The True Cost of a For-Profit Education

Have you recently seen an ad encouraging you to “go to school in your pajamas”?  It’s pretty likely you have, since these ads seem to have become ubiquitous lately.

These days, there is a wide range of for-profit universities and many of them are indeed thriving by allowing students to attend class online (and not to mention, on a flexible schedule).  When we see those commercials, though, we usually wonder:  are those students well-served by getting a degree this way?  And is the cost of their tuition, not to mention their federal financial aid, a good investment in their future?

Unfortunately, some compelling data shows that often it is not:

The True Cost of a For-Profit Education

Click on the image to enlarge

Of course, there is nothing inherently wrong with the idea of catering to students who need more flexibility in order to balance their academic pursuits with other responsibilities such as a full-time job or parenting.

Many of the for-profit universities report that the majority of their students are significantly older than the average college student – often in their mid-thirties – and that the majority also have full-time jobs.  There’s no denying that these students need something different than the “traditional” college student.

But let’s examine the cost of the for-profit college experience a little more closely:

Loans Up the Wazoo
The data show that students at for-profit universities tend to pay more than their counterparts at non-profit institutions and that they rack up more student loan debt as well.

The average cost of attendance at a public non-profit college is $15,600.1  The average for private non-profit colleges is $26,600.  At the for-profit colleges and universities, the average cost is $30,900.  Tuition at a for-profit can be as much as five times more than at other colleges.

Higher costs means students usually end up with more outstanding student loans.
The average loan amount at public non-profit schools is a reasonable $6,029, and at private non-profit schools it is $7,712, while at the for-profit schools it is $9,754. Clearly, the cost of a for-profit education is substantial and the necessary student loans can be more than some can bear.  But that’s only part of the story.

Taxpayer Subsidy… to Who?
For-profit colleges know that the more federal student loans they can give to students, the more revenue they can generate.  They therefore have an incentive to search for and cultivate those students who are eligible for such loans.  One estimate is that the University of Phoenix gets as much as 85 percent of its revenue from federal loans.
The data also show that while only ten percent of college students attend for-profit institutions, those institutions receive 25 percent of all federal aid money.

Essentially, the taxpayers of the U.S. are paying these institutions to turn a profit.  That would all be well and good as long as the education provided to the students was of the highest quality.  One way of evaluating that is to examine where most of the money goes…

Down the Rabbit Hole
Okay, to be fair, it doesn’t really go down the rabbit hole – but the money from students’ tuition and financial aid certainly doesn’t always go toward instruction.  When you look at the data, it’s almost sad how little of the revenue goes toward instruction at these for-profit colleges.  For comparison’s sake, on average, private non-profit colleges spend $15,289 per student and public non-profits spend $9,418.  That’s money spent only on instruction.

Now compare to for-profit colleges, where just $2,659 is spent on instruction.  The amount looks meager next to the numbers above.

Ultimately, the for-profit institutions have a need for ever-increasing numbers of students and revenue.  This leads to problematic outcomes as we’ve seen above.  They lower standards in order to get more students in the door, and simultaneously accept a disproportionate amount of federal loan dollars while spending less on instruction than comparable institutions.

At a time when student loan debt is approaching $1 trillion (more than total credit card debt!) and experts are predicting we could see a default of 25 to 50 percent in coming years, this cannot be ignored.2

Next time you see one of those ads inviting you to “attend class in your pajamas,” just remember – you’ve been warned!

Image 2 credit: SMBCollege 

Image 3 credit: Pitel

  1. Source: “The Condition of Education 2011″ - U.S. Department of Education, May 2011 []
  2. Source: “On Track for $1 Trillion: Student Loan Debt Greater Than Credit Card Debt” – Liz Dwyer, May 2011 []

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