Is Private Education Risky Business?

Follow me on ... Facebooktwittergoogle_pluspinterestlinkedinby feather

Private Education and Managing Risk

Everest InstitutePeople tend to forget the differences between public education and private education and are not aware of the risk when you give your money to a private institution. The key difference is that private education is a business, not a public service. As a business, private carries all the risks of operations etc. that any other business does. That means that if they go bankrupt, they are not likely to foreshadow to their clients that there is trouble or they will withdraw and force the bankruptcy to become a self fulfilling prophecy.

When they finally hit that wall, all monies are likely gone and mostly irretrievable.

Risks of Public Versus Private Educational Institutions?

Public

Public education has the support of government and when you pay your tuition, you have a reasonable expectation that you will either achieve your intended education, subject to being successful in your courses, or your funds will be returned should the course be withdrawn. There is no such guarantee with private education.

Private

Choosing a private education provider is much like choosing any private service provider. When a company fails, you become part of the unsecured creditor pool and have to wait and see if there is any money left after secured creditors get theirs. The likelihood of seeing your money again is very small. Of course, the service they were providing is discontinued until the company is sold or shut down. In most cases, your money is gone and  you have no hope of receiving the balance of the service you were expecting.

Can something be done to manage that risk?

Run Private Education Businesses Like Mutual Fund Companies

I used to be a consultant with one of Canada’s largest financial services companies if you are wondering how on earth I came up with this thought. Remember, the point of my blogs are simply my thinking through issues and maybe prompting discussion.

When you invest in mutual funds, your money has market risk like any investments. Should the fund management company fail, your units of ownership are protected from the fund company’s operational risks. The investment units are held in trust and management of that trust can be transferred with no loss of your investment dollars. To you, it’s just a different company on your statement letterhead and a different person acting for you. The fund management company gets paid fees based on your assets.

What if private universities, maybe even public, worked like mutual fund companies?

Imagine that when you paid your tuition, you received a specific number of units to apply to your study credits. This could be based on a dollar value or design a system reflecting the value of particular areas of study. Those units would be held in trust and a percentage taken monthly for “management fees”; or the trust could be managed by a government body or agency that would absorb the management cost.

Alternatively, the units could be separate from operational fees and the student would pay the institution a separate fee on a monthly basis. This would restrict the likelihood of loss to one month of operating costs.

man-throwing-money-1024x1024Should an institution fail, the balance of units would stay within the trust and the trust payments would transfer to a new institution. This means a new educational institution would have to assume responsibility for the service delivery and would be paid from the trust.

The cost to the student when an institution stumbles or fails would be time for transition to a new provider and maybe location before you can complete your courses. Yes, that means you might have to absorb costs related to time but that is the risk of using a private service provider. These kinds of choices should always be part of your cost benefit analysis like you would with any major purchase.

For example,

  • Would you buy a new car from a manufacturer you suspected could fail?
  • What is their service record?
  • Are there any conditions in the contract that are unacceptable?

My apologies, there I go thinking out loud again.

Does anyone else have any rambling thoughts?

Make it a great day,

Barry

P.S.  What am I thankful for today? I’m thankful I wasn’t attending Everest. I’m thankful for great educators. I’m thankful for innovative people.

What are you thankful for today?

How much justice can you afford?

Please share ... Facebooktwittergoogle_pluspinterestlinkedinmailby feather

Permanent link to this article: https://barryclermont.com/is-private-education-risky-business/

Leave a Reply

Your email address will not be published.

Do NOT follow this link or you will be banned from the site!