What Is a For-Profit College?
Here’s what the controversy is all about
Many students interested in going back to school, earning a college degree, or completing a professional certification might consider a for-profit college. These schools often run large ad campaigns that can make their names more recognizable and their educational programs sound promising.
But before you apply, you should understand what a for-profit college is—and how it compares to other institutions.
What Is a For-Profit College or School?
A for-profit college is a school operating as a business, that expects to turn a profit by generating more revenue than it spends. Growing that profit is a central business aim.
Much of the money brought in by the college is used for non-educational purposes, such as paying investors, or for marketing and recruiting. In public colleges and nonprofit private colleges, excess revenues are reinvested into the schools.
Of the 6,502 institutions of higher education in the U.S., about 42%, or 2,721, are private for-profit schools, according to a 2016 study by the National Center of Education Statistics (NCES). Even so, only about 8% of undergraduate students are enrolled in for-profit colleges, and enrollment at these schools has fallen steeply since 2010.
Most for-profits have fewer than 1,000 students and are located in metro areas. Around two-thirds of for-profit schools aren’t degree-granting—only some offer degrees, along with career-focused certificate and trade programs.
The Pros and Cons of For-Profit Colleges
For-profit attendees tend to be nontraditional students looking for flexibility. For-profit colleges tend to have a diverse group of students, with more students who are:
- Returning students
- First-generation students
- Without high school diplomas
- Single parents
- Low-income students
For-profit colleges tend to vary more widely than traditional schools in the types of education, training, and degrees or certificates they offer. Vocational programs can include culinary school, cosmetology programs, or even medical coding run through for-profit schools.
As well, “For-profit colleges, for a time, offered significantly more flexible access to online programs,” said David Hawkins, executive director of educational content and policy for the National Association for College Admission Counseling. Hawkins said that most traditional schools have caught up or surpassed for-profit schools in online learning, often offered at lower prices.
For-profit schools sometimes aggressively market with promises of higher pay and career advancement. However, they might not deliver on those promises—while charging students high tuition and encouraging them to rack up debt—and have attracted the attention of various attorneys general.
Some for-profit colleges are called “proprietary” colleges or are categorized as trade schools and career colleges.
The For-Profit College Controversy
“The profit motive, in many cases, leads for-profit institutions to charge a high price for a minimal service to maximize their financial returns,” Hawkins said. But this approach to higher education has led to many issues for students of for-profit colleges.
Low For-Profit College Graduation Rates
Generally, for-profit schools trail public and private colleges in key outcomes, such as college dropout rates. In 2017, only 21% of enrolled students at for-profit colleges earned a four-year degree within six years. Students seeking bachelor’s degrees at public or private colleges were three times more likely to graduate within six years, compared to those at for-profit colleges.
For-Profit Accreditation Problems
While flashy for-profit college marketing claims to prepare 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.
Students may later find out that their certificate isn’t recognized by potential employers, or the program didn’t satisfy the prerequisites to earn a professional license.
Even if students attend a nationally-accredited program, they could find that few of their credits transfer or are accepted by other colleges. In fact, students who transferred from for-profit colleges to public colleges lost 94% of credits, on average.
Student Debt, Fees, and Default at For-Profit Colleges
Students at four-year, for-profit colleges are also more likely to take out student loans, with 72% taking on federal student loans in the 2016-17 school year. Those earning bachelor’s degrees from private for-profit institutions took on almost twice the debt—a cumulative $43,000 in loans, compared to a public institution’s total debt load of $28,000.
On top of this, some for-profit colleges have pushed students toward costly private student loans. The Consumer Financial Protection Bureau even sued ITT Educational Services in 2013, alleging that the for-profit college pointed some students toward student loans with interest rates of up to 16.25%, on top of origination fees as high as 10%.
The student loan default rates are also higher among for-profit schools. According to the U.S. Department of Education, 15.2% of for-profit graduates defaulted in 2016, compared to 9.6% at a public institution and 6.6% at a private during the same year.
For-Profit School Closures
Elizabeth Barry, director of marketing for test and college prep company Peterson's told The Balance via email: “Recently, there have been a string of for-profit colleges closing, leaving current students with no degree and likely unpaid student loans. No one wants to be in that situation."
For example, Vatterott College closed campuses across the U.S. by December 2018, while the company that owned Argosy University and some Art Institutes also 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. Visit the Federal Student Aid for help with both processes.
The Costs of For-Profit College
So how do the college costs at for-profit schools compare to other higher education institutions? Overall, for-profit college costs run higher than what’s charged at public colleges but are lower than the costs at private nonprofit colleges.
Here are the median annual costs of attending different types of colleges that grant post-secondary (after high school) degrees.
|College type||Median tuition and fees (2017-18)||Median tuition, fees, room and board (2017-18)|
|Private nonprofit colleges||$34,470||$49,383|
The Bottom Line: Should You Consider a For-Profit College?
While there are pros and cons to for-profit colleges, consider your specific situation when submitting college applications to all types of institutions.
Barry said that students should not exclude for-profit colleges from their college search solely because of a for-profit status. However, Hawkins said it’s important to compare schools using the Department of Education’s College Navigator and College Scorecard tools. He said key factors on which to compare schools may include the cost of attendance, the loan default rate, and the graduation rate.
Also, Barry said to ensure a college is accredited.
“This means that the accrediting body has set certain standards of quality and that schools accredited by that body have undergone a peer review to ensure those standards are met,” she said.
In addition to checking accreditation, make sure the program is in line with your career or educational goals. For example, check that it complies with 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 a for-profit school.
Finally, review the school’s bond rating.
“A bond rating indicates the creditworthiness of a company,” Barry said. Creditworthiness is an important sign of a for-profit school’s solvency and financial stability, as it indicates its ability to pay back loans. A positive credit bond rating would be a sign that the for-profit college is well-managed and less likely to close while you’re enrolled.
Harvard University. "For Profit Colleges," Accessed Dec. 9, 2019.
National Center for Education Statistics. "Postsecondary Institutions and Cost of Attendance in 2017-18; Degrees and Other Awards Conferred, 2016-17; and 12-Month Enrollment, 2016-17," Page 4. Accessed Dec. 9, 2019.
National Center for Education Statistics. Total fall enrollment in all postsecondary institutions participating in Title IV programs and annual percentage change in enrollment, by degree-granting status and control of institution: 1995 through 2016. Accessed Dec. 9, 2019.
Center for Responsible Lending. "Debt and Disillusionment: Stories of Former For-Profit College Students as Shared in Florida Focus Groups," Accessed Dec. 9, 2019.
State of Massachusetts Attorney General. "For Profit School Advisory," Accessed Dec. 9, 2019.
Government Accounting Office. "Students Need More Information to Help Reduce Challenges in Transferring College Credits," Accessed Dec. 9, 2019.
National Center for Education Statistics. "Loans for Undergraduate Students," Accessed Dec. 9, 2019.
Court Filing in the United States District Court Southern District of Indiana Indianapolis Division. "Consumer Financial Protection Bureau vs. ITT Educational Services, Inc." Accessed Dec. 9, 2019.
Department of Education. "School Type Rates," Accessed Dec. 9, 2019.
Department of Education. "Fact Sheet: School Closure Vatterott College Located in Illinois," Accessed Dec. 9, 2019.
U.S. Department of Education. "Important Information About Argosy University and The Art Institutes," Accessed Dec. 9, 2019.
National Center for Education Statistics. "Average Undergraduate Tuition, Fees, Room, and Board Rates for Full-time Students in Degree-granting Postsecondary Institutions, by Percentile of Charges and Control and Level of Institution: Selected Years, 2000-01 Through 2017-18," Accessed Dec. 9, 2019.