At more than $1 trillion, student debt in the U.S. is now bigger than credit card debt and auto loans, second only to mortgages. According to the U.S. Department of Education, for-profit colleges and universities account for nearly a third of that debt, despite having only 13% of the country’s students. These schools experienced a surge of growth and popularity, with undergraduate enrollment increasing by 634% between 1990 and 2012. In recent years there has been a significant decline, but for-profit schools are getting better at appealing to young students. Despite coming under increased scrutiny, lawsuits, and government regulation, for-profit universities appear to be holding strong.
For-profit schools have been around for a long time, but critics say they have grown into frequently corrupt enterprises. Defenders of the for-profit sector claim these institutions offer opportunities for low-income, working adults to complete shorter degree programs online or by taking night classes. However, many community colleges offer similar programs at a fraction of the price. Many don’t realize how expensive for-profit colleges can be — often five to six times the cost of a community college. The biggest red flag to prospective students should be that students from these institutions are much more likely to accrue excessive debt, earn less money, leave school before graduating, and default on their loans.
Some have gone as far as to refer to for-profit education as “subprime education,” likening the for-profit education problem with the subprime mortgage bubble. They claim these colleges routinely find uninformed, low-income borrowers and bury them in loans they cannot afford, which then get passed on to third-party investors. Not all critics are fundamentally against the idea of a for-profit college, but it’s easy to argue serious reform in this industry is long overdue. Here are the issues with today’s for-profit colleges that should make prospective students think twice before enrolling.
More money is spent on marketing than instruction
In fiscal year 2009, the for-profit education industry spent $4.2 billion on marketing, recruiting, and admissions staffing. Schools like ITT Tech spend an incredible amount of money on TV commercials and other advertisements. Seeing an ad should be a huge red flag for prospective college students. While not-for-profit schools have to rely on their academic reputations, these for-profit institutions dump more money into marketing than instruction. According to Mark Defusco of University of Phoenix, “If you take a look at for-profit colleges, the analysts will tell you that anywhere between 20 and 25% of the total revenue of a company is in sales and marketing, about a quarter. In most cases, the faculty are in the 10 to 20% range.” As of 2012, University of Phoenix was spending nearly $400,000 per day on ads and was Google’s biggest advertiser at the time.
Troubling rates of graduation, employment, and loan default
For-profit colleges also spend very little on job placement for their students, so these students face higher unemployment rates and lower earnings. A U.S. Senate investigation found that students who attend for-profit colleges typically pay higher tuition, take out larger loans, and default in larger numbers than those at other schools. The investigation also found that more than half of students who enrolled in for-profit colleges during the 2008 to 2009 school year left without a degree. As of 2009, students at for-profit institutions were responsible for 44% of all student loan defaults even though they represented only 9% of all college students.
Recruiters prey on the poor and veterans
For-profit schools have long targeted low-income, uninformed, and desperate people, and recently, recruiters began targeting veterans as well. In 2011, the PBS program Frontline reported that recruiters signed up Marines with serious brain injuries even when some were unable to remember what courses they were taking. For-profit colleges target veterans because while funding from government student loans is capped at 90%, the for-profits discovered that the other 10% can come from veterans’ benefits. Deceptive recruitment practices like these are an important part of the business model at for-profit schools. In 2011, numerous training documents were uncovered, specifically instructing recruiters to focus on prodding and exploiting the fears and pain points of prospective students.
President Obama recently announced his intent to change the “90-10 rule” to close the loophole allowing for-profit colleges to cash in on GI Bill benefits. Regulating this industry has dragged on for years, but the Obama administration has taken steps toward reform. The government’s push for gainful employment standards in 2014 was met with firm pushback from APSCU, the lobby group representing for-profit colleges. APSCU filed a lawsuit attempting to block the new regulations, and the for-profit higher education industry spent $10 million in lobbying in 2014 alone.
While many critics claim the reforms don’t go far enough, for-profit institutions are at least starting to respond to the government crackdown. Unfortunately, at many for-profit schools, that response is to shift to non-profit status in order to escape heightened regulations and still manage to make a handsome profit. Regardless of how things shake down in the for-profit sector, today’s prospective students have access to more public data surrounding these institutions than ever before, so they can get whole story — before they end up unemployed, in crippling debt, and still lacking a quality education.