For-Profit Colleges:
What Every Student Should Know

Advertisements tout for-profit as a great way to improve career prospects, but persistent scandals and subsequent government intervention have turned "for-profit education" into dirty words. As with most controversial topics, the reality falls somewhere in the middle. There are a few things students considering getting a degree at a for-profit institution need to know.

For-profit colleges make frequent appearances in today's news, which may make them seem like new developments, but these schools have a long history in the United States. For-profit colleges in the 19th century played a similar role to those we have today in that they focused on professional training specific to particular jobs and they opened up education to low-income students who couldn't afford liberal arts colleges.

For-profit colleges saw a boom in popularity during the first decade of the 2000s, just as online education became more accessible and, thus, more popular. From 2000-2010, the number of students enrolled in private, for-profit colleges increased from 403,000 to 1.7 million students — 329% — according to the National Center for Education Statistics (NCES). During the same period, enrollment increased 30% at public institutions and 20% at private nonprofit colleges.

For-profit schools were some of the first to embrace online learning. They introduced students to the idea of earning a degree at home while on their own schedule. For a time, "online learning" and "for-profit education" were almost synonymous.

That's changing as more nonprofit institutions embrace online programs. Since hitting that peak in 2010, enrollment in private for-profit colleges has drastically decreased. Despite these lower enrollments and continuous criticism for using predatory marketing practices, for-profit schools have stuck around.

Criticisms of For-Profit Schools

For-profit colleges have been criticized on several fronts. In addition to aggressive, often manipulative marketing tactics, which exploit vulnerable populations, for-profit universities are no longer the budget-friendly option. According to U.S. News & World Report, degree seekers enrolled in for-profit schools pay more than double what they would at public state schools. An astounding 90% of graduates from for-profit schools carry student loans, averaging $40,000 per student.

For-profit colleges and universities also face a widening employment gap. As Forbes reported recently, graduates from for-profit schools suffer higher unemployment rates than state school graduates. According to the Center for Analysis of Postsecondary Education and Employment, 29% of learners from for-profit schools who began college in the 2003-04 were unemployed in 2009. Lack of employment translates to inability to pay off student loans, providing further challenges to for-profit graduates.

Government Intervention

Criticism of for-profit schools led to effective yet unstable government regulation of the industry. Under the Obama administration, the U.S. Department of Education (ED) actively discouraged enrollment in for-profit universities, pushing for more oversight and accountability. In 2011, the administration implemented new regulations aimed at protecting students. Regulations included a gainful employment rule, which requires all higher education institutions to prepare learners for gainful employment in a recognized occupation or risk losing federal aid for their programs.

These new rules were updated in 2014 with even stronger language directed at for-profit universities, citing predatory practices designed to increase revenue and federal aid without consideration for learners' job prospects. This led to a significant decrease in overall for-profit school enrollment.

But regulations are subject to rollbacks, and oversight strategies change with the federal administration. In 2018, newly minted ED Secretary Betsy DeVos announced she would not renew the gainful employment regulation, allowing for-profit schools to resume their previous practices. However, her other efforts to repeal Obama-era regulations have been met with resistance in the court system.

For-Profit Schools in the News

Growing criticism and varied governmental response has elevated the profile of for-profit schools in the news. For example, Forbes drew attention to an overall decrease in enrollment as a result of Obama-era regulations. Many high-profile for-profit schools incurred fines for fraudulent practices and were forced to shutter their businesses, including Corinthian Colleges.

Other news outlets question how and why for-profit schools are still able to operate under current restrictions. Recent reporting by NPR noted that enrollment declines and school closings continue, despite easing regulations in Washington, D.C. As the report suggests, this stagnation raises important questions about the future of the industry and whether it will ever recover its public reputation.

The Financial Costs of For-Profit Schools

So much of the criticism levied at for-profit colleges has to do with money; they're accused of overcharging students for lower-quality education. A 2018 survey by Student Loan Hero examined tuition data from ED and found that the average cost of tuition at a for-profit school is higher than that of a public nonprofit. The cost-per-credit at a four-year, for-profit college was reported at $647 — double the cost of a public four-year school.

In spite of higher costs, for-profit schools often pay faculty members less than their nonprofit counterparts. Below is the average salary for full-time faculty during the 2016-17 academic year.

Doctoral Nonprofit Private Colleges $108,420
Doctoral Public Colleges $91,790
Private Nonprofit Bachelor's Colleges $73,300
Public Bachelor's Colleges $66,870
Public Two-Year Colleges $67,680
For-Profit Colleges $59,500

The faculty pay rates aren't the only gauge for educational quality, and it's possible that for-profit institutions attract great instructors in spite of the lower salary. But if the higher tuition isn't going toward hiring better teachers, where are the schools spending it?

Why For-Profit Colleges Are Expensive

Expenses for higher education programs are complicated and hard to fully quantify. Even so, there's evidence that much of the spending at for-profit colleges goes toward costs that don't directly benefit students — namely, advertising and lobbying.

In 2012, the University of Phoenix was the top advertiser on Google, spending close to $400,000 per day. And they weren't the only ones — in 2009, one study of 15 for-profit colleges found they spent an average of 23% of their budget on advertising, marketing, and recruitment, whereas nonprofit institutions averaged less than 1%. A more recent study from the NCES using data from 2016 found that private for-profit schools used 25.5% percent of their budget on instruction, compared with 28.7% at public nonprofits and 31.9% at private nonprofits.

Another big expense for for-profit schools is lobbying in Congress. In 2017-2018, for-profit schools contributed thousands of dollars to senators, representatives, and partisan political groups. Top contributors included Apollo Education Group ($1.2 million), Adtalem Global Education ($670,000), and American Public University System ($487,000). Because for-profit schools can collect federal student aid, lobbying against stricter regulations for higher education directly affects the schools' bottom lines.

The Typical For-Profit College Student

Demographic information for for-profit universities illustrates why the higher price tag is a problem: These students are from vulnerable populations. They tend to be:

  • Low Income: The Institute for Higher Education Policy (IHEP) found that 19% of low-income adults between the ages of 18 and 26 were enrolled at for-profit institutions, compared to only 5% of high-income young adults. Meanwhile, low-income young adult enrollment at public four-year institutions decreased from 20% to 15% between 2000 and 2008.
  • Women: Low-income women are twice as likely as low-income men to enroll in for-profit universities at the outset of their higher education careers, and three times more likely than women from high-income groups.
  • People of Color: During the recession, African-American enrollment at for-profits grew 264%, and the top schools graduating black students in 2011 were the University of Phoenix and Ashford College — both for-profit colleges. IHEP also reported a disproportionate number of Hispanic women in for-profit college student bodies.
  • Military Veterans: Because military veterans have access to more federal aid than the general population, many for-profit colleges target them specifically. In 2012-2013, when overall enrollment at for-profit colleges declined, veteran enrollment went up.

The (Other) Consequences of For-Profit Colleges

The higher costs of for-profit schools don't pay off when students that find their degrees aren't worth what they expected. For-profit schools tend to have weak reputations in the higher education space, and students who try to transfer credits from for-profit colleges to nonprofit schools often can't. Some for-profit schools actively lie about this during the enrollment process.

Studies have found that certificate-earners at for-profit colleges are less likely to find employment after graduation and end up making significantly less than their nonprofit counterparts. As more students graduate without opportunities to find better work, they default on their student loans. A 2018 report from the Brookings Institute examining student debt and repayment trends over the past several years found that the loan default rate for for-profit borrowers was twice that of public two-year borrowers.

Are For-Profit Schools All Bad?

It's easy to think that nothing good has ever come from for-profit education, especially with recent criticisms that imply for-profit colleges intentionally do harm. However, for-profit education does have its defenders. For one thing, some problems are not unique to for-profit schools — high costs and low retention rates plague higher education across the board. For some degrees, especially two-year programs, for-profit colleges have higher graduation rates than their nonprofit counterparts.

Defenders also argue that higher loan default rates at for-profit colleges exist because for-profit colleges admit high-risk students. Only 75% of students enrolled at two-year for-profit schools in 2012 held high school diplomas, compared to 88% at public two-year schools. What's more, 47% of students at for-profit universities also had full-time jobs, compared to 15-33% at other institutions, which could explain lower graduation rates.

At-risk demographics — women, minorities, low-income students, and veterans — see worse employment outcomes in general, and these groups are overrepresented in for-profit schools. In light of this, is it any wonder that for-profit graduates have a harder time finding jobs and making loan payments?

The Benefits of For-Profit Colleges

Despite the scandals and the costs, people keep enrolling in for-profit colleges. Aggressive marketing probably plays a role, but there is also some value in what for-profit colleges offer, which is what keeps enrollment rates up.

They Offer Greater Flexibility

While some nonprofit colleges have begun to offer more online courses, they still lag behind for-profit institutions. Online programs allow students to complete courses at their own pace from the comfort of their own homes.

For students who must work full-time or raise kids, taking courses at the local public university sounds great, but is impractical. The flexibility of online courses puts higher education within reach for people who couldn't otherwise manage it.

They Meet a Demand

Many people headed back to school during the recession, but the growing costs of four-year colleges drove many of those people to community colleges. Community colleges attract similar demographics to for-profit school, but they face overcrowding and funding challenges.

Some community colleges are hit harder than others, so some cities face no difficulty here. However, in some places, community college students can't get into the classes they need or get attention from their instructors due to student overpopulation. For students in this situation, for-profit programs start to look like an attractive alternative despite the higher cost.

Expanding educational opportunities to more non-traditional students who want better professional options is an important goal, and for-profit schools are one solution to the problem. However, many for-profit colleges haven't been doing a great job living up to that ideal. Too many schools are more focused on the bottom line than on improving the livelihoods of their students. Luckily, some forces are working to change that.

The Future of For-Profit Education

The Trump administration has been friendly toward for-profit colleges, both rolling back Obama-era regulations and implementing new policy measures designed to improve conditions for for-profit universities. For example, the gainful employment rule, which required schools to offer degrees with specific job prospects, will expire without renewal in July of 2019, according to the New York Times.

Meanwhile, the Securities and Exchange Commission, which is an independent federal agency tasked with enforcing regulations and protecting investors, levied fines against former executives of Corinthian Colleges, a now-defunct for-profit school based in California. According to a recent Los Angeles Times report, former Corinthian executives were fined a combined $100,000 for defrauding low-income students out of $100 million in federal student loans. Similar lawsuits face other shuttered for-profit colleges.

Given the tension between changing federal regulation, legal outcomes, and the continued collapse of the industry due to reduced enrollment, the future of for-profit colleges is uncertain.

What All This Means for Students

In short, don't just listen to what a college representative has to say: Get online and do your own research about schools that attract your interest. This advice is important for any school, but especially for for-profit institutions.

Your education is too important to take chances on, especially if you're seeking greater employment opportunities. Before you commit to any higher education program, check their rankings, accreditation status, and overall reputation.