The Underachieving Education Business

NEW YORK – Capitalism has produced many high-quality products and services, from smartphones to high-speed transport and compelling entertainment. Yet the profit motive, essential in so many fields, seems to have disappointed in one crucial area: education.

In the United States, for-profit universities have a six-year graduation rate of 22%, far below the 60% achieved by not-for-profit institutions. The former spend 23% of their revenue on recruiting new students, compared with a mere 1% spent by non-profit institutions. At the primary and secondary levels, charter schools (publicly funded independent schools) run by for-profit companies are 20% less likely than non-profit institutions to meet proficiency standards, with some of the weakest results coming from the largest for-profit institutions. Even companies that provide textbooks, educational software, management systems, and student loans fail to achieve the level of excellence reached in other sectors.

For-profit education is not just a US phenomenon; it is part of a global trend. New for-profit universities are appearing wherever demand for higher education is strong. In developing Asia and Latin America, scores of new classroom and online English-language preparation programs are trying to meet demand, though it may be too early to judge their quality.

As the founder of several for-profit education companies and an adviser to many others, I have watched managers and investors (including my own) succumb to the temptation to place financial targets above academic goals. This should not be surprising – educational results take years to measure, but profits and bonuses for executives are calculated annually.