For-Profit Colleges: Against Students’ Interest

Yesterday, the Senate Health, Education, Labor & Pensions (HELP) Committee issued a searing indictment of for-profit colleges. The report, “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success,” was the result of Chairman Tom Harkin (D-Iowa)’s two-year investigation into the growing for-profit higher education sector.

The report found that although for-profit colleges, in theory, have an important role to play in higher education and should be well-equipped to meet the needs of non-traditional students—such as older students and single parents—the reality is quite different.

For-profit education is a big money-making industry that puts profits ahead of student success. More widgets = more profit. Except for that the widgets in this case are students. So it’s no surprise that companies that the report examined spent $4.2 billion (with a capital “B”) on marketing and recruiting, equivalent to 22.7% of all revenue.

This incentive structure has led to aggressive, misleading, and deceptive recruiting practices that look a lot like a sales process. For example, training materials from some for-profits showed that recruiters were taught to locate and manipulate prospective students’ fears.

And it’s working! These schools sink incredible amounts of money on marketing and recruiting, and are reaping incredible profits. In 2009, publicly traded companies operating for-profit colleges had an average profit margin of nearly 20% (and paid their CEOs an average of $7.2 million).

Although a for-profit college will make an up-front investment and relentlessly push to get a student in the door, schools often lack critical services for students once they are enrolled. According to the HELP Committee report, for-profit colleges employ about 10 recruiters for every career services staff member. And before a ban on incentive compensation was re-instituted in mid-2011, recruiters’ salaries at many for-profit colleges were tied to enrolling a certain number of new students. Yes, just like a used car lot.

Many programs are expensive—most for-profit colleges charge higher tuition than comparable programs at community colleges and even at flagship state universities. (To illustrate, the report found that bachelor’s degree at for-profits averaged 20% more expensive than the analogous programs at flagship public schools.)

Students end up taking on loads of debt. According to the U.S. Department of Education, 96% (!!!) of for-profit students take out student loans, compared to just 13% of students at community colleges, 48% at 4-year public, and 57% at 4-year private non-profit colleges.

These programs aren’t just costing individual students, they’re costing American taxpayers. Federal taxpayers spent $32 billion (yep, there’s that capital “B” again) on for-profit colleges in 2009-10, which accounts for a full quarter of the federal student aid doled out by the Department of Education.

But—here’s the kicker—over half of the students who enrolled in for-profit colleges in 2008-09 left without a degree or diploma.

Which, of course, makes it harder to find work. According to a National Center for Education Statistics study cited in the report, 23% of students who attended for-profit schools in 2008-9 were unemployed and seeking work.

And without a job, paying off your student loans gets harder. That may help explain why students who attended a for-profit college accounted for 47% of all federal student loan defaults.

The problem isn’t going away. In fact, the for-profit college industry has experienced tremendous growth over the last decade. In 1998, just over 550,000 students were enrolled in for-profits. Ten years later, enrollment was nearly 1.8 million (an increase of over 225%).

And who does this affect? Well, let’s see, students of color, low-income students, women, and armed-service members and veterans. These groups are overrepresented on for-profit campuses (or digital campuses since many for-profits operate only or primarily online). For example, women make up almost two-thirds (64%) of the undergraduates attending for-profit colleges, and three out of four (75%) of students at for-profit colleges of less than two years. To compare, women make up 55% of those attending public colleges of all levels.

So what can we do? The HELP Committee report placed a hefty amount of blame at the feet of lax government agencies, and set out a number of concrete suggestions to reform the for-profit college system. For example, it proposed enhancing transparency by collecting relevant and accurate information on student outcomes, strengthening the oversight of federal financial aid, and creating other meaningful protections for students.

Sounds good—sign me up (but not for a for-profit degree program)!