Corinthian Colleges, a for-profit institution, is closing 28 campuses, including two in Arizona. The closures come after a $30 million dollar fine by the Department of Education for misrepresentation. Dr. Barry Bozeman, the head of the Center for Organization Research and Design at Arizona State University, will discuss the closure and the current state of for-profit universities.
Ted Simons: Good evening, and welcome to "Arizona Horizon," I'm Ted Simons. Corinthian Colleges, a for-profit institution, is closing 28 campuses including two in Arizona. The closures come after the U.S. Department of Education fined Corinthian $30 million for misrepresentation. Dr. Barry Bozeman from ASU's Center for Organization Research and Design is here to talk about the closures and the current state of for profit Universities. What happened to Corinthian Colleges?
Barry Bozeman: They were fined for misrepresentation. The fines were rather substantial. They were already hovering on the brink of financial collapse, and I think it just kind of put them over the edge. Basically what happened is some bad business practices paid off in the short run but not in the long run.
Ted Simons: What does misrepresentation mean?
Barry Bozeman: Well, they were making claim busy particularly the placement of their students that were not just generally deceptive, they were absolutely false claims. So for example the government report cited 900 cases of instances where they had made claims about employment that were not true, including for some people who had not even matriculated as yet were listed as employed. One of the classic cases, they had an individual who was listed as having an accounting professional job who was actually working as a service worker in Taco Bell. So then those kinds of anecdotal cases as well as some statistics about people's placements were completely wrong and got them in a lot of trouble.
Ted Simons: What about grades and attendance records and those things?
Barry Bozeman: The bookkeeping was not their strong suit generally speaking.
Ted Simons: You mentioned cash shortages, as well. There were fraud allegations?
Barry Bozeman: That's right.
Ted Simons: Was this unusual? We will get into for-profit colleges in general, but this sounds somewhat unusual.
Barry Bozeman: I hope so. We don't know a great deal about for-profits. They haven't been particularly transparent. That's true of a lot of businesses. In some cases it's better to have a little closer record-keeping and visibility and transparency with colleges, Universities, because they obviously have a clientele that's in some respects young and vulnerable and not particularly knowledgeable about the operations of the enterprise. And so one of the good effects is maybe we'll have a little more transparency in general.
Ted Simons: Let's talk about how for-profit colleges and Universities work.
The first thing to understand as far as the kinds of goods and services, there's quite a bit of diversity. But the business model is not that diversity. For the most part the life blood of for-profit colleges is students' tuition, purchased tuition. That comes primarily from government loans in most cases. For example, in the case of Corinthian there was more than a billion dollars, about a billion five of government loans outstanding to pay their tuition. We think of these for-profit Universities as being very much market driven. But like a lot of market-based organizations, they are also very dependent on government. In fact, the dependence on government is higher than most state Universities. I think that will begin to change, but that's the part of the business model that's pretty common. The actual goods and services are different but dependence on tuition of course, as you know, most traditional Universities, particularly large ones. Tuition is very important but it's only part of the answer. At Arizona state for example, it's a minority of our expenditures that are tuition-based, and that's true of most Universitieses nowadays.
Ted Simons: As far as the for-profit colleges, are the students there getting good educations?
Barry Bozeman: They are in some cases and in some cases they are not. So in part, the question is, compared to what. In some cases they are getting an education that would be comparable to what you would receive at some community colleges but usually at a much higher fee. There are a few cases, not very many where I think they are getting education that's kind of a niche program that's not staffed as well and people are getting University education of a sort they wouldn't easily get. Not many examples but there are some. But in the vast majority of cases in my opinion, it is better to get a better education, more productive education from a better trained faculty somewhere else for less money.
Ted Simons: True or false: They spend less per student on instruction than they get from federal aid. True is it?
Barry Bozeman: That's true.
Ted Simons: That seems a little concerning.
Barry Bozeman: It is. In fact, their expenditures per student tend to be much lower than traditional universities. The expenditures on marketing and student acquisition tend to be very much higher and they tend to be very much more innovative on the ways they do that, as well. They spend a lot on recruiters. If you look at the portion of money going into recruiters and for-profits it's usually much higher.
Ted Simons: It always amazes me when you hear the leader is not a President, it's the CEO. Are these places inherently bad?
Barry Bozeman: No, no. In many cases we have a very significant concern about the productivity and sometimes even the ethics of for-profit colleges, but they are not inherently bad. Some are doing useful things. Some are being painted by the same brush bad characters are being tainted with, and that's unfortunate. It's just that right now we are in a position where they have been able to take advantage of limited regulation, limited oversight, limited information being provided to people. And so we have probably a lot more bad actors and just worse business than we would anticipate in most fields. But there's certainly room for them, I hope there is. Many of them are capable of doing things that would be useful and have social value and I think they will. But they are going to be changing a great deal in the next couple of years. Many of them are not going to be in business. The ones who are are going to be doing give things than they are now.
Ted Simons: Because of increased oversight, regulation information as you mentioned?
Barry Bozeman: It's all of those things taken together because of some of the publicity going on with investigations, like for example the Congressional investigation in 2012 was a landmark. Many state commissions have been investigating for-profits. And so I think the tide has turned so that the ability to operate in kind of a vacuum is actually very much on the decline. I think what we're going see is that some of them will actually turn out to be healthy contributors and in some cases they will require reforms but there's still a role for them to play.
Ted Simons: Interesting stuff. Good to have you here, thanks for joining us.
Barry Bozeman: Thank you very much.
Dr. Barry Bozeman:Director, Center for Organization Research and Design at Arizona State University;
