28 November 2010

For Profit Colleges Mostly A Bad Deal

The Education Trust's report Subprime Opportunity confirms that for profit institutions of higher education are mostly a very poor value, with lower graduation rates yet higher tuitions in most cases.

Between 1998-99 and 2008-09, enrollment at for-profit schools increased by 236 percent, while growth at other colleges and universities totaled about 20 percent. In fact, expansion of the sector has been so extraordinary that the largest for-profit—the University of Phoenix—today enrolls more students than the entire for-profit sector enrolled in 1991.

Much of the growth has been federally funded, with Pell Grants to for profit university students increasing by $3.4 billion to $4.31 billion, an increase from 13% to 24% of Pell Grant dollars. For profit college students also overwhelmingly received federally guaranteed student loans (which also aren't dischargeable in bankruptcy). In four year programs 94% of students receive them (compared to 54% of private nonprofit college students and 42% of public college students). In two year programs, 95% of students receive them (compared to 47% of private nonprofit college students and 11% of public nonprofit college students). In certificate programs of less than two years, 675 of for profit college students receive them (compared to 31% of private nonprofits and 15% of public college students). Private, for profit colleges exist almost entirely as a result of federal grant and student loan support.

More than 40% of four year and two year students, and more than a third of certificate students at for profit colleges also need private students loans, rates more than double those of private nonprofit and public colleges.

But, enrollment has not equated to achievement.

[C]ompletion rates, among first-time, fulltime, bachelor’s degree-seeking students who enroll at for-profit institutions, only 22 percent earn degrees from those institutions within six years. By contrast, students at public and private nonprofit colleges and universities graduate at rates two to three times higher— 55 and 65 percent, respectively. . . .

The graduation rates at two-year and less than two-year for-profit colleges are better. At two-year for-profits, 60 percent of students earn an associate’s degree or certificate within three years. At less than two-year for-profits, 66 percent earn a credential within three years. These completion rates are considerably higher than the 22-percent rate at public community colleges.

Graduation rates at for profits are lower than private non-profits and public colleges at all levels of selectivity, and at institutions where fewer than two-thirds of students receive Pell Grants. At institutions where more than two-thirds of students receive Pell Grants, their graduations rates are lower than public colleges but a little higher than private non-profit colleges.

For first time, full time, four year degree students, six year graduation rates are as follows:

University of Phoenix 9%
Sullivan University 15%
International Academy of Design and Technology 16%
Westwood College 27%
DeVry University 31%
Berkeley College 35%
The Art Institute 41%
The Illinois Institute of Art 44%
ITT Technical Institute 66%
School of Visual Arts 67%

The University of Phoenix accounts for 16,044 of the 26,873 students in the cohort.

For profits also leave their students with more debt. Full time online students at the University of Phoenix have just a 5% six year graduation rate and some campuses have six year graduation rates as low as 4%. No campus had a six year graduation rate of more than 33%.

The University of Phoenix claims that 36% of its bachelor's degree students graduate in six years, when students not included in federal data are included, despite the fact that the students included in federal statistics generally have the highest graduation rates. Presumably, the high claimed graduation rate at the University of Phoenix comes from students who finished most of their education at traditional institutions and dropped out, and then finish their degrees with a few extra classes over six years at the University of Phoenix. In any case, even its claimed graduate rate is dismal compared to public and private non-profit colleges.

For four year degrees, for profits leave their students in the bottom half of the income distribution with $24,957 per year of debt, private non-profits $16,574, and public colleges $8,588.

For two year degrees, for profits leave their students in the bottom half of the income distribution with $21,072 of debt per year; public colleges $5,478.

For certificate programs of less than two years, for profits leave their students in the bottom half of the income distribution with $15,154 of debt per year; public colleges $10,978.

Among students who earn bachelor’s degrees, the median debt at graduation for students at for-profits is $31,190, compared with $7,960 at public and $17,040 at private nonprofit institutions. Indeed, 19 percent of associate’s degree students and 3 percent of certificate completers at for profits have debt loads greater than $30,000, compared with only 2 percent and 1 percent of students in these programs, respectively, at public institutions. On the other end of the scale, only 4 percent of bachelor’s degree recipients at forprofits graduate debt-free, compared with 38 percent and 28 percent at public and private nonprofit institutions. . . .

About ten percent of for-profit students default on their federal loans within two years of entering repayment, and significantly more default in the following year, bringing the three-year default rate to 19 percent. These default rates are about twice as high as the rates of students at public and private nonprofit colleges. In fact, for-profits represent 43 percent of all federal student loan defaults, even though they make up only 12 percent of enrollments and 24 percent of federal loan dollars. . . . [E]ven when controlling for student demographics and completion rates, default rates are still much higher at for-profit institutions than at other colleges.

A Pew Research Center report released the same day confirmed the high debt levels.

The bottom line is that for profit colleges and particularly the University of Phoenix, are very inefficient ways to turn federal dollars into four year college degrees, and also place an extreme hardship on their students in the form of heavy debt loads with high default rates.

At the very least, for profit colleges ought to be required to reimburse the federal government for funds received from federal grants and federallly guaranteed student loans to the extent that those defaults exceed those at private non-profit and public colleges.

Another approach may be to make grants and loans available only to the extent that tuitions net of grant aid at for profit institutions are no more than at private non-profit institutions.

A more draconian approach, that simply denies federal support to institutions that fail to achieve adequate graduation rates and have significantly above average default rates on student loans, however, may be the easier course. Perhaps the federal government should simply cease to support the University of Phoenix, Sullivan University, International Academy of Design and Technology, and Westwood College, at all, for example, until they shape up.

UPDATE: For profits do not have an edge in certificate programs of less than two years. The graduation rates at both public colleges and private non-profits in those programs is 74%, while at for profits it is 66%.

In two year programs, for profits graduation rates are modestly better than at private non-profits -- 60% at for profit two year institutions v. 51% at private non-profit two year institutions (v. 22% at public two year institutions). In two year programs at four year institutions that graduation rate is 46% at for profits, 42% at private non-profits and 26% at two year programs at public four year institutions.

Another interesting statistic is the part-time student percentage:

In 4 year programs 22% of public students are part-time, 17% of private non-profit students are part-time, and 27% of for profit students are part-time.

In 2 year programs 61% of public students are part-time, 30% of private non-profit students are part-time, and 11% of for profit students are part-time.

In less than two year certificate programs 41% of public students are part-time, 11% of private non-profit students are part-time and 14% of for profit students are part-time.

Two and three year default rates on student loans are:

For profit: 9.5% two year, 19.1% four year.
Private non-profit: 2.9% two year, 5.0% four year.
Public: 5.0% two year, 8.1% four year.

Private non-profits spend 3.5 times as much per student on instruction despite costing less to the student.


It looks as if there are some worthwhile certificate programs and two year degree programs at for profit colleges, particularly at those that aren't aspiring to be four year colleges, and the tuition differential may even be worth it in some of these programs. The relatively low graduation rate in two year programs at four year for profit institutions (that make up about 60% of the for profit sector and includes the notorious Univerity of Phoenix) also suggests that these for profit colleges, who have grown most in recent times, are less focused on student success than less ambitious for profit institutions, many of which pre-date widespread federal support for them.

A fair read of the very low graduation rate for full time students at public two year programs, particularly at community colleges, is that lots of these students are academically marginal students who couldn't get into four year programs who aren't very committed to their studies but are willing to give it a shot for lack of anything else to do given the very low tuition after available grant aid at many community colleges. I've also blogged previously that a large share of all community college dropouts last just a single semester.

I'd be curious to see the graduation rate of full time community college students who complete a full year in good standing. I suspect that it is quite respectable. Also, students who complete two years at community college and transfer to four year colleges graduate at rates indistinguishable from students who started at four year colleges and were still there two years later.

Essentially, two year and certificate programs at private non-profits and for profits are weeding out marginal students with high tuitions as opposed to selectivity criteria, while public community colleges weed out marginal students by having them drop out at extremely high rates after a semester or two.

To some extent the high drop out rates of public community colleges subsidize the serious students. They raise enrollment, which increases state subsidies and tuition revenues, but probably don't put as much of a burden on the institutions as other students. They aren't filling upper division (and to a great extent even second semester) classrooms, and some who don't finish probably have faded from classrooms before the end of the semster, and often aren't turning in all of their homework for their professors to grade. I also suspect that few students who drop out of community college are lining up in droves at professorial office hours.

On the other hand, if there were fewer students in the community college system, the available high education funding per student would be higher. And, even very modest selectivity in admissions could very effectively exclude a very large number of students who have an extremely high change of dropping out. At least a third to a half of students starting community college simply are not ready to take college classes and need "cram school" or less charitably "remedial education" before they are ready to take true college classes at any institution. I've suggested before that even if they are taught at community colleges, these kind of programs should be funded from the P-12 education budget at minimal tuition, rather than the higher education budget, because these students have clearly not gotten their money's worth from the P-12 education system.

More selective admissions, even modestly, for community colleges would also probably increase the prestige of these degrees, because the classes could be conducted at a higher level without classes that are filled at least part of the year with student bodies where more three out of four students in first semester classes are on a track to drop out, something that via the people who teach them, taints the reputation of students at those institutions generally, by creating suspicions that grading on a curve in this group lowers overall standards.

The growth of for profit educational institutions, particularly those serving low income under-represented minorities (many of whom would be welcome at public institutions that are far cheaper) also suggests that public institutions and private non-profit institutions underspend on marketing and outreach to these students. While for profit educational institutions are clearly overenrolling by bringing in students who have no realistic chance of success in programs (particularly four year programs) at levels of debt that far exceed what is realistic, they are also clearly enrolling many serious students, particularly in two year and certificate programs, who do have a realistic chance of success and who would be even better off it they weren't overpaying for their educations. Shifting federal money going to for profit education to outreach program to these students could have a strong positive effect.


Michael Malak said...

Politicians and the media have been disparaging institutions akin to the University of Phoenix with the label "for-profit". But apart from these types of institutions, there is a valid reason why an institution may opt the for-profit route: the freedom of speech to espouse a particular ideology as it applies to specific candidates running at any given time. Liberty University almost became for-profit for that very reason, but in the end decided to reduce its political activities.

Pell grants are a separate issue, but again ideological universities may eventually have to forego them. The U.S. Dept. of Education is starting to require state oversight of universities accepting Pell grant students. This could soon turn into curriculum requirements, such as including a requirement to avoid "hate speech" (i.e. Christian theology).

BSR said...

I remember reading recently that several of these colleges are under investigation by some state attorneys general. Some have very high pressure sales tactics toward students and seem designed to get the student enrolled just to get the Pell Grant money & student loan ball rolling. If the student drops out or can't pay they still have made money.

Going into debt $30K for a degree that gets you a job paying $35K/year doesn't seem like a good deal at all.

Andrew Oh-Willeke said...

Private non-profits have essentially the same restrictions on "free speech" as private for profits. Also, a large share of professors at private non-profits also generally have tenure, while for profit colleges almost always reserve the right to fire professors for ideological reasons.

Non-profits that are tax exempt aren't allowed to be racially discriminatory in ways not incidental to religious requirements for faculty and staff. For profits aren't allowed to be racially discriminatory under civil rights laws since they are public accomodations.

At any rate, the reality is that none of the big players in for profit education, like the University of Phoenix, ITT, DeVry, The Art Institute, Kaplan and Westwood have a political or ideological agenda, any more than General Motors, Target or General Electric do. They have interests that they lobby for, but not a larger political purpose.

For profits generally seek to obtain accreditation from bodies that impose curriculum requirements essentially identical to those of private non-profits (often the very same bodies). I've been through an outside review at a sister college of the University of Phoenix as a professor and can assure you that there is no ideological agenda that the institution is trying to defend. The curricular battles at for profits largely involve instruction methods (e.g. receiving suitable parity of screen time for "seat time" in online instruction).

Private non-profits can also raise capital from the private sector in public offerings of securities, so long as they do so in the form of bonds, rather than stock. Many do.

I share your concern over undue entanglement of government in civil society and NGOs, and would favor reducing tax code implemented regulation of 501(c)(3) status while reducing the tax benefit from that status (or at least making a less regulated, less tax benefitted option more widely and easily available). But, that isn't the issue here. In the for profit higher education context is it simply an issue of students and government supporters not getting their money's worth.