For Profit Colleges: A Dying Breed?

by Staff Writers

Due largely to continuing economic struggles, government scrutiny, and newly imposed regulations, enrollment is down sharply in the past year at for-profit colleges, as the following graphic demonstrates:

(Reprinted in, Aug. 16, 2011)

Questions abound about this trend in an industry that has shown remarkable growth in the past decade; with approximately a 60% higher growth rate than higher education in general (Blumenstyk, On Point, Oct. 14, 2011). Is this change representative of a temporary market correction, or the beginning of the end for the for-profit education sector? More importantly, should education be a profit-making enterprise?

The Current For-Profit Problem

Chris Beha, associate editor of Harper's Magazine, decided to go undercover and see just what it is like to attend a for-profit university in light of the recent controversy surrounding for-profits (New York Times, May 2, 2011), and subsequent imposition of new regulations (Huffington Post, June 6, 2011) on the industry. What he found both through attending the University of Phoenix and careful research are the subject of a revealing piece in Harpers: "Leveling the Field: What I learned from for-profit education (Harpers Magazine, Oct, 2011), and an enlightening discussion on On Point (Oct. 14, 2011) with Beha, senior Chronicle writer Goldie Blumenstyk, and Kevin Kinsner, a professor of education at SUNY Albany who studies for-profit universities. Here are some of the interesting and troubling facts that the three reported:

  • Approximately 10% of college students attend for-profits, but nearly 50% of those default on their federal student loans.
  • Since the mid-1990s, the for-profit education sector has experienced nearly 6 times the growth rate of higher education in general.
  • Prior to the recent controversy, for-profit education had grown to a $28 billion industry.
  • In the past quarter, enrollment at for-profits has dropped @40%.
  • In the same time period, profits have dropped by @70%.
  • 21 state attorney generals are investigating the industry.
  • 10 states are currently looking to bring charges against for-profit universities.
  • The U.S. department of justice has filed a complaint against Education Management Corp. alleging False Claims Act violations.
  • In June the Obama administration issued a series of new regulations on the industry that are being challenged in court by for-profit universities.

Some of the other concerns raised by the participants in the discussion were:

  • High-pressure sales tactics used by recruiters.
  • The predatory nature of using these tactics to ensnare low-income, first-time students.
  • The 7% graduation rate among first-time college students at for-profits.
  • The targeting of military and former military personnel by recruiters.
  • The general sense that people with access to federal aid money (low income and military) are specifically recruited because their money is guaranteed regardless of outcomes.
  • The degree to which these institutions are training students for successful careers.
  • The accuracy of the job placement statistics used in recruiting
  • A majority of the students Beha encountered were low-income, minority, working-parents, first-time students, or students returning to education after a long lag, or some combination of these.

(On Point Oct 14, 2011)

Every one of these statistics and observationsis troubling and indicative of serious problems in this industry. While some steps are being taken to regulate the industry, there is an additional problem brought up by panelist Kevin Kinsner: there is a very significant societal push for increased college attendance as a way of breaking out of the current economic rut. 

Is Government Pressure Pushing For-Profit Growth?

There is a school of thought that, in order to remain a competitive world power, the U.S. needs to return to prominence in terms of the number of college graduates we have (Inside Higher Ed, June 27, 2011). The message that college is a necessity and that individuals can't compete in a global economy without a college degree has been adopted by President Obama and the current administration. In fact, it has been adopted to such an extent that community colleges and public universities cannot handle the demand according to Kinsner. He further states that the American higher education system can't possibly handle the demand without for-profit institutions like the University of Phoenix. The problem with this model is that we (taxpayers via the federal government) need to subsidize these institutions to the tune of @ $20 billion in order to produce a graduation rate under 10%. These subsidies are guaranteed federal money that for-profit institutions seem content to pocket without guaranteeing an education.

The main issue, according to Kinsner, is with the for-profit business model – growth. It is simple math that if dropout rates are very high, the rate of new enrollment will need to be even higher in order to maintain the ridiculous growth rate of the for-profit education sector or even to maintain a steady number of students. Having that guaranteed aid, because of education initiatives, makes low-income and military students easy marks – and easily discarded (, Sept. 23, 2011). The combination of government support and corporate greed has been feeding a cycle in which unsuspecting people are left with no degree, hard to transfer credits, and an unforgivable loan to repay (On Point, Oct 14, 2011).

Where Does For-Profit Education Go Next?

Both the panelists and several callers to the show were clear that the pedagogical model of for-profits is not a problem. In fact, this is an educational model which can work for many people because of the relatively short duration of courses, flexibility of schedule, and practical training. However, the current problems; specifically low retention rates, hard-sell, predatory recruiting tactics, and less-than-accurate job placement statistics, are major impediments to the future viability of the for-profit education sector.

Some institutions such as U of Phoenix and Kaplan are taking steps to clean up their image and recapture some of the lost demographic that the recent scandal has cost them. These two institutions in particular are now offering free orientation programs (Blumenstyk, Oct 14, 2011) and the industry has released a code of conduct to help protect students (Chronicle, Sept. 13, 2011). Essentially, this is too big of a business for those profiting from it to allow it to die. Reform will happen, at least temporarily, that will curb the predatory recruiting. However, the low retention and graduation rates are troubling and may point to a deeper, more systemic problem with for-profit education or the overall push for more college graduates, as Kinsner suggests.

The Philosophical Debate

For the moment it seems that the for-profit model is salvageable and will continue to grow, though probably at a more modest pace. Some abuses of a lax regulatory system are likely to crop up from time to time however, leading back to the unanswered question from the beginning of this post: Is there a fundamental disconnect between education and profit that makes the for-profit education model untenable? This is a question for future consideration and debate. Stay tuned in the weeks to come for a full discussion of whether capitalism and education are diametrically opposed.