Are For-Profit Colleges Bad? 6 Reasons to Be Careful

 July 27, 2020
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Are for-profit colleges bad? It depends.

Some provide useful skills training, but others might be overpriced or don’t provide as valuable or affordable an education as their nonprofit counterparts. What’s more, some for-profit schools can be downright predatory, taking students’ money without providing sufficient value in return.

If you’re considering a for-profit college, here are six potential issues to look out for, so that

Are for-profit schools bad? 6 issues to be aware of

As private businesses, for-profit schools are first and foremost, a business. If you attend one, you could end up shelling out a lot of money without getting much of a return on your investment.

Before you enroll, here are six issues to watch out for if you’re looking at for-profit colleges:

1. They often cost more than traditional colleges
2. They might spend less on your education
3. You could end up earning less
4. Their job placement statistics can sometimes be misleading
5. If your school closes, credit transfers might be difficult
6. In some cases, community college might be a better option

1. They often cost more than traditional colleges

For-profits may sound like a good option for someone who doesn’t have the time or money to attend a four-year college or university. However, the price tag could set you back far more than a nonprofit school.

Annual tuition and fees for a public two-year, in-district school are $3,730, according to CollegeBoard for 2019-2020. For a public four-year, in-state school, they are $10,440. And for a for-profit college, they are $14,600.

Let’s say you study for two years to earn your associate degree. You’d save an estimated $21,740 by choosing a community college over a for-profit school. If you chose a four-year public college over a for-profit college, you’d save $16,640 over four years.

2. They might spend less on your education

According to The Century Foundation, for-profit schools typically spend less than half of their revenue on student instruction, while nonprofit colleges generally spend more on instruction than they take in as tuition revenue.

How does the student fare in this scenario? According to the National Center of Education Statistics (NCES), the six-year graduation rate for students pursuing a bachelor’s degree at for-profit schools is only 21%, as opposed to 60% at public schools and 66% at private nonprofit colleges.

For this reason, you’ll want to take a close look at graduation rates before enrolling.

You also watch out for predatory or less-than-scrupulous schools. Reports have turned up shady institutions that offer little value, including some unaccredited online schools and trade schools.

3. You could end up earning less

According to the National Bureau of Economic Research (NBER), students who earn certificates at for-profit schools are less likely to be employed than students who attend public institutions. Those who do get jobs have 11% lower earnings than their public college counterparts.

While some for-profit schools might lead to great earnings, the data means that you’ll want to think carefully about your return on investment before going this route. Look for stats on post-graduation outcomes. Ideally, you can dig up some data from impartial sources or speak to students themselves rather than relying solely on the school’s advertisements for insight.

4. Their job placement statistics can sometimes be misleading

The job placement rates for-profit colleges advertise are not always accurate. In some cases, these numbers could be inflated and don’t necessarily include work found in the field that graduates studied.

If you decided to get a for-profit education for a degree in massage therapy, but end up working at Home Depot, then a lower-quality school might count that as a “placement.”

So even if a job placement rate sounds promising, do some digging. That number might not truly reflect the percentage of students who found work in their field.

5. If your school closes, credit transfers might be difficult

Let’s say you’re already attending a for-profit school, and all of a sudden, your school closes.

With for-profit colleges, this is not infrequent. In fact, in the fall of 2016, one of the best-known for-profit colleges, ITT Technical Institute, closed its doors.

The good news is, students with federal loans might be eligible for student loan discharge if their school closes. But this doesn’t apply to those who’ve already completed their programs.

What’s more, the Department of Education has recently sought to limit borrowers’ access to student loan discharge through the borrower defense to repayment program.

Students whose schools are still open might also find that their credits don’t transfer to other universities the way they hoped. This could be an issue if they intend to switch to another school or seek a higher degree later on.

6. In some cases, community college might be a better option

Many prospective students see for-profit colleges as a more flexible way to earn a degree. And that’s exactly what for-profit schools want you to think.

However, even if you’re a working parent or don’t have the GPA to get into a four-year public university, you don’t have to turn to a for-profit education.

Look to your local community college. There’s a chance it’ll be cheaper, offer night classes and allow you to attend part-time if necessary. Not only might you get a better education, but you might also obtain better results after graduation.

And if you want to earn your bachelor’s degree, you can likely transfer your credits from a community college to a four-year school.

With this in mind, make sure you carefully evaluate the pros and cons of any for-profit school before signing up.

Rebecca Safier contributed to this report.

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CollegeAve Disclosures

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

  1. As certified by your school and less any other financial aid you might receive. Minimum $1,000.
     
  2. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
     
  3. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 9/15/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.


2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.47% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.80% APR to 11.69% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.


3 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

4 Important Disclosures for Edly.

Edly Disclosures

1. Loan Example:

  • Loans from $5,000 – $20,000
  • Example: $10,000 IBR Loan with a 7% gross income payment percentage for a Senior student making $65,000 annually throughout the life of the loan.
    • Payments deferred for the first 12 months during final year of education.
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    • Then $379 Monthly payment for 44 months.
    • Followed by one final payment of $137 for a total of $20,610 paid over the life of the loan.

About this example

The initial payment schedule is set upon receiving final terms and upon confirmation by your school of the loan amount. You may repay this loan at any time by paying an effective APR of 23%. The maximum amount you will pay is $22,500 (not including Late Fees and Returned Check Fees, if any). The maximum number of regularly scheduled payments you will make is 60. You will not pay more than 23% APR. No payment is required if your gross earned income is below $30,000 annually or if you lose your job and cannot find employment.

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Citizens Bank Disclosures

  • Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of September 1, 2022, the 30-day average SOFR index is 2.23%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
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  • Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.

     

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    Business/Law Rate Disclosure: Variable interest rates range from 3.75%-9.35% (3.75% – 9.16% APR). Fixed interest rates range from 5.20% – 9.59% (5.20% – 9.39% APR).

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6 Important Disclosures for Funding U.

Funding U Disclosures

Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.