Expert Commentary

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

2010 report from the Education Trust on the relative characteristics of the for-profit school sector, including tuition costs, average student loan amounts and default rates, and graduation rates.

Student loan (iStock)

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

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