The Phaserl


An Outrage! But for Whose Benefit?

by California Lawyer, TF Metals Report:

For-profit ITT Technical Institute shuts down, leaving 40,000 students in limbo, and adding 8,000 to the unemployment rolls.  Oops, this was not the narrative that was supposed to happen.

This just in from zerohedge:

ITT Technical Institute, a for profit educational institution, is, according to them, forced to shut down after the federal government basically shut off the flow of government-guaranteed tuition.  ITT whines: “the actions of and sanctions from the U.S. Department of Education have forced us to cease operations of the ITT Technical Institutes, and we will not be offering our September quarter.”

So, with this in mind, let us examine the incentive structure, and see if we can learn any lessons.

ITT was a for-profit school.  That means they had an incentive to enroll students, that is, their profits increased from a greater number of students.  In a normal world, one without incessant government intervention and malinvestment, a prospective student would size-up the burden benefit analysis of attending ITT.  It is simple: what does it cost to graduate, versus what are the job prospects, including expected starting salary, upon graduation?  If the costs far exceed the benefits, the rational student would not pay the tuition, and would find something alternative to do, like interning for free, taking classes part time while working part time, going to a state run community college, going to a shorter trade school, or perhaps foregoing school altogether and entering the workforce in whatever capacity was available.  

But, in this government-ruined economy, the incentive structure is hopelessly out-of-kilter.  Job seekers, with no hope of actually getting a job due to QE and the economic disincentives in place, find solace in the hope of having good ol’ Uncle Sam paying the tuition for a private, profit incentivized school.  So long as Uncle Sam is paying the bill, who cares!

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