NCPA - National Center for Policy Analysis

Can For-Profit Colleges Save Higher Education?

September 8, 2011

For-profit colleges are on the ropes.  Damaging congressional investigations, a bruising fight over new federal regulations and a stagnant economy have all combined to reverse what had been unprecedented growth in for-profit enrollments.  As Bloomberg BusinessWeek reported last week, financial analysts now see an outlook for proprietary colleges that ranges from uncertain to gloomy, says

Andrew Kelly, a research fellow at the American Enterprise Institute.

Consumers and investors have reason to be wary.

  • Federal statistics indicate that 25 percent of all for-profit students who started repaying their loans in 2008 had defaulted three years later.
  • In public colleges, the comparable figure was just 10 percent.
  • Although for-profits enroll only about 10-15 percent of all students, their students make up about 47 percent of all three-year loan defaults.
  • By 2015, new federal regulations will cut off student aid dollars to for-profit programs whose graduates struggle to pay back their loans.

So what do the for-profits have to offer?  Kelly sees three things:

  • First, the for-profits have shown an ability to grow and expand their capacity.
  • Second, for-profits have experience serving higher education's "new majority": nontraditional students.
  • Third, the for-profits have shown a knack for getting students over the finish line in their two-year programs.

This is not an argument for or against for-profit colleges as currently conceived.  Providing expertise, infrastructure and services to willing, entrepreneurial partners in the non-profit and public sectors would enable for-profits to accomplish two goals.

  • First, the model would shift much of the risk inherent in educating nontraditional students to their partner organizations and provide for a more politically stable revenue stream.
  • Second, this new arrangement would clearly harness their wealth of knowledge and innovative spirit to the nation's new higher education goals.

Source: Andrew P. Kelly, "How For-Profit Colleges Can Save Themselves -- and Higher Education," The Atlantic, September 6, 2011.

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