.  Dr. Shapiro is the co-founder and chairman of the economic advisory firm Sonecon, a Senior Fellow of the Georgetown University School of Business, the director of the Globalization Initiative at NDN, the chairman of the U.S. Climate Task Force, and the co-chair of American Task Force Argentina.  He also served as U.S. Under Secretary of Commerce for Economic Affairs, a fellow of Harvard University and the National Bureau of Economic Research, the chief economic advisor to Bill Clinton in the 1991-1992 presidential campaign, and the legislative director for Senator Daniel Patrick Moynihan.  Dr. Pham is the founder and president of NDP Group, LLC, an economic consulting firm that specializes in assessing complex issues in public finance and business organization.  He also served as Chief Economist for the Asia Region of Standard & Poor's DRI in Boston, economist at the World Bank, and consultant to the Department of Commerce and Federal Trade Commission.

SOURCE Sonecon