For-profit College Enrollment Soared 418 Percent; as Much as 80 Percent of Their Total Revenue Comes from Federal Student Loans

For-profit College Enrollment Soared 418 Percent

May 26, 2011

The Lookout - The number of bachelors degrees given out by for-profit colleges skyrocketed by 418 percent since 2000, according to data from the National Center for Education Statistics.

Of the 4.4 million students who enrolled in college between 2000 and 2009, 27 percent of them enrolled in private for-profit institutions. The decade before that, only 7 percent of new undergrads enrolled in for-profit schools. The industry's success is partly due to its unorthodox focus on advertising and recruitment.

For-profit schools such as the University of Phoenix and ITT Technical Institute have drawn criticism from education wonks and lawmakers for aggressive recruitment tactics targeting low-income students. Detractors note that many for-profit schools hire recruiters working on commission to tap into people's "pain" and feelings of inadequacy.

Many for-profit colleges get as much as 80 percent of their total revenue from their students' federal loans--and a good deal of that money goes right back into the schools' advertising campaigns.

While for-profit students only account for about 12 percent of all college students, they take up a quarter of all federal grants and represent 43 percent of all defaults, according to data from the federal Department of Education. The industry is currently fighting a bevy of new restrictions from the Department of Education, and argues that its default rate is high simply because its schools serve more low-income students. Officials at for-profit universities also point out that many community colleges--which typically cater to a lower-income student population--are overcrowded, and that for-profits provide an alternative.

But the Department of Education study calls into question whether for-profit schools are worth their relatively high price. For-profit schools are more expensive than public schools, yet spend far less per student than those institutions on average. From 2000 to 2009, for-profits devoted 24 percent of their total expenses to instruction, while nonprofit public schools spent 28 percent and nonprofit private schools spent 33 percent on instruction.

Overall, for-profit institutions spend less money per full-time student, as you can see in the chart below:

Yet for full-time students, four-year for-profit schools charge more in tuition and fees than public schools:

A larger share of for-profit undergrads take out loans to pay for school, compared to their peers at other schools. More than 80 percent of students at for-profit four-year colleges have a student loan, compared to 49 percent of all undergraduates. And many of those students won't have a degree to show for their debt. Over six years, only 22 percent of students at for-profit institutions graduate with a degree, compared to 65 percent at private non-profits and 55 percent at public schools, according to the study. (Two-year for-profit programs out-performed two-year public schools in graduation rates, however.)