A Philosopher's Blog

Should You Attend a For-Profit College?

Posted in Business, Ethics, Law, Philosophy, Universities & Colleges by Michael LaBossiere on February 16, 2015

The rise of for-profit universities have given students increased choices when it comes to picking schools. Since college is rather expensive and schools vary in regards to the success of their graduates, it is wise to carefully consider the options before writing those checks. Or, more likely these days, going into debt.

While there is a popular view that the for-profit free-market will consistently create better goods and services at ever lower prices, it is wisest to accept facts over ideological theory. As such, when picking between public, non-profit, and for-profit schools one should look at the numbers. Fortunately, ProPublica has been engaged in crunching the numbers.

Today most people go to college in order to have better job prospects. As such, one rather important consideration is the likelihood of getting a job after graduation and the likely salary. While for-profit schools spend about $4.2 billion in 2009 for recruiting and marketing and pay their own college presidents an average of $7.3 million per year, the typical graduate does rather poorly. According to the U.S. Department of Education 74% of the programs at for-profit colleges produced graduates whose average pay is less than that of high-school dropouts. In contrast, graduates of non-profit and public colleges do better financially than high school graduates.

Another important consideration is the cost of education. While the free-market is supposed to result in higher quality services at lower prices and the myth of public education is that it creates low quality services at high prices, the for-profit schools are considerably more expensive than their non-profit and public competition. A two-year degree costs, on average, $35,000 at a for-profit school. The average community college offers that degree at a mere $8,300. In the case of four year degrees, the average is $63,000 at a for-profit and $52,000 for a “flagship” state college. For certificate programs, public colleges will set a student back $4,250 while a for-profit school will cost the student $19,806 on average. By these numbers, the public schools offer a better “product” at a much lower price—thus making public education the rational choice over the for-profit option.

Student debt and loans, which have been getting considerable attention in the media, are also a matter of consideration. The median debt of the average student at a for-profit college is $32,700 and 96% of the students at such schools take out loans. At non-profit private colleges, the amount is $24,600 and 57%. For public colleges, the median debt is $20,000 and 48% of students take out loans. Only 13% of community college students take out loans (thanks, no doubt, to the relatively low cost of community college).

For those who are taxpayers, another point of concern is how much taxpayer money gets funneled into for-profit schools. In a typical year, the federal government provides $6 billion in Pell Grants and $16 billion in student loans to students attending for-profit colleges. In 2010 there were 2.4 million students enrolled in these schools. It is instructive to look at the breakdown of how the for-profits expend their money.

As noted above, the average salary of the president of a for-profit college was $7.3 million in 2009. The five highest paid presidents of non-profit colleges averaged $3 million and the five highest paid presidents at public colleges were paid $1 million.

The for-profit colleges also spent heavily in marketing, spending $4.2 billion in recruiting, marketing and admissions staffing in 2009. In 2009 thirty for-profit colleges hired 35,202 recruiters which is about 1 recruiter per 49 students. As might be suspected, public schools do not spend that sort of money. My experience with recruiting at public schools is that a common approach is for a considerable amount of recruiting to fall to faculty—who do not, in general, get extra compensation for this extra work.

In terms of what is spent per student, for-profit schools average $2,050 per student per year. Public colleges spend, on average, $7,239 per student per year. Private non-profit schools spend the mots and average $15,321 per student per year. This spending does seem to yield results: at for-profit schools only 20% of students complete the bachelor’s degree within four years. Public schools do somewhat better with 31% and private non-profits do best at 52%. As such, a public or non-profit school would be the better choice over the for-profit school.

Because so much public money gets funneled into for-profit, public and private schools, there has been a push for “gainful employment” regulation. The gist of this regulation is that schools will be graded based on the annual student loan payments of their graduates relative to their earnings. A school will be graded as failing if its graduates have annual student loan payments that exceed 12% of total earnings or 30% of discretionary earnings. The “danger zone” is 8-12% of total earnings or 20-30% of discretionary earnings. Currently, there are about 1,400 programs with about 840,000 enrolled students in the “danger zone” or worse. 99% of them are, shockingly enough, at for-profit schools.

For those who speak of accountability, these regulations should seem quite reasonable. For those who like the free-market, the regulation’s target is the federal government: the goal is to prevent the government from dumping more taxpayer money into failing programs. Schools will need to earn this money by success.

However, this is not the first time that there has been an attempt to link federal money to success. In 2010 regulations were put in place that included a requirement that a school have at least 35% of its students actively repaying student loans. As might be guessed, for-profit schools are the leaders in loan defaults. In 2012 lobbyists for the for-profit schools (who have the highest default rates) brought a law suit to federal court. The judge agreed with them and struck down the requirement.

In November of 2014 an association of for-profit colleges brought a law suit against the current gainful employment requirements, presumably on the principle that it is better to pay lawyers and lobbyists rather than addressing problems with their educational model. If this lawsuit succeeds, which is likely, for-profits will be rather less accountable and this will serve to make things worse for their students.

Based on the numbers, you should definitely not attend the typical for-profit college. On average, it will cost you more, you will have more debt, and you will make less money. For the most for the least cost, the two year community college is the best deal. For the four year degree, the public school will cost less, but private non-profits generally have more successful results. But, of course, much depends on you.

 

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5 Responses

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  1. T. J. Babson said, on February 16, 2015 at 7:54 pm

    Mike, something like 2,500,000 students are enrolled at for-profit colleges. If these people could get their needs met at a public college for much less money, why wouldn’t they?

    There must be something the for-profit institutions are doing that meets the students’ needs better than the public institutions.

    • wtp said, on February 16, 2015 at 10:16 pm

      As TJ says, people must be getting something out of for-profits. AIUI, for-profits have very little in the way of lib arts. Most provide very practical courses which many of my coworkers have taken without having to pretend to be pursuing a degree they don’t really want to invest time or money into. Many (most?) of the courses are tuaght by professionals who hold day jobs. That labor doesn’t come cheap but it is more practically informed by real world experience and the dynamics of ongoing technical demands than those in a static university environment.

      Also, I could find nothing on google search about for-profit colleges having problems with either rape or false accusations of rape. That’s gotta be worth something.

      Perhaps the better quesiton is should you attend a college at all? Bill Gates, Steve Jobs, Paul Allen, Larry Ellison, and many, many other highly successful people do not have a college degree. Much can be learned on-line from a greater range of teaching talent than locking oneself into a specific brick-and-mortar school.

      And again…

      https://aphilosopher.wordpress.com/2013/06/03/should-everyone-go-to-college/#comment-29544

      The default rate for student loans at US colleges and universities, courtesy of the US Department of Education. Perhaps this should be an indicator of the value of an education at these schools. Of course much depends on what one chooses to study.

      http://www.nslds.ed.gov/nslds_SA/defaultmanagement/search_cohort_3yr.cfm
      Some sample data, e.g. default rates for various institutions:

      Harvard 1
      Yale 1.4
      University of Miami 2.7
      University of Florida 3
      Florida State 5.2
      Ohio State 5.6
      University of Maine 7

      Webster University 8.2
      Full Sail University 11.8
      Webber College 18
      FAMU 18.3
      University of Phoenix 26.4

      Upon re-review, I didn’t see anything for American Military University.

      • Michael LaBossiere said, on February 17, 2015 at 5:17 pm

        While some people have been successful without college, the reason these stories are so impressive is that most college dropouts do not go on to become great successes. For the folks you list as great successes, one could list thousands of folks who did not succeed.

        As far as the quality of the for-profits, the numbers seem to show that they do not offer a good educational experience compared to the competition.

        Thanks for bolding my schools (I went to UM in high school).

        Defaulting on loans is a problem that we do discuss at FAMU. We get many students from lower income brackets who have to work full-time to afford school. We also get students who are admitted as part of the mission of providing opportunity to students who would not otherwise be able to qualify for college. This does impact the graduation rates as well as the ability of students to repay loans.

        • WTP said, on February 18, 2015 at 2:45 pm

          most college dropouts do not go on to become great successes Yes, college dropouts are an issue. However there are many, many good paying jobs that, while they do require training/apprenticeship beyond high school, do not require a college education and thus the financial burdens that go with it. People who start work in these fields without the wasted 2-6 years and expense of college do quite well when adjusted for temperament and work ethic. There will always be those who lack the aptitude for college work or find themselves doing so well in their part-time jobs that college becomes more of an albatross than an advantage. Mike Rowe has given TED talks on such.

          While I do appreciate that at FAMU you get many students from lower income brackets who have to work full-time to afford school, etc. if the education was worth the effort the loans wouldn’t be such a burden. FAMU does have an advantage statistically in that it has respectable engineering and pharmacy programs, two programs that lead to more solid, high paying (and thus worth the education cost) jobs. The real difference is the burden of debt on non-STEM majors who acquire debt with little hope of finding work that is sufficiently productive enough to pay off the investment. And that’s putting aside the fact that at public universities, a significant chunk of the costs are paid for by past, present, and future tax payers.

    • Michael LaBossiere said, on February 17, 2015 at 5:07 pm

      That is an excellent question.

      It is certainly worth considering that despite the poor numbers these schools do offer something that public and private non-profits do not. I’ve looked at the numbers from ProPublica and the DOE and do not see this something extra there. What do you think it might be?

      My hypothesis is that the for-profit schools attract people through their aggressive marketing and recruitment (as noted in the post, they spent about $4.2 billion for this) rather than offering something better than the private and public non-profits. The for-profits have also been infamous for predatory practices.

      People do, after all, often buy inferior products that do not actually meet their needs as well as better products.

      For education, I’d say that the 2 year public school gives the most for the money. For undergrad, the private non-profits seem like an excellent choice for folks who have the money or can get support. The big public schools seem to be good choices as well-especially for grad school.

      I would really like to see a low-cost, high efficiency for-profit school that could offer legitimate competition to the 2 year or 4 year colleges. But, most current for-profits seem to be poor choices for students.


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