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Subprime opportunity: The unfulfilled promise of for-profit colleges and universities

by Leighton Walter Kille, The Journalist's Resource
January 18, 2011

<h1>Subprime opportunity: The unfulfilled promise of for-profit colleges and universities</h1> <p class="byline">by Leighton Walter Kille, The Journalist's Resource <br />January 18, 2011</p> <p>From 1998 to 2008, while enrollment at traditional colleges and universities increased just 20%, the for-profit sector grew dramatically, rising more than 230%. Much of the new institutions' growth came through minority and low-income students, which make up 37% and 50% of the schools' enrollments, including many veterans.</p> <p>While for-profit colleges do succeed in giving underserved communities access to higher education, that access comes at a cost. A 2010 report by the Education Trust, <a href="http://files.eric.ed.gov/fulltext/ED513339.pdf" target="_blank" rel="noopener noreferrer">"Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities,"</a> finds that, for many students, the costs of attending a for-profit institution can outweigh the promised benefits.</p> <p>The report's key findings include:</p> <ul> <li>Because of their higher tuition and lower aid, for-profit schools require students on average to finance nearly $25,000 in tuition every year. Private nonprofit schools require less than $17,000 and public schools approximately $8,600.</li> <li>To cover the cost of their education, 94% of students at for-profit colleges take out federal Stafford loans compared to 54% of students at private nonprofit institutions. In addition, about 46% of students at for-profit institutions take out private loans as well to cover the high cost of attendance.</li> <li>While for-profit institutions cost significantly more, they dedicate less than 25% of the amount that public and private nonprofit schools do per student.</li> <li>The median debt level of students at graduation from a bachelor’s degree in a for-profit institution is $31,190, nearly double that of a student at private nonprofit institutions and about four times the amount of students at public institutions.</li> <li>Despite the for-profits' higher costs, their graduation rates are often low. Of first-time, full-time students seeking a bachelor's degree at for-profit schools, just 22% earn degrees from those institutions within six years. In comparison, 55% to 65% of students at nonprofit schools graduate within six years.</li> <li>Within two years of beginning repayment, approximately 10% of students at for-profits default on their federal loans. The three-year default rate is 19%, twice that of students at public and private nonprofits, and represents 43% of all federal student loan defaults.</li> </ul> <p>The problems of the for-profit higher education sector can in part be traced to lax regulation, the authors state.</p> <p><em>Keywords: student loans, higher education</em></p> <p>This &lt;a target=&quot;_blank&quot; href=&quot;https://journalistsresource.org/economics/subprime-opportunity-the-unfulfilled-promise-of-for-profit-colleges-and-universities/&quot;&gt;article&lt;/a&gt; first appeared on &lt;a target=&quot;_blank&quot; href=&quot;https://journalistsresource.org&quot;&gt;The Journalist&#039;s Resource&lt;/a&gt; and is republished here under a Creative Commons license.&lt;img src=&quot;https://journalistsresource.org/wp-content/uploads/2020/11/cropped-jr-favicon-150x150.png&quot; style=&quot;width:1em;height:1em;margin-left:10px;&quot;&gt;</p> Copy to Clipboard

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From 1998 to 2008, while enrollment at traditional colleges and universities increased just 20%, the for-profit sector grew dramatically, rising more than 230%. Much of the new institutions’ growth came through minority and low-income students, which make up 37% and 50% of the schools’ enrollments, including many veterans.

While for-profit colleges do succeed in giving underserved communities access to higher education, that access comes at a cost. A 2010 report by the Education Trust, “Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities,” finds that, for many students, the costs of attending a for-profit institution can outweigh the promised benefits.

The report’s key findings include:

• Because of their higher tuition and lower aid, for-profit schools require students on average to finance nearly $25,000 in tuition every year. Private nonprofit schools require less than $17,000 and public schools approximately $8,600.
• To cover the cost of their education, 94% of students at for-profit colleges take out federal Stafford loans compared to 54% of students at private nonprofit institutions. In addition, about 46% of students at for-profit institutions take out private loans as well to cover the high cost of attendance.
• While for-profit institutions cost significantly more, they dedicate less than 25% of the amount that public and private nonprofit schools do per student.
• The median debt level of students at graduation from a bachelor’s degree in a for-profit institution is $31,190, nearly double that of a student at private nonprofit institutions and about four times the amount of students at public institutions.
• Despite the for-profits’ higher costs, their graduation rates are often low. Of first-time, full-time students seeking a bachelor’s degree at for-profit schools, just 22% earn degrees from those institutions within six years. In comparison, 55% to 65% of students at nonprofit schools graduate within six years.
• Within two years of beginning repayment, approximately 10% of students at for-profits default on their federal loans. The three-year default rate is 19%, twice that of students at public and private nonprofits, and represents 43% of all federal student loan defaults.

The problems of the for-profit higher education sector can in part be traced to lax regulation, the authors state.

Keywords: student loans, higher education