Are For-Profit Colleges A Scam?

For-profit colleges are no stranger to controversy about whether they provide a quality education and the kind the career advancement promised in their marketing campaigns. A new study by Harvard economists will only add to the debate over whether students (and the federal government) are getting what they pay for. The researchers found that first-time undergraduate students at for-profit colleges have higher unemployment rates and lower earnings six years after starting school than comparable students at traditional colleges. At the six-year mark, for-profit college students earn 8 to 9% less than they would if they had attended a public or private non-profit college and are more likely to be idle – neither working nor in school. In addition, for-profit college students face higher tuition prices, accumulate more student debt, and are more likely to default on their loans.

By offering flexible programs online and at chains of campuses across the country that appeal to many non-traditional students, for-profits have become the fastest growing sector in postsecondary education and now account for 13% of new enrollments. The biggest names in the industry, like the University of Phoenix and Strayer University, post billions in profits and pay their CEOs several times what the presidents of traditional colleges earn. A big chunk of these profits are underwritten by the federal government in the form of student loans and grants. Federal student aid accounts for nearly three-fourths of the revenue of for-profit colleges, a much higher share than at non-profit colleges.

One thing for-profit colleges are good at, according to the study, is retaining students during the first year and helping them finish shorter certificate and associate degree programs. They also enroll more minority, low-income and older individuals than other colleges. This suggests that perhaps the profit motive has led for-profit schools to develop valuable techniques for attracting and retaining students who are underserved by traditional colleges. But until they can figure out how to translate their educational offerings into long-term employment and earnings benefits for students, it seems these institutions have a lot to learn.

The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?
David J. Deming, Claudia Goldin, Lawrence F. Katz // National Bureau of Economic Research // December 2011

Image Credit: Flickr user hvnly, under a Creative Commons license

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