Memo: Voters Across the Political Spectrum Want For-Profit Colleges to Invest in Students, Not Shareholders
Executive Summary
For-profit colleges have a long and well documented history of consumer abuses, deception, and fraud. These schools tend to provide low-quality education to their students, frequently targeting vulnerable groups such as veterans, low-income students, and students of color, and leaving them buried in debt.
For-profit colleges enroll just 8 percent of all postsecondary students, yet they account for 30 percent of all student loan defaults. These institutions soak up 12 percent of all federal student aid from the U.S. Department of Education; for many, federal aid is the primary source of revenue. In other words, most for-profit colleges exist thanks to taxpayer dollars.
The differences between for-profit colleges and other public and private nonprofit schools are more important than just tax status: these schools have drastically different operating incentives and governance structures. Public colleges are overseen by public officials and legislatures, and nonprofit colleges are required by law to reinvest any profits into their educational mission, as directed by boards that are prohibited from profiting themselves. For-profit colleges, on the other hand, are run as private businesses with a purpose of making a profit, which in turn creates a natural incentive to cut costs on the “product” of education and maximize revenue.
Many for-profit institutions that rely on federal student aid turn around and spend that money on advertising and marketing campaigns to the detriment of their enrolled students. TCF’s research has shown that for every dollar in tuition revenue, for-profit colleges on average spend just 26 cents on student instruction. By comparison, nonprofit and public colleges on average spend 79 cents and $1.13, respectively, on education per tuition dollar. Some for-profit colleges that are the largest recipients of public sources of funding spend less than twenty percent of their revenue on educating students. Instead, excess funds are channeled toward owner and shareholder profits.
