Roosevelt Institute | Cornell University

Are All For-Profits Villains?

By Phoebe KellerPublished January 1, 2017

For-profit schools have recently received a storm of criticism for misleading prospective students and failing to adequately prepare them to acquire "gainful employment. However, flaws inherent in the methods of regulating these schools may soon deny government funding to even those for-profits outperforming their private sector counterparts. While the for-profit sector does appear dismal if all its schools' statistics are conflated, certain for-profits offer students a pragmatic vocational alternative to a liberal arts education and boast consistently successful graduates.

By Phoebe Keller
For-profit colleges seem to have been deemed one of the last remaining enemies to be vanquished in the time left to the Obama administration. Recently these schools have garnered almost ubiquitous public disapproval, generally considered malevolent players in the competition for student interest and enrollment. After the Corinthian scandal was exposed this past summer, an increasing number of for-profit schools made headlines for what was termed "deceptive" advertising and generally dishonest practices.  Most recently, the University of Phoenix settled a fraud complaint for $78.5 million.  However, while these schools have been labeled villains by administrators and news outlets alike, the metrics currently used to evaluate these schools may not be reliable.  While shining a brighter light on the for-profit industry will better equip student consumers with reliable data, the harsh standards imposed by gainful employment regulations may deprive worthy for-profits of government funding.  The federal government should prioritize publishing relevant for-profit data in a digestible form rather than imposing a "one-size fits all" metric on schools whose graduates may be better equipped to thrive in the labor market than preliminary data suggests.   

The Obama administration's new gainful employment regulations went into effect this past July.  Under this new government policy, for-profit schools are required to make public information like program costs, graduation rate, average graduate earning and average debt.  This required release of data is a similar tactic to the college Scorecard that the Obama administration pioneered earlier this fall.  However, the second half of the gainful employment regulations proves the more stringent.

New regulations aim to eliminate schools that do not provide their average graduate with "gainful employment." The regulation requires that the estimated annual loan payment of a typical graduate does not either exceed 20 percent of his discretionary income or 8 percent of his total earnings.  Any for-profit college which does not fulfill this requirement will lose eligibility for federal Title IV funding — which often makes up nearly 90 percent of the revenue at for-profit institutions. The Department of Education estimates that about 1,400 programs serving 840,000 students — of whom 99 percent are at for-profit institutions — would not pass these accountability standards.

The Department of Education proposed a similar gainful employment rule in 2012, meant to weed out for-profit schools which were deemed to be underserving students and leaving them ill-equipped to enter the job market.  However, a federal judge struck down the policy on the grounds that its cut-off points were "arbitrary."  Today's designated regulations seem equally problematic.

The public decrial of for-profit schools has had damaging effects on the impartiality of those seeking to evaluate for-profit schools. These regulations are more stringent by far than any imposed on non for-profit schools, even community colleges. One shocking statistic, which has been touted by the Department of Education, is that 72% of graduates of for-profit programs make less than high school dropouts.  However, further investigation of this fact by the Washington Post revealed that this statistic was very poor for almost all educational institutions.  Data analysis revealed that 32% of all community college graduates and 57% of private institutions also earn less than high school dropouts.  These statistics are telling because they reveal the bias that seems inherent in evaluating for-profit colleges.  The metrics used to evaluate "gainful employment" are not used on any other kind of school, and so may not be a fair means of determining which schools are worthy of government funding. 

This is not to say that for-profits are always derided without cause.  The bad press they have garnered recently has often been deserved and the release of more information, which will allow students and officials to more closely examine the financial workings of these schools, will undoubtedly serve a public good.  However, by imposing one uniform criterion on these schools, a method that would never be used on the community college or non-profit colleges, this federal policy risks bankrupting some for-profit colleges that are actually serving their students well. 

The imposition of this uniform standard on a host of different for-profit schools demonstrates a failure to understand the timeframe of many vocational programs.  Many practical and well-established programs simply do not guarantee graduates a sufficiently high salary immediately after graduation to fulfill gainful employment requirements.  Many occupations — such as engineering, human services/social work, criminal justice, and, increasingly, nursing — may lead to successful careers, but do not necessarily offer high starting salaries.

One such for-profit is Ross University, a veterinary school.  Ross is a strong and efficient program, with almost all of its graduates landing solid jobs. Over the past ten years the program's graduation rate has hovered around 70%, a striking difference from the average community college graduation rate, which is closer to 30%. However, like doctors; vets' initial salaries do not indicate their ultimate career potential.  Ross is currently at risk of losing its federal funding because its average graduate may not be able to pass gainful employment regulations in the years immediately after they graduate. This example demonstrates how attempting to encompass a diverse range of schools and programs under the uniform set of regulations imposed by gainful employment will almost certainly do a disservice to for-profit schools who are producing successful graduates.    

"€¹Ross is not the only for-profit done a disservice by bad press and stringent federal regulation. In 2013, New York State's two-year for-profits graduated a larger percentage of their full-time associate's degree students than any other higher-education sector, including private nonprofit colleges.  To name one, the School of Visual Arts boasted a graduation rate of 66% last year and caters to students with a distinct ambition, equipping them to enter the job market with the tools they need to thrive. Many for-profits are at least as successful as any other higher-education sector and provide graduates with a practical, skills-based education that leads to a stable job more often than does a general liberal arts education. These schools should not be deprived of federal funding simply because they are at the mercy of uniform evaluation metrics and public distaste.