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.