For-Profit Colleges: Sound Taxpayer Investment or Wasteful Spending?

In Senator Harkin’s opening remarks during the recent congressional hearings on higher education, he stated, “We have a responsibility to ensure that taxpayer dollars are being spent wisely, and that for-profit colleges are serving students, not just shareholders.” As the CEO of TopSchool and previously serving as the president of eCollege, I understand the need to serve shareholders. However, I couldn’t agree more that the ultimate goal of those of us in education is to serve the student.

For-profit colleges have a huge opportunity to move education forward, and at a great value to taxpayers. They have already made great strides in driving access, innovation and a trained workforce.

ACCESS:
For-profit colleges make education possibilities a reality for the underserved, non-traditional student population. The Department of Education states that the Student Aid Objective is “to ensure that low and middle income students have the same access as high income students do.”

The for-profit education industry delivers an attractive alternative to students who are lower income, minority, older and/or more financially independent. Roughly 76% of for-profit college students are financially independent compared to 50% at public schools, and 45% of for-profit college dependent students come from families in the lowest income quartile compared to 24% at public and 22% at private non-profits.1 These for-profit college students are not choosing between paying their own way or getting federal financial aid – rather they are choosing between not getting educated and federal financial aid.

In fact, according to the U.S. Department of Education, the average Estimated Family Contribution for a student attending a four-year, non-profit school is almost $17,000, which is 123% greater than the $7,500 average for a student attending a four-year, for-profit school. Ironically, this is almost exactly the same ratio of the federal aid required by a student attending a for-profit school compared to a non-profit school.

INNOVATION:
For-profit colleges sit on the forefront of innovation when it comes to flexible delivery and schedules, giving more students the chance to succeed.

When you consider that 60% of for-profit college enrollments occur on a rolling basis, 2 meaning frequent intervals during the year, flexibility is key. For-profit colleges invest significantly in meeting the complex needs of their non-traditional students through online education, night and weekend offerings, and smaller suburban/satellite campuses. This consistent drive to satisfy their students has resulted in 65% of for-profit college students attaining a degree within six years after enrollment, slightly higher than students attending four-year, non-profit schools.3

SKILLED WORKFORCE:
For-profit colleges also focus on aligning their programs with the fields and jobs that are most in demand. According to Imagine America Foundation, for-profit colleges currently enroll more students (44%) in high demand fields than do public (18%) and private, not-for-profit (13%) institutions.2 In fact, 17 of the 20 fastest-growing occupations are in the key focus areas of for-profit schools, including the healthcare and computer/data processing industries, with an estimated 1.8 million jobs being created in these fields through 2016.2 These are positions that graduates of for-profit colleges can fill.

Not only are for-profit colleges training students, but they are getting them placed in the workforce. Consider the percentage of students who are employed within six months of graduation – in 2009, DeVry University reported a 90% placement rate for these students, while larger universities such as UCLA and Johns Hopkins reported only a 45% rate.4 And overall, 76% of for-profit college students who completed an award in 2005 were employed directly following graduation.2

WHAT DOES THIS MEAN FOR TAXPAYERS?
Before we jump into the numbers, I think it important to point out that both for-profit and non-profit models work effectively. For-profit institutions are similar to state systems of higher education in that graduates of both models step out into a demanding job market after earning such degrees as an Associate’s in Accounting, a Bachelor’s in Finance or Computer Engineering Technology, a Master’s in Business Administration or Education – and the list goes on and on.

That said, what do taxpayers invest in students at for-profit schools? And to round out the equation, what is the taxpayer investment to support students at non-profit schools as well?

For-profits
Let’s start on the for-profit side. I analyzed four large, publicly traded for-profit institutions – DeVry, ITT, Strayer and Corinthian Colleges. Using the data available in their most recent annual reports, I wanted to determine the taxpayer investment required to educate one student for one year. I calculated a “net taxpayer investment” by taking the annual Title IV revenue received for all four schools, in this case $3.5 billion, and subtracting the annual taxes provisioned by the institutions, in this case $377 million. As noted in the table below, this number, divided by the student population served, which was around 313,000, resulted in the net cost to taxpayers of roughly $10,000 to educate a student for one year at one of these for-profit schools.

Non-Profits
Keeping that equation in mind, let’s take a look at the non-profit side. In addition to federal financial aid, students enrolled in public, non-profit institutions reap the benefits of state funding for education. You’ll notice that no federal taxes are provisioned for these non-profits as they don’t pay them.

Since I reside in Colorado, I’ve used publicly available information about our own higher education system. According to the Colorado Department of Higher Education, in the Fall Term 2009, the state enrolled just over 240,000 students in its 28 two-year and four-year institutions. During that same year, the Department was allocated almost $2.8 billion in state funds and received over $1.2 billion in federal student financial aid. The table below shows that the net cost to taxpayers to educate a student in the Colorado Department of Higher Education in 2009 was almost $17,000, which is 66% greater than at the for-profit institutions.

Federal Loans
Of course, if we are looking at a net investment to taxpayers, we need to remember that much of the federal subsidies for higher education come in the form of loans. For a variety of reasons, students default on their loans. According to an analysis by the Chronicle of Higher Education, the 15 year loan default rate for for-profit students enrolled in four-year programs is 30%, as compared to 15.1% for non-profit students.5

Using the example from the Colorado Department of Higher Education, when you account for the percentage of education subsidies that are loans (compared to grants or state appropriations) and the difference in default rates, the adjusted taxpayer investment per student at a for-profit school is roughly $4,100, compared to $13,200 at a non-profit school, driving the State of Colorado non-profit education to a 224% premium over for-profits.

THE VALUE TO STUDENTS AND TAXPAYERS ALIKE:
Both for-profit and non-profit institutions play valuable roles in our country’s need to educate the masses. All aspects of our society benefit the more educated we become. The fact is that we need both choices to effectively serve our country’s diverse population.

We can’t deny that the high growth, for-profit college industry should be held accountable for its recent issues, including the misguided information given to students by admissions representatives, higher default rates and so on. However, we also can’t ignore the tremendous value these schools provide to students. I believe the overall value to taxpayers is well worth the growing pains.

The critical factor in both the for-profit and non-profit models should always be the students. Students need accurate and credible information to make an educated choice in determining their path. At the same time, schools need to use data to better understand the type of student who is a good fit for their program and the ways in which they can ensure the success of that student.

In my career in the education market, I’ve learned the importance of data in providing a quality educational experience, both in the way education is delivered and the way it is managed. This principle guides everything we do at TopSchool, as we have built a next generation student information system – and that is exactly what the leaders of both for-profit and non-profit schools like about our model.  The majority of the data and information that Senator Harkin and others want to provide to prospective students can be accessed through a system like ours. We believe the key is making it accessible and available to the right audiences.  In addition to the many uses for prospective students, access to data can also guide college and university leaders to better understand their students and drive stronger learning outcomes, student satisfaction and retention.

Regardless if the school fits the for-profit or non-profit model, those schools that rely on data to make decisions that benefit their students will deliver a tremendous value not only to their students, but also a high return to us as taxpayers, to our workforce, and to the future of our country.

TAXPAYER INVESTMENT IN HIGHER EDUCATION:

Taxpayer Investment in Higher Education

Sources:

1U.S. Department of Education, National Center for Education Statistics, “National Postsecondary Student Aid Study 2003-2004 (NPSAS: 2004).”
2Imagine America Foundation, “Economic Impact of America’s Career Colleges (2007).”
3U.S. Department of Education, National Center for Education Statistics, “1995-96 Beginning Postsecondary Students Longitudinal Study, Second Follow-up (BPS: 96/01).”
4Daniel Hamburger, DeVry University, “The Vital Role of the Private Sector Higher Education,” 2010, (data originally pulled from institutional websites, May 2009).
5 The Chronicle of Higher Education, “Government Vastly Undercounts Defaults” July 11, 2010.

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