What Is a For-Profit College?

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DEFINITION

A for-profit college is a school whose primary goal is to maximize profits.

Definition and Example of a For-Profit College

A for-profit college is an educational institution operating as a business that expects to turn a profit by generating more revenue than it spends. Growing that profit and passing it on to owners and shareholders who have invested in the school is a central business aim.

  • Alternate name: Proprietary institution

These privately owned (or publicly traded) schools are often large, national chains that offer a wide range of two- or four-year degree programs, either wholly on campus or partially or fully online. These include bachelor's, masters, and doctorate degrees in diverse fields ranging from healthcare to fine arts, as well as professional certificate programs ranging from communication to theology. Nontraditional students who are interested in earning a degree or obtaining professional certification sometimes consider for-profit colleges.

How a For-Profit College Works

For-profit colleges are funded largely by federal financial aid paid for by taxpayers. They also charge tuition, of which a significant portion is reinvested in the school for non-educational purposes, such as paying investors or for advertising, sales, and marketing. Moreover, financial aid at these schools is sometimes limited to loans, though federal grants and scholarships may be available. Public colleges and nonprofit private colleges are funded by the government, endowments, and tuition, but most of that money goes back into the schools (instructor salaries and student services, for example), and more non-loan financial aid opportunities are usually available.

For example, Strayer University which is a private, for-profit school with branches throughout the country and accreditation from the Middle States Commission on Higher Education, is recognized by both the U.S. Department of Education and the Council for Higher Education Accreditation. It offers a combination of online and in-person associates, bachelor's, and master's degrees along with certificates. It participates in a number of federal funding programs, making students eligible for federal student loans or grants, but private loans are also an option.

There were just 300 four-year private for-profit schools and 380 two-year for-profit schools in the U.S. in the 2018–2019 academic year. In contrast, there were 730 four-year and 870 two-year public colleges in the same period.

How Much Do For-Profit Colleges Cost?

For-profit colleges cost more than what’s charged at public colleges but less than what's charged at private nonprofit colleges. 

Below are the median annual costs of attending different types of colleges that grant post-secondary degrees.

College type Median tuition and required fees (2019–2020) Median tuition, fees, room and board (2019–2020)
For-profit colleges $13,515 $26,394
Public colleges $7,266 $20,992
Private nonprofit colleges $36,300 $52,749

Pros and Cons of For-Profit Colleges

Pros
  • Less selective

  • More diverse in certain respects

  • Flexible program options

Cons
  • Accreditation problems

  • Poor transferability of credits

  • Higher debt and default rates

  • Lower graduation rates

  • Potential for school closure

Pros Explained

The advantages of for-profit colleges include:

  • Less selective: For-profit institutions generally have open admission policies beyond the requirement for a high-school degree, making them far easier to get into. 
  • More diverse in certain respects: The student body at for-profit colleges is predominately older, Black, and female. They also tend to enroll a higher proportion of low-income individuals and single parents.
  • Flexible program options: As for-profit schools cater to nontraditional students such as adults who aspire to obtain a degree while employed or raising children, they offer many degrees partially or fully online. Moreover, more vocational degrees are available in fields such as medical coding and cosmetology.  

Cons Explained

The drawbacks of for-profit colleges include:

  • Accreditation problems: While flashy for-profit college marketing materials may claim to put you on a path to a successful career, this isn’t always delivered. The programs and types of certifications offered by for-profit schools vary widely, and some are more legitimate and widely recognized than others. If you're not careful, you may later find out that your degree or certificate isn’t recognized by potential employers.
  • Poor transferability of credits: Even if students attend an accredited program, they often find that few of their credits transfer or are accepted by other colleges. In fact, a 2017 report from the Government Accountability Office (GAO) found that students who transferred from for-profit colleges to public colleges lost an estimated 94% of their credits.
  • Higher debt and default rates: Students enrolling at four-year, for-profit colleges are also more likely to take out loans, in part because they're the only option at some schools. Over 65% of students at for-profit colleges were awarded loans in the 2018–2019 school year, compared to only 35% at public institutions and 59% at private nonprofit schools. Those earning bachelor’s degrees from private for-profit institutions took on an average of $8,185 in loans in 2018-2019, compared to public institutions' average of $7,011 during that same time. The student loan default rates are also higher among for-profit schools; 15.6% of those at for-profit colleges have defaulted, compared to 10.8% at public institutions and 7.1% at private nonprofits.
  • Lower graduation rates: Generally, for-profit schools trail public and private colleges in key outcomes, such as college graduation rates. The graduation rate for the six-year period ending in 2019 was only 26% for students enrolled in a four-year degree at a private, for-profit college, compared to 62% of those at public colleges and 68% at private nonprofit institutions.
  • Potential for school closure: In recent years, some for-profit colleges have closed, leaving current students with debt but no degree. For example, Vatterott College closed campuses across the U.S. in December 2018, and the company that owned Argosy University and some art institutes shut down in March 2019.

Federal law grants students some protection if their college closes while they’re attending. They can transfer credits to another college and continue their attendance. If they can’t transfer credit, or choose not to, they may apply to discharge federal student loans they took out while attending the now-closed college.

Is For-Profit College Worth It?

Receiving a higher education is worthwhile, but given the downsides of for-profit colleges, from accreditation problems to higher debt, it makes more sense to attend a public school or private nonprofit institution if it at all possible.

Still, if you're a nontraditional student who would benefit from the open admission or flexibility of a for-profit college, a proprietary institution can help you advance your education.

Make the following considerations to determine whether a proprietary institution is worth an application:

  • Recognized accreditation: Look for a for-profit college that has been accredited by a recognized accrediting organization, which is one that has been reviewed by the U.S. Department of Education or the Council for Higher Education Accreditation.

Use the Department of Education’s College Navigator tool to look up schools and their accreditation information.

  • Affordability: Ensure that tuition and other fees fit your budget. Explore non-loan sources of financial aid, such as grants or scholarships. If only loans are available, borrow only as much as you need, to keep your debt low.
  • Alignment with educational goals: Check that the for-profit college offers the program you're interested in and that it meets standards for professional licensing. If you hope to transfer to another college, reach out to that school to see which credits (if any) it would accept from the for-profit school of interest.

Key Takeaways

  • For-profit colleges aim to maximize profits.
  • They're financed largely by taxpayer-derived federal funds, but they also charge tuition and fees that are used in large part on non-educational expenses.
  • They offer a variety of degrees as well as certificates in flexible formats, but some lack proper accreditation. Financing is sometimes limited to loans, and your debt burden is typically higher.
  • Public colleges or private nonprofit colleges are preferable, but for-profit colleges represent an option for nontraditional students or those seeking less-selective schools.

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