For-profit colleges, universities, and technical schools have gained popularity among students, and controversy among regulators, over the last decade. Investigations have uncovered scandals among popular schools such as misrepresentation of employment opportunities after graduation. The increased scrutiny led to the closure of several major schools. Other concerns include the higher cost of attendance, lower wages at graduation, increased dependence on federal and private loans to fund the educational needs of students, and higher default rates.

What Are For-Profit Schools?

The majority of college and universities have associations with either a state or church, making them nonprofit institutions;others create places of learning without to use of tax dollars, endowments, or church support. These companies may trade on investment platforms or stock markets. They have accountability to both students and shareholders, giving them a different business model than their nonprofit counterparts.

For-profit colleges and universities follow the same accreditation requirements of nonprofit schools, which allow students to apply for federal financial aid. Students, completing the FASFA form, can then qualify for federal grants and loans based on their financial need, income, and household size. Schools depend on tuition payments to fund most of the school’s budget. The majority of students attending for-profit degree programs rely on federal grants and student loans, as opposed to personal savings and scholarships, to pay for their degrees.

One key difference from nonprofits is that for-profit schools, tend to spend more money on marketing and advertising to attract and enroll students. For example, the average for-profit school spends 23% of their budget reaching out to potential students, where traditional schools spend less than 1% on promoting the school. The cost of lobbying lawmakers is the other major expense found in for-profit school budgets.

Marketing is an important difference in the school’s operations, which is the result of a different target audience:For-profit schools have seen a rise in popularity because they target non-traditional students, filling an important gap in traditional education. The working class who want to improve their job prospects with a degree have a way to obtain that education without attending full-time. Students attracted to these schools often work full time and raise families while earning their degree. They are also more likely to come from a lower income family, be a single parent, and be a first-generation college student.

Flexibility is the for profit schools’ biggest asset.The schools provide a high level of flexibility in class schedules and the time it takes to earn a degree. The schools provide targeted degrees that allow students to complete school faster in a specific field rather than a general degree. Students can take courses online or in a classroom. They can attend part time, take breaks, and other features traditional schooling does not address.

The Challenges with For-Profit Education:Respect from other universities and employers is the number one issue graduates face. Due to the non-traditional nature of for-profit schools, course credit often does not transfer. Another concern for graduates is the slow acceptance of these types of degrees among employers. Accustomed to traditional universities, employers do not always offer the same level of job opportunities.Without aggressive placement programs, the majority of for-profit institutions fall short in job placement, and wages offered their students after graduation, which schools must address.

In some cases, such as two-year degree programs, for-profit schools have a higher graduation rate than traditional programs, especially those found through community colleges. However, due to lower job placements, and lower wages, students struggle with higher rates of unemployment within the student’s field of study.

How Much Do Students Borrow?

In 2015, students graduating from nonprofit schools carried an average balance of $30,100, and 70% of students took out loans to assist with the cost of attending school. Only 19% of students borrowed funds from non-federal sources, which have higher interest rates and fewer repayment options than federal loans.

For-Profit schools make up a total of 7% of bachelor degree recipients, and approximately 12% of the students, but tend to have graduates with 43% higher student loan balances: 88% took out loans to pay for school, compared to 70% at nonprofit schools, with the average balance at graduation $39,950, as of 2012, which reflects the latest data available.

Default Rate Comparisons

Default rates are one of the key areas of concern among lawmakers. From 2010 to 2012, students graduating from for-profit schools had a 44% rate of loan default. Between 2013 and 2015, the rates of default fell to 35%, but continue to outpace nonprofit default rates. Only considering 2013, students defaulted at a rate of 15%, which remained higher than the private school rate of 7%, and public universities which saw a slight decline to 11.3%.

A loan in default considers only accounts with no payment for the previous 360 days.

Conclusion

For-profit schools offer targeted professional skills and flexibility for those trying to improve their educational outlook while working and raising a family. Their online learning and shorter paths to graduation continue to lead nonprofit schools, making them an important option for millions of people.

On the other hand, regulators have chided schools for overstating anticipated job opportunities and pay rates after graduation, without providing adequate programs to ensure students find employment matching their educational training. This gap leads to issues with student loan repayment and can saddle students with too much debt, without adequate pay increases to pay back loans.

Before enrolling in a for-profit school, complete additional due diligence to find the right program with the best opportunities after graduation.

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