For-Profit Colleges: What You Need to Know Before Taking on Student Loan Debt

For-Profit-College

Usually when you compare colleges to select one, you look for a few key features: cost, majors offered, and the possibility of financial aid, among others. But now there’s another feature that you might want to investigate: whether the college is for-profit.

Unfortunately, being for-profit might be a feature that you want to avoid in a university. These colleges are exactly what they sound like: profit-seeking businesses. In fact, they’re effectively the opposite of nonprofits.

While this fact alone doesn’t mean that you can’t get a good education and earn a valuable degree at these institutions, the government and media (including John Oliver) have highlighted some issues with for-profit universities. Some have even called for-profit colleges scams. And they’ve lately been popping up in the news frequently, as in the in the case of the Corinthian 15.

Before you enroll in a for-profit college and take on student loan debt, here’s what you need to know.

For-profit colleges can be the most expensive option

Though college tuition has skyrocketed across the board in recent years, for-profit colleges rank among the most expensive options.

A recent report from the College Board shows that the average tuition and fees at for-profit colleges are typically higher than at public two- and four-year schools.

average-tuition-costs

Source: The College Board, Annual Survey of Colleges

The 2014–2015 average tuition of $15,230 at for-profit colleges is more than four times that at public two-year colleges. Plus, compared to the average tuition at public four-year in-state colleges, the cost at for-profits is 67% higher.

On average, students at for-profit colleges borrow more money more often

Added to the higher cost of for-profit colleges, students who attend these schools take out more student loans, too.

According to one survey, 88% of 2012 graduates at for-profit colleges finished with student loan debt. Compare this to 66% and 75% of students at public and private nonprofit colleges, respectively.

Graduates of for-profit colleges also had the greatest amount of debt on average compared to grads of both public and private nonprofit institutions.

In fact, 2012 graduates of for-profit colleges finished with an average of $39,950 in debt. This figure was just $25,550 for grads of public colleges and $32,300 for those of private nonprofit colleges.

While this might not be a problem in itself, the next point makes matters even worse.

Job placement rates may be inflated

No matter which type of college you attend, the appeal of earning a degree is more or less the same: to gain access to more job opportunities so that you can make more money. Yet, that might not be as possible with for-profit colleges as you would expect.

EdCentral points out that the numbers backing the marketing simply aren’t true. For example, suppose you wanted a culinary arts associate degree at a college in Minnesota. Job placements rates and other numbers are reported right on the university’s website. At first glance, the 89% job placement rate for 2012–2013 looks impressive. But look closer and you’ll see that this placement rate includes all jobs, not just those in culinary arts or related areas.

This isn’t top secret information, either. You can read exactly how these rates are calculated. Look closely and the website clearly discloses that these numbers include all jobs, not just ones in fields relevant to the degree earned.

EdCentral reports that cases like this are far from isolated. In fact, a technical training college was reported to have highlighted a 49% job placement rate, which seems reasonable. But further investigation revealed that the college had used a broad definition for jobs in the field. This appeared to artificially increase the job placement rates when it may not have been deserved.

For-profit colleges have lower graduation rates

If you’re paying more and taking out more loans, then at least you’re still getting a degree, right? It looks like the numbers aren’t really in favor of for-profit colleges in this case, either.

The National Center for Education Statistics (NCES) has this to say about graduation rates:

Among first-time, full-time undergraduate students who began seeking a bachelor’s degree at a 4-year degree-granting institution in fall 2006, the 6-year graduation rate was 57 percent at public institutions, 66 percent at private nonprofit institutions, and 32 percent at private for-profit institutions.

The NCES estimates the average graduation rate across all types of institutions to stand at 59% for this same period, which puts for-profit graduation rates at just above half the average.

For-profit schools have high rates of federal student loan default

Not only do students at for-profits borrow the most, but they’re the most likely to default on federal student loans.

The Washington Post reports, “Students at for-profit colleges represent only about 11 percent of the total higher-education population but 44 percent of all federal student loan defaults.”

Several for-profit colleges have ben under investigation by the federal government due to these high default rates.

New federal rules target for-profit schools

With staggering student loan debt and defaults, the federal government took action.

These new rules, which go into effect in July 2015, monitor the loan payment amounts of graduates relative to their earnings and college programs.

These new so-called “gainful employment” regulations stipulate that annual loan payments for a graduate of each program shouldn’t exceed “20 percent of his or her discretionary income or 8 percent of his or her total earnings.”

Programs that exceed these values could potentially lose access to federal aid, including federal student loans.

It’s worth noting that one of the largest for-profit college groups, Corinthian Colleges, has been the target of several investigations. In July 2014, Corinthian Colleges agreed to close or sell nearly 100 colleges as part of a deal with the US Department of Education.

Should you take out student loans for a for-profit college?

While the above facts don’t exactly recommend for-profit colleges, only you can decide where you will attend college. Are for-profit colleges scams? I probably wouldn’t go that far, but only you can decide.

Exercise due diligence. Find out what students have to say on sites such as Niche.com.

Also, when presented with facts like job replacement rates or estimated salaries, find out how these numbers are calculated. As in the case above, it took only a few extra clicks to reveal that the numbers weren’t what seemed.

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