In some Latin American countries, as is the case of Colombia and Argentina, higher education institutions are not allowed to have a profit motive, at least in theory they are institutions that belong to society, but which generally have control bodies mostly collegiate.
The debate on how efficient free competition in Higher Education would be necessarily goes through the indicators that we have accepted for years to determine that it is quality education. It is feared that by allowing profit for shareholders of a university, the economic approach will lead to excessive control of expenses, which will prevent, for example, releasing budgets for research, recognized professors or publications, since these are some of the most important accepted metrics at the time. to decide if high quality university. However, it is not really taken into account how much students are learning and once they graduate and transfer to the labor market, such as their performance.
Beyond entering this debate, we are going to focus on the financial reality of a typical higher education institution with some years of activity. That reality is simple: a university has the cash cycles that any financial vice president would dream of in another economic activity., the majority of students pay for services in advance, the margins are wide (sometimes 25% of Ebitda margin in face-to-face education and more than 40% in virtual once the fixed ones are diluted), this leads to the majority of universities, accumulate excessive amounts of cash on hand or portfolio investments, in Colombia for example it is not strange to find universities with more than 5 years of Ebitda trapped in the cash, simply the activity generates a quantity of surplus cash that cannot be reinvested in academic projects, and remain in term deposit securities in banks, or in funds of commission agents and other financial intermediaries, likewise, the desire to seek inefficient mechanisms is generated in those who control the institution,and in the margin of the legal to extract that box from the institution.
In the Colombian case, student movements have been supremely active in protecting the non-profit character of the universities, in part to protect what they understand as quality education, but also led by a populist discourse that the truth does not help anyone.
Who cares that an institution has 5 years of profit invested in Certificates of Term Deposits or investment funds ?, perhaps to the banks and some lucky stockbrokers who operate them earning astronomical brokerage commissions, I do not see much socialist in that?
With the millions of dollars of cash that are trapped in the educational activity, hundreds of productive projects could be executed employing thousands of people, that if it would be inclusive and social in nature, it would trigger changes in quality of life, and surely it would offer more opportunities to the same students who with half information criticize the profit motive in education.
Why not allow the surpluses generated by the universities to be used in productive projects in association with private investors that provide the knowledge and projects in exchange for firm commitments to generate employment? It matters if those investors are the founders or directors. it generates wealth for the aggregate of the economy, jobs are created, it would be a golden opportunity for young entrepreneurs and society ultimately wins.
Would profit be viable?
The greatest danger in the for-profit education model, given the experience of countries that allow it such as the United States, is when student credit and public subsidies are added to the equation, there is an enormous danger that the university focuses on recruiting hundreds of students who apply for subsidies and credits, regardless of their repayment capacity, in the United States practices such as encouraging students to lie on their credit applications, funding for programs whose employability have come to the fore It is very low, or extreme cases such as recruiting brain veterans with brain damage in engineering careers, simply because they have access to subsidies of 100% of the tuition value.
These practices have sparked the ire of congressmen and other public officials who see how student debt grew above credit cards and automobiles and begins to emerge as the next great bubble for the US economy, much in the style of the crisis of real estate titles in 2008.
These lessons, like that of the real estate crisis, should not generate panic, but rather learning, just as many Latin American countries, such as Colombia, which had their own real estate crises in the 1990s, took the necessary measures to strengthen their financial system and Bringing your bankers to the waist, you can learn lessons from the American case, condition the delivery of credits (in fact, any credit operation is preceded by a risk analysis), and control the practices of the application advisory universities for financing.
The objective of this article is simply to highlight a reality, the educational activity accumulates an enormous amount of resources given its impressive liquidity cycle, why don't we take the time to find a way for those funds to be injected into the productive economy., become sustainable wealth, and a source of investment demanding labor?
1. EBITDA: For its acronym in English, it is the profit before depreciations, amortizations and taxes (Earnings Before Inteterest, Taxes, Depreciation and Amortization).
