An analysis of consumer affairs in ladies and gentlemen

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An analysis of consumer affairs in ladies and gentlemen

Many students that had enrolled in for-profit colleges were left with huge student loan debts and little else to show for their education investment.

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Meanwhile, taxpayers shelled out billions of dollars in financing and tax breaks for these schools, with little accountability to ensure that their students were getting an education that would lead to gainful employment. Today, many of these for-profit institutions find themselves on the defensive and are now being scrutinized more closely, both by the government agencies that finance them and by consumers who may seek, instead, to enroll at public and other nonprofit institutions.

High-profit, high-enrollment schools such as ITT Tech, DeVry, and the University of Phoenix are allowed to continue to participate in the federal loan program, but under even stricter rules. The owners of some for-profit institutions have sought to switch their schools to nonprofit status, freeing them from the regulatory burdens of for-profit colleges, while continuing to reap the personal financial benefits of for-profit ownership.

An analysis of consumer affairs in ladies and gentlemen

Department of Education records and communications that call into question the legitimacy of some of these conversions. Sign up for updates.

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Sign Up Follow us This report begins by describing the role of nonprofit governance in promoting good stewardship in education and the problems that have resulted from unrestrained profit-seeking in American higher education.

The case studies then lay out four instances of possible covert for-profits, where owners have managed to affix a nonprofit label to their colleges while engineering substantial ongoing personal financial benefits for themselves.

The report concludes with specific steps government regulators should take to prevent illegitimate claims to nonprofit status and to protect students and the public interest.

Two core requirements are designed to offer that assurance. First, anyone who is paid is, ultimately, answerable to someone who is not. They are unpaid except in special circumstances so that their judgment of what is best for students or society is not skewed by a personal financial interest.

Second, any money that is earned by the organization beyond what is needed to pay expenses the amounts that would be profit in a for-profit entity is reinvested in the organization.

The Public Trust Purpose of Nonprofits

In other words, no one owns stock or shares that can be sold or earn dividends. The trustees control the organization in the same way that owners would, but they cannot take the money for themselves.

The unpaid trustees are seen as such a bulwark against abuse that the organizations are, in some cases, allowed to engage in practices that would be illegal in a for-profit context.

Many nonprofits, for example, involve vast numbers of people who work for free as volunteers, a practice that is highly restricted in the for-profit environment. Imagine a supermarket or snack food chain enlisting two million underage girls to sell cookies: Yet the nonprofit Girl Scouts do exactly that every year, selling million overpriced cookies baked by for-profit contractor bakeries.

Compared to the supermarket owner or cookie baker, the Girl Scout councils are far more likely to make decisions that truly benefit the girls—because council members do not have a personal financial interest.

They are not allowed to keep the money for themselves. The nonprofit organization that runs Wikipedia offers a different type of example of how being a nonprofit affects the decisions that are made.

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People who are not allowed to take it. It is a different beast as a result of being structured without owner-investors.

An analysis of consumer affairs in ladies and gentlemen

The ability of investors to pocket whatever often taxpayer-supplied funds that are not already spent, or to buy and sell shares in the business organization, can prompt noticeably different choices on a range of institutional decision points, such as: Which students to recruit and enroll; whether to enroll students who are on the borderline of academic qualifications.

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