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

Student loan (iStock)

January 18, 2011

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


We welcome feedback. Please contact us here.

Citation: Lynch, Maie, et al. "Subprime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities*," The Education Trust, November, 2010, PDF