The Real Cost of For-Profit Colleges | Paying for College

For-profit, four-year colleges advertise sticker prices that are, on average, somewhere between those of public and private nonprofit colleges. But experts encourage students considering for-profit colleges to look critically at other factors that contribute to cost, too, like the amount of institutional aid available, how long it takes to earn a degree and the value of that degree.

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The average price of tuition and fees for first-time, full-time undergraduate students at degree-granting, four-year for-profit colleges was $15,780 in 2020-2021, according to the College Board’s Trends in College Pricing 2021 report.

For comparison, that’s more than public four-year colleges, which cost $10,570 on average in the same year, and less than that of private nonprofit colleges that were priced at, on average, $37,270 in 2020-2021.

What Is a For-Profit College?

There are three primary types of postsecondary institutions: public colleges, which are funded in large part by state governments and are overseen by state-appointed boards and trustees; private nonprofit colleges, which don’t receive state funding and rely instead on tuition and private donations; and private for-profit colleges, which are funded by investors and can be subsidiaries of a larger corporation.

Many for-profit colleges offer online education options, and the appetite for those has increased due to the coronavirus pandemic. For-profit colleges, whether online, campus-based or hybrid, often provide niche or job-specific programs, and these colleges typically attract nontraditional students who are drawn to their flexibility and convenience.

“For-profit colleges, in theory, address an important niche in the education sector by focusing on efficiency and practical knowledge rather than education for its own sake,” Venkates Swaminathan, founder and CEO of LifeLaunchr, a virtual college admissions coaching service, wrote in an email. “They are supposed to lack the frills that have come to characterize the American education scene – beautiful gyms, new libraries, menus catering to every dietary preference – and focus on teaching primarily low-income, often adult students skills that will enable them to earn higher-paying work.”

The Net Price of For-Profit Colleges

Students and families rarely pay the amount advertised for tuition and fees, known as the sticker price, for college. Instead, families can rely on the net price, or the price students pay after grants and scholarships, to better estimate the actual cost of a particular school.

While the average net price for low-income students in the private nonprofit sector fell by 2% from 2003-2004 to 2015-2016, the average net price for dependent students from low-income families at for-profit institutions rose 36% in the same period, according to the College Board’s 2019 trends report, which contains the most recent data available.

Robin Howarth, senior researcher at the nonprofit Center for Responsible Lending, says instead of comparing sticker prices, prospective students should consider the kinds of grant and scholarship aid available.

“Net price incorporates grant aid, and generally that’s where even if you were to start out at the same sticker price for a for-profit and a nonprofit, more or less, for-profits have virtually no institutional aid for students, which is often not true for nonprofits,” Howarth says.

In addition to providing federal financial aid, some for-profit institutions offer unique course formats that may reduce costs, like FlexPath, a subscription-based plan offered at for-profit Capella University.

“Costs vary widely depending on program, how many transfer credits the learner is bringing in, and how fast they move through their program,” Elaine Kincel, a Capella University spokesperson, wrote in an email. “For example, learners in the FlexPath model can choose to move faster and save money.”

Completion Rates at For-Profit Colleges

Enrolling at a for-profit college may cost students time, as well.

Only 26% of students who completed their degrees at for-profit institutions did so in six years or less. By comparison, 68% of students enrolled in private nonprofit colleges and 62% of public college students completed their degrees in that length of time, according to 2019 data from the National Center for Education Statistics.

Student Debt and For-Profit Colleges

Students who graduate from for-profit colleges are more likely to have taken out student loans, and the average amount of those loans is higher than the amount of debt incurred by students enrolled at other types of schools.

More than 80% of 2016 graduates from for-profit colleges had student loans, compared with 68% of those from private nonprofit colleges and 66% from public colleges. Graduates from for-profit colleges left school with, on average, $39,900 in student debt, according to a 2019 report from The Institute for College Access & Success, a nonprofit also known as TICAS.

Those who attend a for-profit college are also six times more likely to default on their federal student loans – which occurs after a period of missed payments – within 12 years of entering college compared to those who started at a nonprofit college, recent TICAS data shows.

Defaults on loans can prevent graduates from being able to get a job or home, says Ben Kaufman, head of investigations and senior policy adviser at the Student Borrower Protection Center, another nonprofit.

“The cost borrowers face is tuition and room and board taken out on loan with interest and also all of the domino effects across their entire life of having this debt,” he adds. “There’s research that shows that attendance at a for-profit college tends to leave people worse off than had they not attended at all.”

Targeted Recruitment

For-profit colleges often engage in “aggressive” marketing to recruit students for short-term training that is directed at the job market, says Lynn Pasquerella, president of the American Association of Colleges and Universities.

“They will do outreach calls and advertisements to prospective students saying, ‘You can get a job in three to six months if you take this program,'” she says. “And then they will encourage them through advising to take out student loans without being clear with respect to the implications of high-interest loans.”

Low-income and students of color are particularly targeted by for-profit schools. Majority Black or Latino neighborhoods are over 75% and 110% more likely, respectively, to house at least one for-profit school than communities that are not majority Black or Latino, according to a 2021 SBPC report.

Because of the money they bring through the GI Bill, which pays up to $25,162.14 for private colleges annually, for-profits also heavily recruit veterans, says Carrie Wofford, president of the advocacy group Veterans Education Success.

“Some colleges unfortunately are just after the money and aren’t seeking to provide a great education,” Wofford says. She encourages prospective students to ask, “How is the college spending your GI Bill?”

“Colleges should be giving you that amount of education, but sadly many for-profit colleges siphon away a lot of the GI Bill from education and spend it instead on private jets and marketing,” Wofford adds.

The Value of the Degree

Experts note that degrees conferred by for-profit colleges often do not produce the bump in salary and earning power graduates hope to achieve, and students may not receive the same educational quality and rigor they may expect at public and private nonprofit colleges.

Plus, earnings are typically lower for graduates of for-profit colleges overall than for graduates from the two other college sectors, Howarth says, further driving down the value of a degree from a for-profit.

“If you had to borrow more to attend a for-profit but your outcomes were spectacular, then it really wouldn’t be as big of an issue, because your ability to repay the debt and your salary would be higher – it would all come out in the wash and you’d come out OK, but in fact the opposite is true,” she says.

Experts also note there are other issues beyond cost that students should consider when weighing the decision to attend a for-profit college, like whether the school has any prior or pending law enforcement or legal actions against it. Around 24,000 federal fraud complaints were filed against for-profits for lying about employment statistics and graduate incomes between 2017 and 2019, the Brookings Institute reported.

“Students should just be so skeptical of these schools and do as much homework as they can,” Kaufman says.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

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