For-Profit Colleges Term Paper

  • Length: 5 pages
  • Sources: 4
  • Subject: Economics
  • Type: Term Paper
  • Paper: #88659726

Excerpt from Term Paper :

Profit Colleges

"Why do you think they are called for-profit colleges:"

The big business of (not) educating students 'You need a college degree.' This is the conventional wisdom articulated in today's society, where job prospects remain scarce, despite the softening economy. On average, "unemployment is still far lower for the college-educated than for high school graduates (10%) and those without high school diplomas (15.7%)," and the most severe effects of the recession were felt in the manufacturing and construction sectors, typically the areas of the economy which offer the brightest prospects to non-college degree holders (Davidson 2010). Worries about one's viability in the job market have driven many workers to seek out higher education in nontraditional formats. Few adults have the ability to afford a traditional four-year school and balance the needs of home and work. Online, for-profit colleges or nighttime schools may seem the ideal solution. On the surface, it may very well seem that "for-profits exist in large part to fix educational market failures left by traditional institutions, and they profit by serving students that public and private nonprofit institutions too often ignore" (Carey 2010).

However, as Kevin Carey notes in his recent article tellingly entitled "Why do you think they're called for-profit colleges?" For the Chronicle of Higher Education, these schools offer anything but a 'good deal,' and they complicate, rather than ameliorate students' troubled financial situations. Students are subjected to aggressive recruitment tactics that cause them to make unwise decisions, and take out large loans to fund worthless college degrees. "We don't know how many students graduate, how many get jobs, how schools that are not publicly traded spend their [federal] dollars, and how many for-profit students default over the long-term" according to Senator Tom Harkin (Carey 2010).

There are parallels between the housing boom and the boom in attendance at for-profit institutions. Both occurred around the same time, and were fueled in part by changes in government policies (Thompson 2011). The number of students seeking B.A.s at for-profits has grown by 418% since 2000. One in four college students enrolled in for-profit colleges, a statistic fueled largely by increased availability of federal loans. "Most of these corporations make 80 to 90% of their revenue from federal loans and grants" (Thompson 2011). There has been an explosion of federal loans extended to students at nonprofits. "Nearly 25% of all Pell Grant dollars -- almost double the percentage from a decade before -- go to for-profits" (Quigley 2010). Given that these schools are money-making institutions, they have the interests of their bottom lines at heart, not the interests of those whom they are supposed to be educating, in contrast to a nonprofit institution. The incentive of a for-profit is to enroll as many students as possible, to get more loans and grants, regardless of the utility of the degree for the student, the student's job prospects upon graduation, or even the student's ability to pay.

In 2011, the Department of Justice and four states "filed a multibillion-dollar fraud suit against the Education Management Corporation, the nation's second-largest for-profit college company, charging that it was not eligible for the $11 billion in state and federal financial aid it had received from July 2003 through June 2011" (Lewin 2009). The government alleged that the company enrolled students who were unable to read their applications, were visibly on drugs when signing up, or who did not have a computer, even though they were actually registering for a purely virtual institution (Lewin 2009).

College recruiters are not supposed to be compensated for the amount of students they enroll, but the government alleges that was effectively the case, given the way the compensation structure operated at the universities managed by Education Management, including Art Institute, Argosy University, Brown Mackie College and South University (Lewin 2009). Another online for-profit, the University of Phoenix, negotiated a settlement with the Department of Education, finding Phoenix had "systematically and intentionally violated federal rules against paying recruiters for students. Phoenix never admitted any wrongdoing in either that settlement or the larger whistle-blower settlement two years ago" (Lewin 2009). Only 9% first-time, full-time bachelor's degree students at the University of Phoenix, graduate within six years, versus 55% at public institutions and 65% at private nonprofit colleges (Lewin 2010). At for-profits overall, "only 22% earn degrees from those institutions within six years" (Lynch, Engle, & Cruz 2010:2).

Of course, it might be protested that even if the graduation rates are low at for-profits, students are still getting 'some' additional education above and beyond high school. The for-profits argue that the students they serve are unlikely to be committed to their degree or face additional challenges that impede graduation. "The for-profit institutions make the excuse that, because they provide access to the least prepared and most disadvantaged, they cannot be expected to graduate large portions of their students" (Lynch, Engle, & Cruz 2010:2). But there are two responses to this claim: first, educational institutions have some responsibility to educate and aid students in their journey through college, which for-profit institutions seem unable to do in main instances. Secondly, they have the responsibility of fully informing the students of the likelihood the students will graduate with a degree and that degree will be valuable.

On a cost-benefit analysis, the data suggests that attending for-profit institutions are profitable only for the people running the school, not for the students. "One-quarter of those who received bachelor's degrees at for-profit schools in 2008 borrowed more than $40,000, compared with 5% at public institutions and 14% at not-for-profit colleges" (Lewin 2010). In the words of the report Subprime Opportunity, published by the Educational Trust (funded by the Bill and Melinda Gates Foundation), "for-profit colleges provide high cost degree programs that have little chance of leading to high-paying careers, and saddle the most vulnerable students with heavy debt. Instead of providing a solid pathway to the middle class, they pave a path into the subbasement of the American economy (Lynch, Engle, & Cruz 2010:1). The analogy between the subprime crisis and the mortgage crisis is also supported by the telling statistic that while "students at for-profit colleges make up less than 10% of people receiving higher education, but up to 44% of those defaulting on federal student loans" (Quigley 2010).

The report also found that predatory tactics were wielded with particular intent against non-white recruits from socioeconomic stratum that could ill-afford to pay the loans they were taking out and first-generation college attendees who could not understand that the amount of income they could gain from the types of jobs they were likely to get was not enough to cover the loans. "Low-income and minority students make up 50 and 37% of students at for-profits" (Lynch, Engle, & Cruz 2010:2). "At four-year for-profits, low-income students must find a way to finance almost $25,000 each year, with only a 22% chance of graduating. On the other hand, students at four-year private nonprofit institutions have a lower unmet need of $16,600 and graduate at rates three times higher" (Lynch, Engle, & Cruz 2010:3).

Students at nonprofits also have the additional security that they are attending an accredited institution. In contrast, students at nonprofits often find themselves in the situations of Denise Parnell, a 20-year-old, single mother who "borrowed more than $13,000 in federal student loans to enroll in a program at a for-profit college with the hopes of becoming a certified nursing assistant. The program, she later learned, was not approved by the Illinois Department of Public Health and no reputable hospitals or nursing homes would hire her" (Quigley 2010). Parnell was saddled with a degree she could not afford and which did not enhance her employment prospects. These loans will follow her for the rest of her life given that "federal bankruptcy law makes it nearly impossible to discharge student loan debts" (Lieber 2010).

Of course, the defenders of for-profits point out that there are many horror stories of excessive loans being taken out at legitimate institutions. The New York Times recently profiled a young New York University graduate who had accumulated nearly $100,000 in student loan debt from her undergraduate degree. This university likewise enrolled her and others "without asking many questions about whether they could afford a $50,000 annual tuition bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday -- just like the mortgage lenders who didn't ask borrowers to verify their incomes" (Lieber 2010). Few undergraduate students are fully capable of understanding the significant drag that heavy debt can pose -- "facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners" (Lewin 2011). However, unlike her for-profit counterparts, an NYU graduate will at least have a marketable degree.

One remedy to ameliorate the problems posed by for-profit colleges proposed by the Department of Education is to "cut off federal aid to programs whose students graduate with high debt-to-income…

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