Taxes prop up for-profit colleges, but half of students fail | The Bell Policy Center

Taxes prop up for-profit colleges, but half of students fail

Last week, the U.S. Senate Committee on Health, Education, Labor and Pensions released an extensive report, For Profit Higher Education, that found that federal taxpayers are investing billions of dollars a year – $32 billion in 2009-10 – in for-profit colleges.

The committee's two-year investigation found that despite the large investment in taxpayer and personal funds, more than half of the students who enrolled in for-profit colleges in 2008-09 left without a degree or diploma.

The report received considerable media attention, including articles in The New York Times and The Chronicle of Higher Education.

The committee acknowledges that current non-profit and public higher education institutions do not have the capacity to meet the growing demand for higher education. Thus, the for-profit colleges have an important role to play in higher education. However, students with modest financial resources who attend for-profit schools pay high tuition rates and end up with significant student loan debt. These debts may follow them throughout their lives and can create a financial burden. Congress has been unable to balance demands for increased financial returns for these profit-making colleges with provision of quality education.

The report found that many for-profit colleges do not invest in student-support services that help students succeed in school and after graduation.  This leads, in some cases, to high dropout rates among students.  For example, in 2010, the committee found that for-profit colleges in the study employed "35,202 recruiters compared with 3,512 career services staff and 12,452 support services staff, more than two and a half recruiters for each support services employee."

Other report findings include:

  • 596,556 students who enrolled in 2008-9 (54 percent) left without a degree or certificate by mid-2010, and 63 percent of students enrolled in two-year associate degree programs departed without a degree.
  • During the same period, the companies operating for-profits spent $4.2 billion on marketing and recruiting (22.7 percent of all revenue).
  • In 2009, the publicly traded companies operating for-profits had an average profit margin of 19.7 percent, generated a total of $3.2 billion in pre-tax profit and paid an average of $7.3 million to their chief executive officers.
  • For-profit colleges are increasingly reliant on taxpayer dollars, taking 25 percent of total Department of Education student-aid program funds in 2009-10.
  • Even though the for-profit colleges trained far fewer G.I. students, they received the largest share of military educational benefits (37 percent of post-9/11 G.I. bill benefits and 50 percent of Department of Defense Tuition Assistance benefits).
  • Most for-profit colleges cost more than community colleges and state universities. Bachelor's degree programs averaged 20 percent more at for-profit colleges; associate degree programs averaged four times the cost of degree programs at comparable community colleges; and certificate programs averaged four-and-a-half times the cost of such programs at community colleges.
  • Ninety-six percent of for-profit students take out student loans, compared to 13 percent of community college students, 48 percent at public and 57 percent at private non-profit four-year colleges.
  • Students who attend for-profit schools are more likely to experience unemployment after leaving schools.

In recent weeks, we posted a summary of a study detailing the problems in private student loans and a study showing that students at for-profit colleges had much worse economic outcomes than those at public and private non-profit institutions.

The committee's recommendations include increased transparency by collecting relevant and accurate information about student outcomes; regulation of private lending along with oversight of federal financial aid; and requiring for-profit colleges to accumulate at least 15 percent of total revenues from sources other than federal funds. In addition, the committee argues that students must have meaningful protections. It cited enforcement of minimum standards for student services in areas such as tutoring, remediation, financial aid, career counseling and job placement.

– George Awuor