Why would less public funding make for-profit tuitions go up?

it is clear that tuition is going up and, at this point, it has reached the point of absurdity. children born today will incur education costs over $100,000 in public school and over $200,000 for private school. this begs the question…..why?

the first cause listed by most public schools is the drying up of public funding due to budget cuts during the recession. here in California, this has been very well documented both locally and nationally. while this might not be tasty to the palate, it is pretty simple to understand. less subsidies leave only two options – more revenue or less services/costs.

for a non-profit private colleges, its a little different, but the equation is similar. the administration is dependent on donations and endowments and the financial performance of these funds to help subsidize the operations of the organization. it is not hard to imagine that the recession of 2009 impacted the intake of donations and the market’s collapse had an impact on the performance any savings or trust funds held by the organization – especially in safe fixed income vehicles in an environment where fiscal policy make borrowing almost free. lower proceeds and lower interest income results in the same two options – more revenue or less services/costs.

what does not make sense is how this impacts for-profit institutions. the school uses the legitimate claim that, as a private entity, its tuition has to be higher than those supported by state funding. as a for-profit entity, it cannot collect donations or receive endowments. so with both of these out of the equation, why would this year be any different than the economics of last year for this school?

recently, West Coast University, a for-profit nursing school in the LA metro owned by American Career College, increased tuition for current students by 5%, despite communicating to prospective students that $130K+ tuition was “locked in” when they started the accelerated program. however, in the statement from the president, he references state school increases as the rationale for the increase at West Coast University. how did costs increase for the unsubsidized, for-profit school? more available teachers would push down labor costs. commercial real estate is less expensive than the past. demand for education is up dramatically due to the economy so marketing costs are down. what could this 5% be going to?

this circular argument only confirms that the organization gets the student both coming and going. if the economy is booming and the state funds education more, for-profits can point to the increase in funding as a reason to increase tuition (since they do not receive these funds). if budgets are stretched, the for-profits can point to cuts by the state as a reason for the increase and an unaware public accepts it.

i discussed the west coast university increase with my group of experts and, while they could not confirm the details of the decision, they did confirm that the business did not receive state funding and enjoyed what one called “dishonorable” operating margins – something north of 40% – meaning that the cost of “running the school” left at least 40 cents on every dollar for the administration to allocate to buying new buildings or land (like the OC Fairgrounds) or to hand out as bonuses.

it seems a little much when $52,000 (40%) from $130,000 tuition is not enough. recently West Coast University earned eligibility to apply for WASC accreditation. we hope that someone at WASC will look into this.