For-Profit Colleges: Do Your Homework

Higher education has long been the way that many Americans have pursued greater economic opportunity and increased earning potential. In recent years, more students have turned to for-profit colleges--whose investors make money when students enroll in the schools--for certificates and degrees, some involving online coursework. Enrollment at for-profit colleges has increased more than 225 percent since 1998.

For-profit college advertisements are everywhere--on the Internet, television and radio, in newspapers, in your mailbox and over the phone. The advertisements--often aimed at students without much money or who are the first in their family to go to college or who don’t have much experience with higher education--may tell about success stories of students who have graduated, how much money a student will make upon graduation, or the ease with which their online programs will fit the student’s lifestyle. Because the investors of for-profit colleges make money when students enroll, their recruiters sometimes relentlessly pursue students who have expressed an interest in receiving more information. In the last few years, the tactics of some for-profit colleges have come under scrutiny. In some cases, such colleges have used deceptive sales practices to entice students to enroll in expensive programs that are available at a state college or university at a fraction of the cost. In other cases, students have paid thousands of dollars to enroll in such programs, only to obtain a worthless degree.

If you or your child are considering enrollment in a for-profit college, do your homework to be sure that you get the best value for your money and avoid problems:

Industry Facts and Figures.

The for-profit college industry is profitable. In 2009, the 16 largest for-profit college corporations collected profits of about $2.7 billion. Over 75 percent of students who attend for-profit colleges are enrolled at colleges owned by Wall Street investors, according to U.S. Senate data.

About 2,000 for-profit colleges nationwide enroll about 11 percent of all higher education students, but they receive nearly 25 percent of all federal financial aid--totaling about $32.1 billion each year--and account for nearly 50 percent of all loan defaults. On average, the largest 15 for-profit colleges received about 86 percent of their funding from federal, taxpayer-backed student loans and aid programs. If students default on federal loans, taxpayers--not the for-profit colleges--pick up the tab. In other words, taxpayers subsidize the private equity funds and investors who own the for-profit colleges when students who attend them default on their federal student loans.

Recent Government Reports.

The U.S. Government Accountability Office (“GAO”) has issued several reports about for-profit colleges since 2009. The United States Department of Education has also released data about for-profit colleges. The following are some of the findings from these reports:

People may access these GAO reports online:

(1) “Undercover Testing Finds Colleges Encouraged Fraud and Engaged In Deceptive and Questionable Marketing Practices,” August 4, 2010;

(2) “Stronger Department of Education Oversight Needed to Help Ensure Only Eligible Students Receive Federal Student Aid,” August, 2009;

(3) “Stronger Federal Oversight Needed to Enforce Ban on Incentive Payments to School Recruiters,” October, 2010.

Do Your Homework Before You Enroll.

Students and their families may wish to consider the following suggestions to avoid problems:

For more information or to file a complaint, contact these agencies:

U.S. Department of Education
400 Maryland Ave. SW
Washington, D.C. 20202
1-800-872-5327
TTY: 1-800-437-0833
www.ed.gov (External Link)
www.college.gov (External Link)

Minnesota Office of Higher Education
1450 Energy Park Drive, Suite 350
St. Paul, MN 55108
651-642-0567 or 1-800-657-3866
TTY: 1-800-627-3529
www.mheso.state.mn.us (External Link)

Office of Minnesota Attorney General Lori Swanson
1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101
(651) 296-3353
1-800-657-3787
TTY: (651) 297-7206
TTY: 1-800-366-4812

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