November 2009 – The value of attending a for-profit college has always been hotly contested. However, this recent issue of Barrons financial magazine raises some more questions and concerns for students who are shopping around for an affordable education.

For-profit institutions like Strayer University and the University of Phoenix have experienced a huge growth in recent years, even during the recession. These types of schools enrolled more than 10% of all U.S. college students in 2008 and accounted for about 25% of the $60 billion that the government gives in student loans.

While enrollments at for-profit schools are rising, these colleges are finding it difficult to keep up with the pace of this increase. The Barrons article, “Leveraging Up to Learn”, reminds us that many online students are defaulting on their loans without even completing the appropriate college coursework that would lead to a degree.

However, the fact of the matter it is unfair to place all of the blame for loan defaults on for-profit institutions. U.S. Secretary of Education Arne Duncan said that the recession “likely had a significant impact on the borrowers.”

The student demographics at for-profit schools provide a stark contrast to “traditional” colleges and universities, which would also help to explain the high default rate for online students. Distance learners are more likely to be adults living on their own, perhaps with a family to support, so expenses are higher than for students who rely on their parents’ financial support. Banks can also share part of the responsibility. Banks and lenders reap excessive profit from student borrowers, frequently receiving a high interest rate from private loans.

In terms of churning out college graduates, how does the drop-out and graduation rate at for-profit colleges stack up against more “traditional” schools? Here are some numbers that were provided by the U.S. Department of Education:

• The drop-out rate for for-profit colleges is 37% and public colleges are both 37%, and 29% at for non-profit private colleges

• The graduation rate (meaning at least a bachelor’s degree earned within 6 years) for for-profit colleges is 34%, for public colleges is 42%, and for non-profit private colleges is 52%.

• The percentage of enrollments accumulating in student loans for for-profit colleges is 70%, for public colleges is 28%, and for non-profit private colleges is 58%.

• The rate of students defaulting on their loans (within 2 years) for for-profit colleges is 11%, for public colleges is 6%, and for non-profit private colleges is 4%.

• The rate of students defaulting on their loans (after 4 years) for for-profit colleges is 23%, for public colleges is 10%, and for non-profit private colleges is 7%.

Something must be done to retain and re-train the American workforce, as well as address its miserably high drop-out rate. Colleges experience little trouble enrolling students, but the problem lies in KEEPING them. By pricing their tuition in between the public and non-profit schools, for-profits have been able to increase their annual growth at 20-30%.

However, there is good news for for-profit colleges. Brian Mueller, CEO of Grand Canyon Education, told Barrons that visitors from traditional universities say that his “for-profit operations are more advanced than their own institutions, and admit that they have a lot to learn from the for-profit sector.” Grand Canyon was on the verge of bankruptcy back in 2004, but recently went public at a market capitalization of $500 million.

The fact of the matter is that someone has to take responsibility for making sure that American college students have the skills they need to re-build the country. For-profit and vocational schools like ITT and the Advanced Technical Institute (ATI) are needed to train the next generation of America’s electricians, welders, and plumbers. Trade schools are the backbone of our economy, and these for-profit schools are working to make sure that these trades don’t become out-sourced.

The article concludes by stating that “for-profit schools like to blame dropouts and defaults on the population of poor and minorities the industry ‘serves’–but the evidence doesn’t show whether the industry’s serving that population or preying on it.”

Are you a student at a for-profit college? Has your experience been positive or negative? Let us know what you think of your educational experience!