THE BLOG
07/15/2010 09:52 pm ET Updated May 25, 2011

Don't kill the guys that will make the US #1 again

President Obama thinks the US should lead the world in post secondary degree completion by 2020. That will take more than 5 million graduates. Where will they come from?
Congress and the Department of Education are blasting the most likely source of new seats--private enterprise. States are broke and cutting higher ed budgets, but for-profit colleges continue to invest in expanded capacity.

Sen. Harkin bought the short-selling 'bubble' argument of a hedge fund manager and is attacking private operators in a recent HuffPost. While there are bad eggs--both public and private--Harkin isn't focused on cost effective strategies for improving US college completion rates. And he isn't thinking about where capacity expansion will come from--the private sector.

A few years ago I helped organize an effort to double the number of low income students that complete a college degree. I asked the respected Parthenon Group to study the issue. A Parthenon report found that most private sector providers "do a better job graduating students, deliver superior income gains, and do so at a societal cost comparable to public institutions. This is an especially important perspective, as many of these graduates represent a high-risk student profile."

Five conclusions of the report:

1. Private operators invest nearly $1 billion annually in growth

2. Private sector post secondary enrolls a higher percentage of at-risk students (1/2 compared to 1/3 in public and independent schools)

3. Private sector schools have an advantage over public institutions with a graduation rate nearly 20% higher and a 7% higher graduation and transfer rate in 2 year and shorter institutions.

4. Costs for public and private sector 2 year colleges are about the same and students who enrolled in 2-year (or shorter) institutions saw roughly comparable income gains of ~$7,500 (which is significant given the higher at-risk population served by private sector colleges).

5. Because public institutions are subsidized, debt levels for students attending private sector colleges may be higher. Students at private sector colleges have an average debt of $15,000. Because they have higher risk factors, they have higher default rates.

There is clearly some student loan abuse in the private sector, and that is worth investigating. However, the current debate fails to consider the perverse incentives created for public institutions to churn undergraduates to pay for expensive upper division programs. Private sector colleges only realize a return on their marketing dollar when students complete a course of study.

Private operators grant nearly a third of certificates and associate's degrees. It will be a higher percentage if we achieve the president's goals--that is if we don't kill them off with new regulation.

At a time of spiraling higher education cost, the innovation that private operators are bringing to the sector is the only hope for expanded access to high quality education at an affordable price. I have no financial stake in this fight, I just think we should have an honest conversation about completion goals, incentives to achieve those goals, where investment will come from, and the public-private partnerships likely to make the US the best in the world in college completion.