For-profit Education - Potential Drawbacks

Potential Drawbacks

A study by The National Bureau of Economic Research, in Cambridge, Massachusetts, suggested that students who attend for-profit education institutions are more likely to be unemployed, earn less, have higher debt levels, and are more likely to default on their student loans than similar students at non-profit educational institutions. Although for-profits typically serve students who are poorer or more likely to be minorities, these differences do not explain the differences in employment, income, debt levels, and student loan defaults. The Government Accountability Office has also found that graduates of for-profits are less likely to pass licensing exams, and that poor student performance cannot be explained by different student demographics.

For-profits have higher completion rates for one and two-year associates degree programs, but higher drop out rates for four-year bachelor's degrees. However, studies have suggested that one- and two-year programs typically do not provide much economic benefit to students because the boost to wages is more than offset by increased debt. By contrast, four-year programs provide a large economic benefit.

An investigation by the New York Times suggested that for-profit higher education institutions typically have much higher student loan default rates than non-profits. Two documentaries by Frontline have focused on alleged abuses in for profit higher education.

For-profits have been sued for allegedly using aggressive and deceptive sales and marketing practices. Holly Petraeus, wife of retired General David Petraeus and a high-ranking official at the Consumer Financial Protection Bureau, has accused for-profits of preying on vulnerable military personnel. Petraeus wrote:

"This gives for-profit colleges an incentive to see service members as nothing more than dollar signs in uniform, and to use aggressive marketing to draw them in and take out private loans ... One of the most egregious reports of questionable marketing involved a college recruiter who visited a Marine barracks at Camp Lejeune, N.C. As the PBS program Frontline reported, the recruiter signed up Marines with serious brain injuries. The fact that some of them couldn’t remember what courses they were taking was immaterial, as long as they signed on the dotted line."

A report by the Government Accountability Office documented misleading sales and marketing tactics used by several for-profits. Critics have also pointed out that more than half of for-profits' revenues are either spent on marketing or extracted as profits, with less than half spent on instruction.

Opponents say that the fundamental purpose of an educational institution should be to educate, not to turn a profit. In 2000, Bob Chase, president of the National Education Association, stated: "Educating children is very different from producing a product."

Others claim that because for-profit schools have never been a mainstream idea, no complete blueprint for running a for-profit institution really exists, which could lead school administration to make costly errors. For example, in order to maximize profits, valuable services and activities are often eliminated. Extracurricular activities such as sports teams or volunteer clubs are left with little or no budgeting in order to keep costs low. This loss of non-academic activities might hurt a student's ability to enroll in some colleges or universities later on. The two largest EMOs in operation today, Edison and Advantage, claimed to have high school juniors completing college-level coursework, but recent studies have shown that many of these students are performing at or below the 11th-grade level. Some former students claim that for-profit colleges make them feel like they went to the flea market and bought themselves a degree.

According to James G. Andrews in a American Association of University Professors article corporate models of education harm the mission of education.

Some critics have called for-profit education 'subprime education', in an analogy with the subprime mortgages bubble at the heart of the Great Recession – finding uninformed borrowers and loading them with debt they cannot afford, then securitizing and passing the loan onto third party investors. Short Seller Steve Eisman (famous for being a character in Michael Lewis' The Big Short) has described the accreditation situation regarding for-profits like ITT as follows: "The scandal here is exactly akin to the rating agency role in subprime securitizations."