For-profit higher education in the United States consists of higher education educational institutions operated by profit-seeking businesses. However, as the blurring of public and private continue, for-profit education also includes for-profit mechanisms such as endowment money managers, for-profit fees for service, for-profit marketing, enrollment services and lead generation,
privatized campus services, for-profit online program managers (OPMs), privatized housing, private student loans, student loan servicers, and Human Capital Contracts, also known as income share agreements.
- 1 For-profit colleges
- 2 Blurring between for-profit and non-profit
- 3 History of for-profit higher education
- 3.1 Origins
- 3.2 Growth: (1940s to 2009)
- 3.2.1 2009-2016
- 3.3 Decline in enrollment, revenues, and employees (2010-present)
- 3.3.1 2017-2019
- 4 List of for-profit corporations and their brands
- 5 For-profit marketing, enrollment and lead generators
- 6 For-profit online program managers (OPMs)
- 6.1 List of for-profit online program managers and the schools they service
- 7 Coding bootcamps
- 8 Student loan servicers
- 9 Politics and political lobbying
- 10 Student debt groups
- 11 Recruiting, advertising, and lead generators
- 12 Structure of for-profit education
- 12.1 Sources of capital and cash flow
- 12.1.1 Title IV funds
- 12.1.2 GI Bill funds
- 12.1.3 Department of Defense Tuition Assistance and MyCAA
- 12.1.4 Other sources
- 12.1 Sources of capital and cash flow
- 13 Arguments for and against for-profit colleges
- 13.1 Benefits
- 13.2 Drawbacks
- 14 Accreditation and transfer-of-credits
- 15 Business failures
- 16 Government scrutiny, criminal and civil investigations
- 17 Attempts to regulate and deregulate the industry
- 17.1 For-profit college lobbyists promoting deregulation
- 18 For-profit colleges transitioning to nonprofit colleges
- 19 See also
- 20 References
For-profit colleges have frequently offered career-oriented curricula including culinary arts, business and technology (including coding bootcamps), and health care. These institutions have a long history in the US, and grew rapidly from 1972 to 2009, until their current enrollment and revenue declines. Approximately 40 percent of all for-profit college campuses have closed since 2010.
For-profit colleges have received less government scrutiny by the Republican-controlled Senate since 2014, but they are being recognized as a problem by the US House Subcommittee on Labor, Health and Human Services, Education and Related Agencies. Significant business failures and closings from 2015 to 2019 include Corinthian Colleges, ITT Technical Institute, Education Management Corporation, and Education Corporation of America. The Dream Center’s collapse in 2018-2019 also included schools that had historically been for-profit institutions.
Since 2015, student loan debt groups, including the Debt Collective and I Am Ai have provided advocacy and support for students and former students of failing schools.
Blurring between for-profit and non-profit
As for-profit colleges face declining enrollment, there has been a blurring between for-profit and non-profit colleges. For-profit Online Program Managers (OPMs) include 2U, Academic Partnerships, Bisk Education, Pearson Education (Embanet), and Wiley (publisher)(Education Solutions).
 In 2018, there were more than two dozen OPMs. Human capital contracts, also known as Income Share Agreements (ISAs) may also be seen as for-profit vehicles.
History of for-profit higher education
For-profit colleges in the US have their origins in the Colonial Era.
According to AJ Angulo, 19th century for-profit colleges offering practical skills expanded across the United States, meeting a demand for practical job training. In the 1830s and 1840s, proprietary business schools in Boston, Brooklyn, and Philadelphia offered penmanship and accounting classes. The expansion continued in the 1850s and 1860s, to Chicago, New Orleans, Memphis, and San Jose. Angulo estimated that there were 2,000 for-profit colleges with more than 240,000 students during the period, if fly-by-night schools were included. The Bryant & Stratton Chain School grew to about 50 schools by 1864.
The decline of proprietary colleges was aided by the Smith-Hughes Act of 1917. Also known as the National Vocational Education Act, this legislation funded public vocational education.
Growth: (1940s to 2009)
In the 1940s, “fly-by-night commercial vocational ‘schools’ sprang up to collect veterans’ tuition grants” due to the newly created GI Bill’s lax requirements and limited oversight to prevent such abuses.
For-profit colleges grew significantly from 1972 to 1976, after the Higher Education Act of 1965, part of President Lyndon Johnson’s “Great Society” of progressive reforms, was amended so that for-profit colleges could receive US government funds, to include Pell Grants and federal student loans. From 1974 to 1986, for-profit colleges share of Pell Grants rose from 7 percent to 21 percent, even though for-profit colleges only enrolled 5 percent of all higher education students. In the late 1980s, Secretary of Education William Bennett hired an outside firm, Pelavin and Associates, to investigate the problems with for-profit higher education. The investigators found widespread abuses across the industry.
From 1989 to the mid-1990s, Stephen Blair, a former Department of Education official, led for-profit college industry’s aggressive lobbying campaign in Washington, DC. Blair gathered funds to combat the Pelavin report and to maintain for-profit education’s position. Blair also recruited politicians Bob Beckel, Patty Sullivan, and Haley Barbour to sell their cause to Democrats and Republicans. In 1992, the Higher Education Act was amended to include the 85–15 rule, which limited federal funding to 85 percent of a school’s funding. Supporters of the 85–15 rule argued that the measure was necessary to stem fraudulent and abusive practices at for-profit colleges, and that it might restore some market incentive to education. At the time, former Career College Association lobbyist Patty Sullivan estimated that 35 or 40 percent of for-profit colleges engaged in fraud. In 1993, the 85–15 rule was shelved after complaints were made to the Department of Education. In 1994, the US House of Representatives voted to allow a one-year delay in regulations scheduled to halt federal student aid for many trade schools. Tony Calandro, vice president of government affairs for the Career College Association (CCA), said that enforcement of the 85–15 rule would have forced 30 percent of the nation’s 4,000 private trade schools to close.
For-profit college enrollment grew abetween 1998 and 2009, after the 1998 reauthorization of the Higher Education Act resulted in more deregulation. Secretary of Education Richard W. Riley also appointed former Career College’s Association President Stephen J. Blair as the Liaison for Proprietary Institutions. The for-profit college industry also grew in the wake of state budget cuts, stagnation, and austerity in higher education funding that grew more visible in the 1980s and 1990s. In the wake of deregulation and the growth of for-profit colleges, initial public offerings of Devry, ITT Educational Services, Apollo Education Group, Corinthian Colleges, and Career Education Corporation occurred between 1991 and 1998. For-profit colleges had become “the darlings of Wall Street.” Also the advent of the Internet in the 1990s has helped increase enrollment as many of the for-profit colleges were pioneers in online education.
According to the US Department of Education, the number of for-profit colleges rose from about 200 in 1986 to nearly 1000 in 2007. From 1990 to 2009, for-profit colleges gained significant ground over public colleges, growing to 11.8 percent of all undergraduates. From the late 1980s to the mid-1990s, Senator Sam Nunn led for more scrutiny of for-profit colleges. The General Accounting Office also found that 135 for-profit colleges contributed to 54% of all student loan defaults. In 2005, Department of Education Inspector General John B. Higgins reported that 74% of all institutional fraud investigations were for-profit colleges.
The Los Angeles Times briefly described the role of Wall Street money in the growth of for-profit colleges. Increased capitalization of for-profit colleges occurred after banks such as Goldman Sachs and Wells Fargo and investment firms and hedge funds such as Blum Capital Partners and Warburg Pincus became large institutional investors in this industry. Private equity in for-profit education has been associated with higher costs to students and declining outcomes: less spent on education, more student loan debt and lower student loan repayment rates, lower graduation rates, and lower earnings for graduates.
In the 2009–2010 academic year, for-profit higher education corporations received $32 billion in Title IV funding—more than 20% of all federal aid. For-profit colleges get approximately 70% of their funds from Title IV programs. However, some colleges got more than 80% of their funds from Title IV. In 2010, as America’s largest university, University of Phoenix, had an enrollment of 470,000 students and annual revenues approaching $5 billion.
Decline in enrollment, revenues, and employees (2010-present)
Under the Obama administration (2009-2017), for-profit colleges received greater scrutiny and negative attention from the US government. State Attorneys General, the media, and scholars also investigated these schools. For-profit school enrollment reached its peak in 2009 and showed major declines by 2011. Two companies, Corinthian Colleges (which included Heald College, Everest College, and Wyotech) and Education Management Corporation (which included the Art Institutes, Argosy University, and South University) faced enrollment declines and major financial trouble in 2014 and 2015; Corinthian Colleges and Education Management are out of business (closed). University of Phoenix, a subsidiary of Apollo Global Management, has also seen a 70% drop in enrollment since its peak.
According to the 2012 Harkin Report and The New York Times, students at for-profit colleges made up “13 percent of the nation’s college enrollment, but account for about 47 percent of the defaults on loans. About 96 percent of students at for-profit schools take out loans, compared with about 13 percent at community colleges and 48 percent at four-year public universities.” Gary Trudeau satirized for-profit education in his comic strip Doonesbury, by showing corruption at a fictionalized school, Walden College.
A 2014 report by The Institute for College Access and Success showed that the likelihood of a student defaulting was three times more likely at a for-profit college than a 4-year public or non-profit college and almost four times more likely than a community college. The Department of Veterans Affairs reported that veterans using the GI Bill for education submitted more complaints about for-profit colleges, particularly University of Phoenix, ITT Technical Institute, Devry University, and Colorado Technical University, than their public or private non-profit counterparts. In September 2014, on his TV show Last Week Tonight, John Oliver discussed student debt and for-profit colleges, calling them ‘a first-class education in the depths of human depravity.’
In 2015, Corinthian Colleges filed for bankruptcy and all of its Heald College campuses were closed. In 2016, all Westwood College campuses were closed. Le Cordon Bleu was also in the process of closing all of its campuses. ITT Technical Institute and Devry also closed multiple campuses. In November 2015, the CBS drama The Good Wife, addressed students at Colosseum University, a fictionalized for-profit college that used deceptive recruiting tactics. The episode included mention of accreditation and the 90-10 rule.
In 2016, The Wall Street Journal reported that more than 180 for-profit college campuses had closed between 2014 and 2016. For-profit college enrollment dropped about 15% in 2016, a 165,000 decline. Enrollment at University of Phoenix chain fell 22%, which was a 70% loss since 2010. DeVry University reported a 23% decline in 2016. Hondros College, a nursing school chain, dropped 14%. In June 2016, Education Management announced that it was planning to close all 25 Brown Mackie College campuses. In September 2016, ITT Technical Institute closed all of its campuses. In September 2016, the US Department of Education stripped ACICS of its accreditation powers. Research by Treasury Department economist Nicholas Turner and George Washington University economist Stephanie Riegg Cellini found that students who attended for-profit colleges would have been better off not going to college at all, or attending a community college (which are non-profit); put differently, the for-profit colleges left students worse off than they were when they started. The National Bureau of Economic Research paper was based on an analysis of 567,000 students who attended for-profit colleges from 2006 to 2008. More than 80% carried student loan debt.
In 2017, the advocacy group the Debt Collective created its own, unofficial “Defense to Repayment App” that allows former students of schools accused of fraud to pursue debt cancellation. The applications generated through the Debt Collective’s online form were cited by the Department of Education in a Federal Register notice, which said that “a need for a clearer process for potential claimants” arose due to the submission of over 1000 defense to repayment claims by “a building debt activism movement”. In October 2017, Strayer University and Capella University agreed to merge as Strategic Education, officially completing the merger in August 2018. Since 2017, the Donald Trump administration and Secretary of Education Betsy DeVos have accused the government of regulatory overreach and have loosened regulations. Donald Trump once opened a for profit college, the Trump University. It came under investigation for criminal activity, faced multiple lawsuits, and failed within five years.
In 2017 and 2018, all Le Cordon Bleu schools were in the process of closing. At least 19 Art Institutes were also expected to close. Education Management Corporation sold its remaining schools to the non-profit Dream Foundation and Purdue University proposed purchasing Kaplan University. Atalem sold its declining DeVry University and the Keller School of Management to Cogswell Education, a division of Palm Ventures. In 2018, the National Center for Education Statistics reported that the 12-year student loan default rate for-profit colleges was 52 percent. The 12-year student loan default rate for African Americans going to for-profit colleges was reported to be 65.7 percent. In 2018, the documentary Fail State chronicled the boom and bust of for-profit colleges, highlighting the abuses that led to their downfall. In June 2018, Inside Higher Education published “A Tipping Point for OPM?” which stated that most experts thought a “shakeout” would be occurring among Online Program Managers. On August 10, 2018, US Education Secretary Betsy Devos scrapped a rule issued by the US Department of Education in 2010 which would have forced for-profit colleges to prove that the students they enroll are able to attain “gainful employment.” The gainful employment policy will expire on July 1, 2019. In the 30-day period before its expiration, however, the Department of Education will gather public input. In September 2018, Education Corporation of America announced that they would be closing 26 campuses, which included several Virginia College campuses. The school closed all of its schools by the end of the year. In November 2018, the US Department of Education restored Accrediting Council for Independent Colleges and Schools (ACICS) as a higher education accreditor. The organization had lost its authority during the Obama administration.
From December 2018 to March 2019, Dream Center Education Holdings began closing and selling off schools. DCEH was the parent company of the Art Institutes, Argosy University, and South University. The National Student Clearinghouse reported that their for-profit college enrollment numbers for Fall 2018 had declined 15.1 percent from Fall 2017. In 2019, Argosy University closed all of its campuses. USA Today articles in March 2019 portrayed the collapse of the school as part of a trend, highlighting the losses of other for-profit colleges: Brown Mackie College (2017), Le Cordon Bleu (2017), Brightwood College (2018), Vatterott College (2018), and Virginia College (2018). In a 2019 Brookings Institution report, students taking online courses at for-profit colleges were attracted to the programs for their ease of enrollment and help obtaining financial aid, but “disappointed with the poor quality of education. On March 16, 2019, National American University announced that ground campuses would be closed, except for Ellsworth Air Force Base and King’s Bay Naval Submarine Base. In April 2019, 2U purchased Trilogy, a coding bootcamp provider, for $750 million. On April 12, 2019, Betsy DeVos was criticized for allowing five failing for-profit colleges to avoid posting a letter of credit. On April 14, 2019, NBC News Investigates reported on for-profit colleges that target veterans. The online version mentioned Full Sail University, Ashford University, Colorado Technical University, and University of Phoenix. In 2019, Accreditor WASC approved Ashford University’s conversion to a non-profit. It’s parent company, Zovio, however, continued to be a publicly traded for-profit college company. In July 2019, 2U shares dropped more than 50 percent when it lowered its growth expectations.
List of for-profit corporations and their brands
See also: List of for-profit universities and colleges
According to the National Center for Education Statistics, there were approximately 3,200 for-profit institutions in the US in 2015.
Many for-profit institutions are subsidiaries of larger companies. The following is a list of for-profit companies in the higher education sector:
- Adtalem Global Education (owner of Chamberlain Nursing, Ross University Medical School, Ross University School of Veterinary Medicine)
- Ancora Education (owner of Arizona Automotive Institute, Berks Technical Institute, Edge Tech Academy, International Schools, McCann School of Business & Technology, Miller-Motte Technical College, Platt College, and South Texas Vocational Technical Institute)
- Apollo Education Group (a subsidiary of Apollo Global Management and parent company of University of Phoenix)
- American Public Education (owner of American Public University and American Military University)
- Career Education Corporation (includes Colorado Technical University and American Intercontinental University)
- Center for Excellence in Higher Education (includes CollegeAmerica, Stevens-Henager College, California College San Diego, and Independence University)
- Connections Academy (a subsidiary of Pearson Education)
- Education Affiliates (includes Fortis College and Fortis Institutes)
- Global University Systems
- Graham Holdings (subsidiary Kaplan Higher Education is the servicer of Purdue University Global)
- International Education Corporation owns UEI College, United Education Institute, Florida Career College and US Colleges.
- JLL Partners (owner of Education Affiliates and Ross Medical Education Center)
- Laureate Education (owner of Walden University and OPM for University of Miami)
- Lincoln Group of Schools
- Linden Education Group
- Nemo Investor Aggregator owner of Cortiva Institute brand
- Ochsner Health System: Ochsner Clinical School
- Palm Ventures (owner of DeVry University)
- Premier Education Group (owner of American College for Medical Careers, Branford Hall Career Institute, Harris Casel Institute, Harris School of Business, Salter College, The Salter School, Salter School of Nursing, Seacoast Career Schools)
- Quad Partners (owns Beckfield College, Blue Cliff College, Pacific College of Oriental Medicine, Swedish Institute, and Trillium College
- Strategic Education (merged Strayer and Capella University)
- TA Associates (owner of Full Sail University)
- Universal Technical Institute
- Zovio (Owner of Ashford University and Fullstack Academy, contract with University of San Diego for cybersecurity bootcamp)
Laureate Education and Apollo Education Group have become powerful international education corporations. Apollo Education Group is now part of Apollo Global Management. Laureate, the largest US-based for-profit higher educator, was once reported to have more than one million students worldwide, in North America, Latin America, Europe, the Middle East, Africa, and Asia Pacific. Former President of the United States Bill Clinton was an honorary Chancellor of the for-profit enterprise.
For-profit marketing, enrollment and lead generators
For-profit colleges use lead generation companies target potential students and to take their personal information. However, as competition has heated up in US higher education, traditional schools have also employed them. Lead generators use multiple strategies to find and enroll students. There are hundreds of sites on the internet that gather information for schools. Two of the most notable lead generators are QuinStreet and Education Dynamics.
For-profit online program managers (OPMs)
Online program managers (OPMs) play an significant role in online education. However,the industry is feeling a great deal of economic pressure.
List of for-profit online program managers and the schools they service
- 2U (services programs at American University, Baylor University, George Washington University, Harvard University, Pepperdine University, Rice University, Syracuse University, University of California, Berkeley, University of North Carolina, University of Southern California, and Washington University.
- Academic Partnerships (servicer of University of Texas at Arlington and Florida International University)
- Bisk (University Alliance (US) is a division of Bisk, servicing Villanova University, University of Notre Dame’s Mendoza College of Business, Michigan State University, the University of San Francisco, University of Vermont, Florida Institute of Technology, University of Scranton, Jacksonville University, Dominican University, and New England College.
- InStride (OPM for Arizona State University)
- Pearson Education (Embanet)
- Wiley (publisher)(Education Solutions) servicing Northern Illinois University, Michigan State University
- Noodle Partners
- Collegis Education
- Kaplan Higher Education (servicer of Purdue University Global)
- Laureate Education serves University of Miami graduate programs.
- Grand Canyon Education serves Grand Canyon University.
In 2019, coding bootcamps remain popular. However, there may already be an oversupply of graduates and some coding bootcamps have already closed.
Student loan servicers
For-profit student loan servicers have included Sallie Mae, Navient, and Nelnet.
Politics and political lobbying
Politics and lobbying play a significant part in the history of US for-profit school growth. The for-profit education industry has spent more than $40 million on lobbying from 2007 to 2012. and $36 million since 2010. For-profit education lobbying grew from $83,000 in 1990 to approximately $4.5 million in its peak year of 2012.
The most significant industry lobby is Career Education Colleges and Universities (CECU), previously known as The Association of Private Sector Colleges and Universities (ASPCU). Before 2010, the organization was known as the Career College Association.
The Cato Institute’s Center for Educational Freedom also supports for-profit higher education.
Political operatives who have had close ties to for-profit education include Bill Clinton,
Lanny Davis, Heather Podesta, Urban League President Marc Morial, former Ted Kennedy aide Jane Oates, former Defense Secretary Leon Panetta,
and National Action Network’s civil rights activist Al Sharpton. In 2014, APSCU hired Michael Dakduk, former head of Student Veterans of America. From 2010 to 2015, Bill Clinton received at least $17.5 million from Laureate Education, the parent company of Walden University.
In March 2017, Secretary of Education Betsy DeVos appointed Robert Eitel, a former Career Education Corporation and Bridgepoint executive, as a special advisor. In July 2018, DeVos delayed the implementation of a rule intended to help students receive debt forgiveness if they were cheated by their college. In September 2018, the U. S. District Court for the District of Columbia ruled against DeVos, finding the delay of implementation to be unlawful.
Student debt groups
Several student debt groups have been created since 2014, after the Debt Collective paid off student loans for 3,700 Everest College students. The groups include “I Am Ai,” a group that offers support and advocacy for student debtors who attended the Art Institutes.
Recruiting, advertising, and lead generators
The for-profit college industry has spent billions of dollars on student recruiting, advertising, and buying leads for recruitment. In 2011, for example, University of Phoenix, ITT Tech, Devry, and Capella together spent more than $100,000,000 on Google Ads. Several Wall Street-backed schools spend large amounts on advertisements on day time and late night television. In 2012, Apollo Group, the parent company of University of Phoenix, reportedly spent $665,000,000 on advertising and marketing. The colleges’ marketing departments rely heavily on Lead Generators, which are companies that find potential students (“leads”) and provide their personal information and preferences to for-profit college.[further explanation needed]
Structure of for-profit education
Sources of capital and cash flow
The main sources of initial capital for public for-profit colleges are institutional investors: international banks, hedge funds, institutional retirement funds, and state retirement funds. Wells Fargo was a major funder of Corinthian Colleges and Goldman Sachs provided a significant amount of capital to Education Management Corporation.
Title IV funds
The main source of cash flow consists of US Department of Education Higher Education Act Title IV funds. Title IV funds include Federal Family Education Loans (FFEL), direct loans, Federal Perkins Loans, Federal Pell Grants, Academic Competitiveness Grants (ACG), National SMART Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), and Federal Work-Study (FWS). In the 1990s, Congress began requiring that for-profit schools receive at least 10% of their revenues from non-federal student aid sources, which include the GI Bill.
GI Bill funds
The for-profit education industry also receives billions of dollars through VA benefits also known as the GI Bill. In the 2010–2011 school year, more than $1 billion went to eight for-profit schools. In the 2012–2013 academic year, 31 percent of GI Bill funds went to for-profit colleges. Veteran participation in these schools, in effect, transferred $1.7 billion in post-9/11 GI Bill funds to these schools. According to a CBS News report in 2017, 40 percent of all GI Bill funds went to for-profit colleges.
Department of Defense Tuition Assistance and MyCAA
For-profit colleges receive money for servicemembers and their spouses attending college while still in the military. In fiscal year 2018, for-profit colleges received $181 million or 38 percent of all DOD TA funds. For-profit schools also receive money from DOD for education of military spouses. The program is known as MyCAA.
These corporations also obtain cash flow through student private loans, corporate loans, and the selling of assets. Problems with high-interest private loans to students at Corinthian Colleges (Genesis loans) and ITT Tech (PEAKS and CUSO loans) have gained scrutiny from the Consumer Financial Protection Bureau and the Securities and Exchange Commission.
Arguments for and against for-profit colleges
Although supporters of for-profit higher education have argued that the profit motive encourages efficiency, the for-profit educational industry has received severe negative criticism because of its sales techniques, high costs, and poor student outcomes. In some cases operators of for-profit colleges have faced criminal charges or other legal sanctions.
Historically, for-profit education has offered open admissions to non-traditional students, convenience of schedule and location, instructors with workplace knowledge, and real world vocational training rather than traditional training. Critics of Wall Street-backed for-profit educators, however, have questioned these perceived benefits.
For-profit schools like University of Phoenix have been more inclusive, recruiting and graduating more African Americans than public higher education. The Journal of In 2012, The Journal of Blacks in Higher Education called University of Phoenix “a pillar of African American higher education.” Through the Thurgood Marshall fund, students at 47 publicly supported historically Black colleges and universities, may supplement their on-campus course loads with course programs using the University of Phoenix online platform.
For-profit colleges have also been seen as a second chance for students who have performed poorly in the past.
It may be argued that for-profit colleges also created innovations that would force public higher education to be more responsive to student needs
For-profit colleges have been compared favorably to community colleges in regards to graduation rates, but these comparisons may be offering misleading statistical comparisons
A 2010 report by the Government Accountability Office (GAO) 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.
A 2011 study by the National Bureau of Economic Research, in Cambridge, Massachusetts, reported 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. The same year, The New York Times noted that for-profit higher education institutions often have much higher student loan default rates than non-profits. Two documentaries by Frontline have focused on alleged abuses in for profit higher education.
Compared to community colleges, some for-profits may have higher completion rates for certificates and associate degree programs, but higher drop out rates for four-year bachelor’s degrees. However, studies suggest that one- and two-year programs often may not provide much economic benefit to students because the boost to wages is offset by increased debt. By contrast, four-year programs provide a large economic benefit.
For-profits have been sued for allegedly using aggressive and deceptive sales and marketing practices. Holly Petraeus, 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, North Carolina. 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.”
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 that “educating children is very different from producing a product”.
Certain postsecondary education programs at institutions of higher education are eligible for participation in the federal student aid programs, known as Title IV of the US Higher Education Act (HEA). These programs, which are offered by public and private not-for-profit institutions, postsecondary vocational institutions, and by for-profit proprietary institutions, should prepare students for gainful employment. For decades, the U.S. Department of Education (ED) had not established regulations that explicitly outlined what it means for a program to be properly preparing students for gainful employment. As pressing concerns about the quality of programs at for- profit institutions began to arise, the concerns about the level of student loan debt assumed by students did as well. Such issues led to new initiatives and rules to be set in place outlining the parameters for what should be mandated to help ensure gainful employment.
The 2011 Senate HELP committee released data showing one in every four students who enroll at a for-profit school default on their loans within three years of leaving, with for-profit students accounting for almost half of all loan defaults. Most for-profit colleges charge enrollees much higher tuition rates than analogous programs at community colleges and state public universities despite credits being likely not eligible to be transferred to other institutions. In fact, 96% of students attending for-profit college apply for federal student loans compared to 13% at community colleges. During the 2009–2010 school years, for-profit colleges received almost $32 billion in grants and loans provided to students under federal student aid programs. This staggering number means nearly all students at for-profit institutions acquire student loan debt, even when they do not earn the end product of a degree or accumulate increased earning power through their studies (Sessions, 2011). These statistics represent a large portion of for- profits, uncovering the serious need for greater accountability in ensuring students are making sound investments in such institutions.
According to the Government Accountability Office, enrollment in such institutions has increased faster than traditional higher-education institutions in recent years. With the student and federal interest in such programs growing, so has the concern with their productivity. Regrettably, this is not a simple matter to address, as the issue is multidimensional. For-profit institutions have become an increasingly visible portion of the U.S. higher education sector. For-profits also acquire the largest percentage of their overall revenue from federal student aid programs, highlighting tax dollars are potentially not being used efficiently.
Federal regulatory actions by the ED have attempted to address these issues in the Title IV of the Higher Education Act of 1965, as amended. These efforts were very contentious. For-profit institutions argue their sector is unfairly targeted and believe the Department of Education over stepped its boundaries in 2010 by implementing regulations specifying requirements for Gainful Employment. These rules outlined in a report by Congressional Research Service (CRS), aimed to hold for-profits accountable by creating standards which must be upheld and followed, which will in turn attempt create more opportunity for gainful employment amongst enrollees. Through these regulations the ED believed that institutions will reinforce their educational programs to meet these higher standards, and relatively few programs will fail. Programs that offer a rewarding education at a reasonable price will succeed, and institutions will continue to innovate to assist students and taxpayers.
The regulations mandated by the ED were to help regulate the for-profit sector and to combat the issue of gainful employment. However, the Association of Private Sector Colleges and Universities, which endorses for-profits, challenged these regulations in court. On June 30, 2012 the U.S. District Court for the District of Columbia decided to vacate most aspects of the regulations. The court sustained that the ED had the authority to regulate gainful employment, yet it cited the ED had not provided rationale metrics or measures in the debt measures. At present, only the disclosure requirements of providing prospective students with placements rates, on time graduation rates and other similar information remain. On March 19, 2013 the judge ruled again in response to the ED’s motion to reinstate the reporting requirements in order that it could implement the disclosure requirements of Gainful Employment. The judged denied the motion of the ED on the basis that the reporting requirements would violate the federal ban on the student unit record system. It is strongly debatable that the court’s ruling negates the small amount of transparency and accountability mandated by the disclosure requirements, leaving the policy issue of for-profits being accountable for Gainful Employment unattended.
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 of the American Association of University Professors, 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. Activist short seller Steve Eisman (famous for being a character in Michael Lewis’s 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.”
A two-year congressional investigation report—from a committee chaired by Senator Tom Harkin, D-Iowa—examined enrollment numbers in selected for-profit higher education institutions. The committee found that $32 billion in federal funds were spent in 2009–2010 on for-profit colleges. The majority of students enrolled in the institutions left without a degree and carried post-schooling debt. Regarding the dropout rates, the report said 54% of students in bachelor’s degree programs dropped out before degree completion and 63% of students in associate degree programs dropped out.
In 2019, the Department of Education reported median student debt from for-profit colleges and found that among people pursuing a bachelor’s degree, those who graduated from for-profits borrowed $43,600, compared to $27,900 for public college graduates and $32,500 for private nonprofit college graduates.
Accreditation and transfer-of-credits
Many for-profit institutions of higher education have national accreditation rather than regional accreditation. Regionally accredited schools are predominantly academically oriented, non-profit institutions. Nationally accredited schools are predominantly for-profit and offer vocational, career, or technical programs. Most regionally accredited schools will not accept transfer credits earned at a nationally accredited school because, except for some specialized areas such as nursing, the standards for regional accreditation are higher than those for national accreditation.
In the 2005 congressional discussions concerning reauthorization of the Higher Education Act and in the U.S. Secretary of Education’s Commission on the Future of Higher Education, there were proposals, ultimately unsuccessful, to mandate that regional accrediting agencies bar the schools they accredit from basing decisions on whether or not to accept credits for transfer solely on the accreditation of the “sending” school. They could still reject the credits, but they would have to have additional reasons. The American Commission of Career Schools and Colleges (ACCSC), a nonprofit accreditor for-profit schools, supported the proposed rule. The ACCSC claims regionally accredited schools will not accept nationally accredited schools credits for purely arbitrary, prejudicial and/or anti-competitive reasons. It further stated that, since the Department of Education recognizes both national and regional accreditation, there is no reason for regionals to differentiate between the two and to do so amounts to an unwarranted denial of access. The position of the American Association of Collegiate Registrars and Admissions Officers (AACRAO) was that national accrediting standards were not as rigorous and, though they might be well-suited for vocational and career education, were ill-suited for academic institutions. AACRAO alleged that this proposed rule was unnecessary and unjustified, could threaten the autonomy and potentially lower the standards of regionally accredited schools, and drive up their costs. Furthermore, it stated the proposed rule was an attempt by the for-profits’ “well-funded lobbyists” to obscure the difference between for-profits’ “lax academic criteria for accreditation” and non-profits’ higher standards.
Some for-profit schools have received regional accreditation, including American InterContinental University, American Public University System, Capella University, DeVry University, Kaplan University, National American University, Post University, San Joaquin Valley College, Strayer University, University of Phoenix, Universal Technical Institute, and Walden University.
Accrediting agencies have gained some scrutiny and criticism for conflicts of interest. Because these agencies receive their funding from the institutions themselves, they may have a vested interest in not aggressively supervising these for-profit colleges. According to Chris Kirkham and Kevin Short:
“Two accrediting bodies…collectively monitor nearly 60 percent of all American for-profit colleges. They preside over almost half of those schools with the nation’s worst student loan default rates….Ten of the 15 board members supervising the ACICS are drawn from the industry, including executives from Corinthian, Education Corporation of America and ITT Technical Institute. On the ACCSC board, industry executives fill eight of the 13 slots, representing publicly traded companies such as Universal Technical Institute and Kaplan Higher Education.”
In 2016, 12 Attorneys General asked the US Department of Education to stop the renewal of ACICS, the Accrediting Council for Independent Colleges and Schools The Department of Education deliberated on the fate of ACICS and its power to accredit schools for Title IV government funds. On June 23, 2016, The National Advisory Committee on Institutional Quality and Integrity (NACIQI), voted to revoke ACICS’s power to accredit schools.
Notable failures include Corinthian Colleges (2015), ITT Technical Institute (2016), Education Management Corporation (2017), Education Corporation of America (2018) and Vatterott College (2018). In 2010, Trump University was closed by the State of New York for operating without a license. In 2014, FastTrain college closed after being raided by the FBI. In 2016, all campuses of Westwood College closed. In 2016, the US Department of Education stripped ACICS, the accreditor of ITT Tech and many more colleges, of its accrediting power. The ACICS was given the power back under Secretary of Education Betsy DeVos. In 2018 and 2019, Dream Center Education Holdings faced a financial crisis with colleges with Art Institutes, Argosy University, and South University brands, which had been converted from for-profit to non-profit.
Government scrutiny, criminal and civil investigations
According to A.J. Angulo, for-profit higher education in the US has been the subject of government scrutiny from the mid-1980s to the 2010s.
For-profits topped the Department of Education’s list for the 2005–2007 cohort default rates, with campuses at ATI and Kaplan reporting default rates far above 20%. Most of the for-profits’ expansion was in California, Arizona, Texas and Florida, with the metro areas of Los Angeles, Phoenix, Dallas and Miami-West Palm Beach being centers of growth. For comparison, in Miami, Everest Institute reported a default rate of 18% and 20% for its two campuses; Miami Dade College, the district’s community college, which serves local beginning students, reported a default rate of roughly 10%; Florida International University, a public university serving the Miami metropolitan area, reported approximately 5%.
In August 2010, the Government Accountability Office reported on an investigation that randomly sampled student-recruiting practices of several for-profit institutions. Investigators posing as prospective students documented deceptive recruiting practices, including misleading information about costs and potential future earnings. They also reported that some recruiters urged them to provide false information on applications for financial aid. Out of the fifteen sampled, all were found to have engaged in deceptive practices, improperly promising unrealistically high pay for graduating students, and four engaged in outright fraud, per a GAO report released at a hearing of the Health, Education, Labor and Pensions Committee held on August 4, 2010. Examples of misconduct included:offering commissions to admissions officers, employing deceptive marketing tactics by refusing to disclose total tuition cost to prospective students before signing a binding agreement, lying about accreditation, encouraging outright fraud by enticing students to take out student loans even when the applicant had $250,000 in savings, promising extravagant, unlikely high pay to students, failing to disclose graduation rate, and offering tuition cost equivalent to 9 months of credit hours per year, when total program length was 12 months.
The GAO study found that 14 out of 15 times, the tuition at a for-profit sample was more expensive than its public counterpart, and 11 out of 15 times, it was more expensive than the private counterpart. Examples of the disparity in full tuition per program include: $14,000 for a certificate at the for-profit institution, when the same diploma cost $500 at a public college; $38,000 for an Associate’s at the for-profit institution, when the comparable program at the public college cost $5,000; $61,000 for a Bachelor’s at the for-profit institution, compared to $36,000 for the same degree at the public college. This is counter to International Education Corporation CEO Fardad Fateri’s claims of the lack of use of unorthodox recruiting practices and a for-profit’s “value” in an IEC open letter to Congress, the tuition cost of certificates and associate degrees being 28 and 6 times more than at a public college, respectively; Fateri writes, “Credit should be given to non-profit universities that have been able to convince students and their sophisticated parents to pay approximately $400,000.00 for an undergraduate degree that will seldom lead to an academically related career.”
The institutions identified in the Committee hearing in respect to the GAO report numeration included:
In 2010, students at for-profit institutions represented about 12% of all college students, but receive roughly 25% of all Federal Pell Grants and loans. They were also responsible for approximately 44% of all student loan defaults. University of Phoenix topped this list with Pell Grant revenue of $656.9 million with second and third place held by Everest Colleges at $256.6 million and Kaplan College at $202.1 million for the 2008–2009 fiscal year, respectively. In 2003, a Government Accountability Office report estimated that overpayments of Pell Grants were running at about 3% annually, amounting to around $300 million per year. Some of the universities that were top recipients of Pell Grants had low graduation rates, leaving students degreeless, and many graduating alumni found it excessively difficult to find gainful employment. with their degrees, leading some former students to accuse recruiters of being “duplicitous”, and bringing into serious question the effectiveness of awarding Pell Grants and other Title IV funds to for-profit colleges. University of Phoenix’s graduation rate is 15%. Strayer University, which reports its loan repayment rate to be 55%, only has a repayment rate of roughly 25%, according to data released by the U.S. Department of Education on August 13, 2010. The low repayment rate made Strayer ineligible for receiving further Title IV funds in accordance with new “Gainful employment” regulations brought forth by the Department of Education, which were to take effect in July 2011. If passed, the minimum loan repayment requirement for any institution receiving Title IV funds, subject to suspension and expulsion if not compliant, will be 45%.
In an August 4, 2010 Health, Education, Labor and Pensions Committee hearing, Gregory Kutz of the GAO stated that the fraudulent practices may be widespread in the For-Profit industry, noting a University of Phoenix executive chart that encouraged deceptive practices. Joshua Pruyn, a former admissions representative, disclosed to the committee hearing several internal emails distributed among admissions officers in March 2008 which encouraged applications and enrollments through the use of a commissions reward system.
During a congressional hearing to present the report, Pruyn’s testimony was disproven by tapes of conversations, and it was reported that Pruyn’s comments were written by attorneys who were suing Westwood, and inappropriately coached by Chairman of the committee Senator Thomas Harkin staffers who organized the hearing. Sen. Harkin noted the conflict of interest due to the ACCSC, a national accrediting agency that accredits many for-profit colleges nationwide, receiving compensation directly from the institutions to which it awards accreditation. The Inspector General issued an assessment in late 2009 recommending the limiting and possible suspension or expulsion of the Higher Learning Commission of the North Central Association of Colleges and Schools due to conflicts in the manner in which the accrediting agency reviews credit hours and program length for online-colleges, specifically American InterContinental University, a for-profit college. The NCA HLC accredits the University of Phoenix and Everest in Phoenix, Arizona.
On November 30, 2010, the GAO issued a revised report, softening several examples from an undercover investigation and changing some key passages, but stood by its central finding that colleges had encouraged fraud and misled potential applicants.
In 2014, a criminal investigation of Corinthian Colleges was initiated.
Until 2015, The US Attorney General and at least eleven states maintained an $11 billion lawsuit against Education Management Corporation
 The US Consumer Financial Protection Bureau also has a suit against ITT Educational Services, parent company of ITT Tech.
In 2016, Alejandro Amor, the founder of FastTrain, was sentenced to eight years in federal prison for fraud.
Attempts to regulate and deregulate the industry
The US Department of Education (DoED) has proposed rules, “gainful employment regulations”, that would provide more transparency and accountability to institutions that offer professional and technical training. According to DoED, this regulation is an attempt to “protect borrowers and taxpayers.”
In his 2015 budget proposal, President Obama recommended greater regulation of for-profit education, including a closure of the loophole that exempted GI Bill money from being used in the 90-10 formula.
In 2017, the US Department of Education held public hearings were held in order to determine whether the government had overstepped regulation efforts, particularly with gainful employment and defense to repayment rules.
In August 2017, Secretary of Education Betsy DeVos instituted policies to loosen regulations on for-profit colleges.
In September 2017, the Trump Administration proposed to remove conflict of interest rules between VA officials and for-profit colleges.
In March 2018, the House Subcommittee on Labor, Health and Human Services, Education and Related Agencies began reviewing problems related to for-profit colleges and student loan debt.
For-profit college lobbyists promoting deregulation
Lobbyists for the for-profit higher education industry have taken several steps to stop regulation and to fight against transparency and accountability. They have also supported at least two lawsuits to squash gainful employment regulations.
For-profit colleges transitioning to nonprofit colleges
At least three colleges or universities have transitioned to nonprofit status: Keiser University, Remington College, and Herzing University. Journalists argue that these transitions are strategies to reduce state and federal regulations and to obtain more Title IV funds, as well as to improve reputations as for-profit education now has a stigma to the public. In 2014 Grand Canyon University considered a transition to nonprofit status. In 2016, Grand Canyon’s regional accreditation body, The Higher Learning Commission, formally rejected the university’s petition for conversion to non-profit status. The commission’s board of directors stated that the school did not meet all five criteria for “such a conversion”. In 2017, Kaplan University was sold to Purdue University and became Purdue University Global in 2018. Kaplan, however, became the servicer for the institution and the Higher Learning Commission continued to accredit the school. In 2018, Grand Canyon University and Ashford University petitioned for non-profit status. In 2018, Grand Canyon University regained its non-profit status.
In 2019, the Internal Revenue Service granted Ashford University non-profit tax status. Ashford University was the major source of revenue for Bridgepoint Education, now known as Zovio.
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