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PublicCostsofHigherEducationReport_ExecSummary_9.28.10

PublicCostsofHigherEducationReport_ExecSummary_9.28.10

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Published by HigherEdCostReport
A new debate has arisen in American higher education about the role of private for-profit institutions. While public and private not-for-profit institutions of higher learning have long dominated post-secondary education in the United States, private for-profit colleges, universities and institutes have expanded dramatically in recent years. This very rapid expansion has raised questions about rising government support for private for-profit institutions and the rising costs of government grants and loans for the students who attend them. This report provides the first comprehensive analysis of all forms of federal, state and local government support for each of the three classes of institution – for-profit, public, and private not-for-profit institutions. The data and analysis show definitively that concerns about disproportionate support for private for-profit colleges, universities and institutes and their students are misplaced.

There is a false perception that for-profit institutions cost American taxpayers significantly more money to educate students than their not-for-profit counterparts. In fact, the data show that the opposite is true.
A new debate has arisen in American higher education about the role of private for-profit institutions. While public and private not-for-profit institutions of higher learning have long dominated post-secondary education in the United States, private for-profit colleges, universities and institutes have expanded dramatically in recent years. This very rapid expansion has raised questions about rising government support for private for-profit institutions and the rising costs of government grants and loans for the students who attend them. This report provides the first comprehensive analysis of all forms of federal, state and local government support for each of the three classes of institution – for-profit, public, and private not-for-profit institutions. The data and analysis show definitively that concerns about disproportionate support for private for-profit colleges, universities and institutes and their students are misplaced.

There is a false perception that for-profit institutions cost American taxpayers significantly more money to educate students than their not-for-profit counterparts. In fact, the data show that the opposite is true.

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Published by: HigherEdCostReport on Sep 28, 2010
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09/29/2010

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The Public Costs of Higher Education:A Comparison of Public, Private Not-for-Profit,And Private For-Profit Institutions
 
Robert Shapiro and Nam Pham
1
 
 Executive Summary
A new debate has arisen in American higher education about the role of private for-profitinstitutions. While public and private not-for-profit institutions of higher learning have longdominated post-secondary education in the United States, private for-profit colleges, universitiesand institutes have expanded dramatically in recent years. This very rapid expansion has raisedquestions about rising government support for private for-profit institutions and the rising costsof government grants and loans for the students who attend them. This report provides the firstcomprehensive analysis of all forms of federal, state and local government support for each of the three classes of institution
 – 
for-profit, public, and private not-for-profit institutions. Thedata and analysis show definitively that concerns about disproportionate support for private for-profit colleges, universities and institutes and their students are misplaced.There is a false perception that for-profit institutions cost American taxpayerssignificantly more money to educate students than their not-for-profit counterparts. In fact, thedata show that the opposite is true.
 
Private for-profit institutions and their students receive less than 30 percent of thesupport per-student from all levels of government provided to public institutions andtheir students, and less than 48 percent of the support per-student received by privatenot-for-profit institutions and their students.To begin, private for-profit institutions receive very little direct support, compared topublic and private not-for-profit institutions, through government grants, appropriations andcontracts.
1
 
Robert J. Shapiro is the chairman and co-founder of Sonecon, LLC, a private firm that advises U.S. and foreign businesses,governments and non-profit organizations on market conditions and economic policy. He is also a Senior Fellow of theGeorgetown University School of Business, director of the Globalization Initiative at NDN, chair of the U.S. Climate Task Force,co-chair of the America Task Force Argentina, and a director of the Ax:son-Johnson Foundation in Sweden. From 1997 to 2001,Dr. Shapiro was Under Secretary of Commerce for Economic Affairs. Dr. Shapiro has been a Fellow of Harvard University, theBrookings Institution, and the National Bureau of Economic Research. He holds a Ph.D. and M.A. from Harvard University, aM.Sc. from the London School of Economics and Political Science, and an A.B. from the University of Chicago. He is widelypublished in scholarly and popular journals, and his most recent book is Futurecast: How Superpowers, Populations andGlobalization Will Change the Way You Live and Work, St. Martins Press: 2008.Nam D. Pham is the founder and president of NDP Group, LLC, an economics consulting firm that specializes in assessing complexissues in finance, industrial organization and international trade. Dr. Pham earned a Ph.D. in economics from the GeorgeWashington University with concentrations in international trade and finance, economic development and applied microeconomics,a M.A. from Georgetown University and a B.A. from the University of Maryland.
 
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For every $1 in direct support for private for-profit institutions, per-student, from federal,state and local governments, private not-for-profit institutions receive $8.69 per-studentand public institutions receive $19.38 per-student.Across the three classes of four-year institutions, for example, direct government grants,appropriations and contracts provide 45 percent of the revenues of public colleges anduniversities institutions, and 12.5 percent of the resources of private not-for-profit institutions,compared to just 5.5 percent of the resources of private for-profits. Moreover, private sources of revenues, such as funding from foundations and alumni, are also largely unavailable to privatefor-profit institutions. These sources provide 51 percent of the revenues of private not-for-profitcolleges and universities, and 37 percent of the revenues of public institutions, compared to just6 percent for private for-profit institutions.With such limited access to government support or other private sources of funds, four-year private for-profit institutions rely on tuitions for 88 percent of their revenues, compared to36 percent for private not-for-profits and 18 percent for public institutions.This dependence by private-for-profit institutions on tuitions, and the lower averageincomes of the households or families of the students who attend them, causes those students torely more heavily on government grants and loans. Nevertheless, the data show that the averagestudent recipient of government assistance at four-year private for-profit institutions receives lessin total grants from all levels of government than the average recipient at public or private-not-for-profit institutions. This disparity largely reflects very low levels of state and localgovernment support for students at private for-profit institutions.
 
Recipients of government grants at four-year private for-profit institutions receive anaverage of $5,952, compared to $6,638 per-recipient at public institutions and $7,351 per-recipient at private not-for-profit institutions.Because of lower family incomes and the very low levels of state and local governmentsupport, students at four-year private for-profit institutions rely more on federal loans.
 
Across four-year institutions, student borrowers at private for-profit institutions receivean average of $7,529 in federal loans, compared to $4,130 per-student borrower at publicinstitutions and $4,567 per-student borrower at private not-for-profit institutions.The cost of these federal student loans to taxpayers is based on their interest ratesubsidies and the default rates. The interest rate subsidies are the same for student-borrowers atall three classes of institutions, but the default rates are higher among students from private for-profit institutions than for those from public or private not-for-profit institutions. However, thesetaxpayer costs are more than offset by another distinction of private for-profit institutions: Theypay federal, state and local taxes on their incomes, while public and private not-for-profitinstitutions are largely tax-exempt.
 
3
 
The revenues of all private for-profit institutions were more than $20 billion in 2008,with expenditures of about $17.5 billion. At a combined 40 percent federal, state andlocal tax rate, they paid nearly $1 billion in taxes, or an average of $549 per-student.
 
These tax payments are greater than all of the direct government support private for-profit institutions receive from all levels of government.A final determination of the relative taxpayer support provided to the three classes of institutions of higher education, on a per-student basis, draws on all of these elements
 – 
directgovernment grants, appropriations and contracts to institutions from the federal, state and localgovernments; grants, interest subsidies and covered defaults for students provided by federal,state and local governments; and offsetting tax payments paid by the institutions to federal, stateand local governments. The data and analysis show that:
 
Considering all sources of support, four-year private for-profit institutions receive anaverage of $2,394 per-student in
direct and indirect federal, state and local government support 
, compared to $7,065 per-student at four-year private not-for-profit institutionsand $15,540 per-student at four-year public institutions.
 
Total federal support, direct and indirect 
, averages $2,755 per-student at four-yearprivate for-profit institutions, compared to $5,398 per-student at private not-for-profitinstitutions and $5,192 per-student at public institutions. The disparities are even greaterwith regard to direct and indirect support from state and local governments: This supportaverages $236 per-student at the private for-profit institutions, compared to $1,668 per-student at the private not-for-profit institutions and $10,348 per-student at the publicinstitutions.
 
As already noted, the
total direct support 
provided by all levels of government to four-year private for-profit institutions is negative, since they pay greater taxes than theyreceive in direct government grants, appropriations and contracts, by $22 per-student. Incontrast, direct support from all levels of government comes to $4,765 per-student forfour-year private not-for-profit institutions and $13,240 per-student for publicinstitutions.
 
The
total indirect support 
provided to these institutions by all levels of government,through federal, state and local government student grants, loan subsidies and defaultpayments, is comparable across the three classes of institutions: This support for studentsaverages $2,416 per-student at four-year, private for-profit institutions, compared to$2,301 per-student at four-year private not-for-profits, and $2,300 per-student at four-year public institutions.

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