For-Profit Colleges Are (Gasp!) Making a Profit

by Robyn Tellefsen

According to a recent Associated Press analysis, more and more low-income students (50 percent more than two years ago) are spending their Pell Grant dollars at for-profit colleges.

In fact, in 2008, the five institutions that received the most federal Pell Grant dollars were all for-profit colleges, and those schools collected two and a half times what they had brought in just two years prior. As a whole, proprietary schools collected about 24 percent of the Pell Grant monies paid nationwide in 2008. In 2009, they collected 67 percent more than that.

The question is why are some people bothered by the fact that for-profit colleges are, in fact, making a profit? That's pretty much what the data boils down to. Perhaps it's just a matter of how much profit they're making, and how it's increasing exponentially. People are worried that for-profits will spin (or have already spun) out of control.

But the fact is that Pell Grant recipients are free to use their aid wherever they choose. Maybe they're flocking to the for-profits because those mega-corporations are the ones with the space and the resources to accommodate them. Our country's current goal is to make some form of higher education available to everyone, right?

Graduation Rates and Loan Repayment
What really troubles critics is the low graduation rate of the for-profits - 38 percent - which begs the question of whether proprietary schools are more concerned with college enrollment than completion.

As for the 62 percent of students who don't graduate, loan repayment can be near impossible. On average, for-profit schools cost five and a half times the price of community colleges, which makes loan repayment that much more burdensome. And these schools collected about $7 billion in government-subsidized Stafford loans in 2008-2009, up from $4.7 billion two years before.

Even among graduates of four-year, for-profit schools, the average borrower ends up owing $33,000, according to the latest government data analyzed by Mark Kantrowitz of FinAid.org. That's about $5,000 higher than loans for private, nonprofit four-year colleges.

Indeed, if so many financial aid dollars are going to students who are not graduating or paying off their loans, the economy ends up more drained than it began, and the only winners are the profiting schools themselves.

Plus, don't forget that taxpayers (translation: you and I) are the ones who subsidize the loan interest rate and take the hit when students default. And here comes the really scary stat: Nearly one-quarter of students at for-profit schools default on their loans within four years, more than double the rate of loan default at nonprofit schools.

Shades of Gray
However, even critics concede that students can benefit from the education format offered by for-profit schools. And when it comes down it, students can choose whichever college they want. The higher-ups just hope that students will choose wisely.

To help students make informed decisions, college graduation and transfer rate data is now available to all students who complete a FAFSA. And by 2010, every school will have to provide information on job placement services as well.

It's obvious that for-profit colleges are seeking to make money and also to effectively meet a need. To what extent they accomplish these goals over the long term remains to be seen.