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For-Profit Education: For Shareholders or For Students?

August 08, 2012 By Leah Sorensen, Undergraduate Research Fellow

Private for-profit colleges and universities appeal to prospective students for many reasons. They have minimal admittance criteria, they offer flexible learning options, they are conveniently located, and they award specialized degrees and certificates.

But with corporate owners such as Goldman Sachs Group and Washington Post Co., private for-profit schools have shareholders in mind instead, some say, of students.

According to the National Center for Education Statistics, Minnesota is home to 39 private for-profit colleges and universities, many with multiple campus locations. Of Minnesota’s for-profit schools, forty-eight campus locations offer certificate programs, thirty-three locations have associate’s degree programs, twenty-nine locations have bachelor’s degree programs, and nine have advanced degree programs. Thirty of the private for-profit schools in the state offer distance learning options, and one, Walden University, educates entirely through distance learning.

For-profit colleges and universities are quick to take credit for offering higher education to historically underserved low-income and minority students. It’s true that for-profit schools typically enroll a large number of low-income and minority students. Instead of emerging with increased human capital and greater social mobility, many of those enrollees end up worse off from their time in the for-profit college system. According to a 2010 report from the U.S. Senate Committee on Health, Labor, and Pensions (HELP) entitled, “The Return of the Federal Investment in For-Profit Education: Debt Without a Diploma,” over half of the students at for-profit schools will drop out within two years of their initial enrollment.

While students are enrolling at for-profit schools in record numbers, most do not remain long enough to earn a degree. But in order to enroll and begin their degree programs, an overwhelming majority of students must take out student loans. According to the U.S. Senate HELP Committee report on federal investment in for-profit education, students at these colleges take out loans at higher rates than student at not-for-profit colleges. In 2007, 95% of students at two-year for-profit schools, 93% of students at four-year for-profit schools, 16% at community colleges, and 44.3% at four-year public universities took out student loans.

With over half of their students dropping out before obtaining a degree, and over 90% of their students taking on student loans, for-profit schools are churning out an alarming number of drop outs with student loan debt and without the financial benefits of a degree. This might help explain why for-profit college students make up only 13% of the college student population, but they amount for 47% of all student loan defaulters.

In order to bolster enrollment, and thus profits, some private for-profit schools are engaging in practices that are less than ethical. In 2010, the United States Government Accountability Office (GAO) testified before the U.S. Senate HELP Committee about the encouragement of fraud and the questionable and deceptive marketing practices taking place at private for-profit colleges.

In their investigation at 15 for-profit colleges, the GAO found 4 out of the 15 colleges in the investigation encouraged fraudulent practices, and "all 15 made deceptive or questionable statements to the GAO’s undercover applicants," according to the report.

Practices taking place at for-profit colleges, revealed by statements made to undercover applicants during the GAO’s investigation include: college personnel encouraging applicants to falsify financial aid form information to qualify for federal financial assistance, college representatives exaggerating a program’s duration costs and an applicant’s potential salary after graduation, and college representatives making false statements to undercover applicants about accreditation information and graduation rates.

For-profit schools educate only about 13% of all college students in the U.S., but they receive 25% of all student loans and grants and 38% of all post-9/11 G.I. Bill Funds, according to the U.S. Senate HELP Committee. Data from the U.S. Department of Defense (DOD) reveals that private for-profit colleges received half of all military Tuition Assistance (TA) dollars distributed in 2011, and about 60% of Military Spouse Career Advancement Accounts (MyCAA).

The federal government provides the majority of the revenue made by for-profit colleges and universities. The U.S. Senate HELP Committee (PDF, p. 10) found that approximately 86% of revenue made by for-profit education companies comes from taxpayer dollars. And the majority of those taxpayer dollars are not going towards the education of students. According to a recently released Senate report (PDF, p.7), during the 2009 fiscal year, the education companies examined by the U.S. Senate HELP Committee spent 22.7% of all revenue marketing, advertising, recruiting, and admissions staffing, and 19.4% was devoted to pre-tax profit. Only 17.2% of revenue was devoted to student instruction.

For-profit higher education needs better regulation in order to protect students and taxpayers. For our students, we must create standards of transparency that give applicants a realistic understanding of comprehensive costs, student loan responsibilities, program duration, and outcome statistics.

For our taxpayers, we must stop providing federal funding to for-profit schools that are not serving students, and stop allowing federal funds to be used on advertising and shareholder profits instead of student education and services. Sadly, this unwise use of federal dollars comes at a time when states like Minnesota are cutting back investments to public technical and community colleges, who often serve the same mission as for-profits at a much better value to students and taxpayers.

To stop exploiting students and taxpayers, we must demand that the for-profit higher education system functions not just for profit, but for education too.

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  • Darren Couillard says:

    August 14, 2012 at 10:36 am

    Be careful about using the national statistics when discussing higher education in Minnesota. On the whole we have some pretty good for-profit schools in this state, and our regulators zero in on the scammers pretty quick. Unfortunately this is not the case in every state.
    The for-profits serve an important niche in higher ed by having the flexibility to offer educational programming in response to changing marketplace skill requirements and providing educational opportunities in under-served (in terms of higher education) locales.