The For-Profit College Industry: Dropouts, Debt and Padlocked Doors

The promise of the for-profit college is a no-frills, career focused path to a job that is available to all.  It might leave you with a certificate in areas like law enforcement, automotive technician, cosmetology, or video game design. There are no fraternities, performing arts centers or football teams. You don’t necessarily have to be on a campus and you may not need to follow a rigorous academic schedule. In fact you might never need to leave your room.

For-profit college student bodies skew older than traditional colleges and they are substantially more female. The average age of the for-profit college student is 31. They have often been positioned as an alternative for portions of the population who are underserved by the public college and university community. They are also very much a second chance outlet: your high school record, SAT or ACT scores, are irrelevant.

And yet the education-for-profit industry in the U.S. is tanking. And there are a number of good reasons why.

  1. The fact that the goal of the for-profit college is profit changes the way decisions are made about investment and education. Shareholders are the key constituents, not students. How do you maximize profit? By charging a lot and spending a little. A report issued by the U.S. Senate Health, Education, Labor and Pensions Committee in 2012 reported they spend an average of 17.7 percent of their revenue on student instruction. Where else does the revenue go? A lot goes into advertising and marketing, some goes to shareholders and some to executive compensation. That same Senate committee identified the average compensation package for the CEO of a publicly-traded education corporation at $7.3 million. And that was back in 2012.
  2. The for-profit college is not substantially cheaper than traditional colleges. Costs fall in-between those of public and private non-profit schools. US News and World Report listed the average cost of tuition and fees at for-profit colleges in 2019 at $17,000 annually. Thus they are more expensive than community colleges or 4-year public universities.
  3. On the whole the outcomes for students who choose to enter for-profit colleges are woeful. According to U.S. News and World Report, only about 30% of students who enroll in for-profit colleges graduate after five years. Those that do graduate generally emerge with earnings potential that is less than graduates of public institutions, and often less than what graduates need to make to pay off their student loans.
  4. You have a good chance of coming out of a for-profit college in worse shape than when you started. That’s because of debt. The Senate committee report found that while for-profits enrolled only about 13% of the nation’s college student population, for-profit students represented 47% of the loan defaults. The National Center for Education Statistics pegs the 12 year for-profit student loan default rate at 65.7%.
  5. If you move on to another institution or chose to continue your education by seeking a more advanced degree, you’re likely to find your for-profit college experience to be useless. Former Department of Education appointee Michael Itzkowitz has reported statistics that show 94% of credit earned at for-profit schools won’t be accepted by community colleges or other institutions. In fact 83% won’t even be deemed acceptable at another for-profit.
Cost of college cartoon

As taxpayers, we are all paying for these so-called educational institutions because they completely depend upon public funds to pay the tuition of students who are more likely to default on their loans than they are to graduate. That same Senate report from 2012 found that 86% of for-profit college revenue came from federal loans and grants. For the largest of the for-profits, the University of Phoenix, 86% comes from federal financial aid and another 3% comes from the Department of Defense in the form of GI Bill benefits. According to The Century Foundation, “It is now widely acknowledged that many for-profit colleges engaged in unsavory practices to maintain the flow of taxpayer dollars. By marketing to veterans and low-income students eligible for the maximum amount of federal financial aid,, owners grew their schools rapidly, while overcharging and under-delivering along the way.”

What’s more, you never know whether you’re going to come to class and find the doors padlocked. Since 2010, 40% of all for-profit colleges have closed. Between 2014-16 alone, 180 for-profit college campuses shut their doors. Of all the colleges that have closed since 2013, 95% of them were for-profits. 

empty classroom
(image by Nathan Dumlao)

Thus, in spite of the efforts of the current administration in Washington and the Secretary of Education to protect and expand for-profit education, this industry is in free-fall. For-profit student enrollment peaked in 2010 at 2 million according to the National Student Clearinghouse Research Center statistics. In 2017 that number had dropped to 900,000 and two years later it was just short of 750,000.

In this series of posts, I’ll look at the history of non-profit colleges in the U.S., provide some case studies of these companies and report how the DeVos Department of Education continues to try to enable for-profit education.

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18 Responses to The For-Profit College Industry: Dropouts, Debt and Padlocked Doors

  1. Henry Lewis says:

    Thanks for putting this together Ken. As you’ve stated, many students have been taken advantage of by these for-profit colleges. I had a friend in Seattle who got totally ripped off by the Seattle Art Institute and was left with thousands of $$$ in student loan debt and had nothing to show for it–no certification etc, because the place closed down without notice. As Secretary of Education, Betsy DeVos has done a great job of protecting predatory ‘educational’ institutions but a TERRIBLE job of protecting students who were foolish enough to believe the hype put out by these robbers!

    Liked by 2 people

  2. Pam Lazos says:

    Wow, I had no idea there was even a distinction between for-profit and regular college, Ken. This is so disturbing. So Trump University would fall in the former category?

    Liked by 1 person

  3. ragnarsbhut says:

    What is wrong with colleges operating on a for profit basis? That has to be paid for somehow. All of this advocacy for “free” things disregards the costs that are incurred by other people.

    Like

    • Ken Dowell says:

      What is wrong is not what they charge or how they profit, it’s that students are getting nothing for their money, except a lot of debt.

      Like

      • ragnarsbhut says:

        Ken Dowell, if they paid attention in class, they would be better off. Why should a rich person be required to pay for anyone who wants to go to college to be able to attend?

        Like

      • Ken Dowell says:

        I think you’re missing the point. This is not an argument for free college. What I am trying to point out is that taxpayers shouldn’t be funding for-profit colleges that misrepresent what they offer. This happens because almost all of the tuition comes from federal loans and grants. Yet the vast majority of students never graduate, those that do often find themselves no better off than when they started and many of them default on their loans. So who’s paying for these sub-standard educational institutions? You and me when we pay federal taxes.

        Like

  4. ragnarsbhut says:

    Ken Dowell, here is a video for you: https://www.youtube.com/watch?v=0e50fQLyebI This was painful to watch because the interviewee had no effective arguments to validate the idea that college should be free.

    Like

  5. A fascinating and well-researched analysis of such an important topic, Ken. I look forward to the rest of the series!

    Liked by 2 people

  6. Pingback: Blame Ben Franklin: The History of For-Profit Colleges | off the leash

  7. ragnarsbhut says:

    Carol A. Hand, be sure to watch the video I linked in my response to Ken Dowell and give me feedback at your convenience.

    Like

  8. Pingback: Can Betsy DeVos Save the For-Profit College Industry? | off the leash

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