For-Profit Universities: Overview
For-profit universities are institutions of higher learning that operate as businesses with the primary objective of generating profit, contrasting with nonprofit colleges that focus on educational service rather than profit-making. Emerging in response to educational demands in the United States, for-profit universities gained traction in the mid-twentieth century, particularly during the post-World War II era when they became pivotal in offering vocational training to military veterans. By the early twenty-first century, they had attracted a diverse student population, including low-income individuals, minorities, and older students balancing education with work and family commitments.
While proponents argue that for-profit universities provide flexible educational options and opportunities for those underserved by traditional institutions, critics contend that these schools often exploit vulnerable students, leading to significant debt without guaranteed career benefits. This contentious debate intensified during the late 2010s, prompting federal investigations into practices at institutions like Corinthian Colleges and ITT Technical Institute, which faced allegations of misleading job placement rates and financial oversight issues. Regulatory changes, such as the "90/10 rule," were implemented to limit reliance on federal funds, yet these measures have seen mixed success in enforcing accountability. The shifting political landscape further complicated the direction of regulations governing for-profit education, reflecting ongoing tensions between access to education and the protection of student interests.
For-Profit Universities: Overview
Introduction
In the United States in the early twenty-first century, higher education became a major topic of debate because of its far-reaching effects on the US economy and role in preparing Americans to become successful members of the workforce. Much of the debate has surrounded for-profit universities, colleges, and other institutions of higher learning. Unlike public and private nonprofit universities, for-profit universities operate as businesses with the goal of making a profit for their owners or shareholders. With roots dating to colonial America, for-profit higher education originated in its twenty-first-century form midway through the previous century, when for-profit institutions arose to teach Americans in-demand vocational skills. After becoming eligible to receive first federal military education benefits and later federal student aid, for-profit universities became a major force in higher education and the educational institutions of choice for many Americans whose educational and scheduling needs could not be met by traditional nonprofit schools.
As for-profit universities became both popular and highly profitable, a debate arose concerning whether they truly benefitted US students and society. Proponents of for-profit universities and colleges argued that such institutions provide opportunities to students from disadvantaged backgrounds or those who could not attend full-time nonprofit universities due to work or family obligations. They also asserted that for-profit institutions can offer educational programs that are not available from nonprofit schools, particularly niche vocational training programs. Opponents, however, argue that such institutions prey on low-income, minority, and disadvantaged students and encourage enrolled students to take on large amounts of debt. They likewise assert that while such institutions claim that completing an educational program will improve a student's career prospects and pay, this is frequently not the case. The debate surrounding for-profit colleges and universities intensified in the second decade of the twenty-first century, as the administration of US president Barack Obama sought to tighten federal regulations on for-profit institutions and the succeeding administration of Donald Trump sought to reverse the Obama-era changes.
Understanding the Discussion
Corinthian Colleges: A chain of eighty-five for-profit colleges that closed in 2015 following a federal investigation.
For-profit colleges and universities: Colleges and universities operated as profit-making businesses rather than as nonprofit institutions.
ITT Technical Institutes: A for-profit vocational college with 137 campuses that shut down in September 2016 following a federal investigation and several lawsuits.
90/10 rule: A federal regulation stipulating that for-profit schools are eligible to receive Title IV federal student aid only if that aid makes up 90 percent or less of the institution's revenues.
Nonprofit colleges and universities: Institutions of higher learning, both private and public, that operate without the goal of making a profit and charge fees solely to cover their operating costs.
History
For-profit universities and colleges differ from their nonprofit counterparts—which include both public and private institutions—in that they operate as businesses with the goal of making a profit, as opposed to simply funding their operations. For-profit higher education has a long history in the United States, as the limited capacities of the country's nonprofit colleges and universities resulted in the need for additional educational options for the nation's populace. Since the nineteenth century, for-profit education has been largely focused on vocational and career training: schools during the mid-nineteenth century focused on teaching skills such as typing and bookkeeping, which proved essential in the evolving workplace of the era. For-profit institutions took on a new purpose in the mid-twentieth century, initially seeking to educate military veterans following World War II. By the end of the century, they had become a significant force in higher education, particularly following the founding of industry giants such as the University of Phoenix, which opened in 1976. Other major for-profit institutions founded during the twentieth century included DeVry University, the Art Institutes, and ITT Technical Institute.
Throughout the twentieth century, for-profit institutions and federal funds were deeply connected. The Servicemen's Readjustment Act of 1944, also known as the GI Bill, offered benefits to veterans of World War II, including federal funds for education. Over the following decades, the federal government extended its military education benefits to Korean War and Vietnam War veterans and dependents of some veterans. The numerous for-profit schools that opened in the postwar period became the frequent recipients of military education benefits offered through the GI Bill, which could be used at either nonprofit or for-profit colleges and universities. When federal student aid unrelated to military benefits was introduced through Title IV of the Higher Education Act of 1965, the United States Congress initially restricted it to nonprofit institutions. In 1972, however, the Higher Education Act was amended to allow for-profit institutions to accept federal student aid. This enabled for-profit schools to enroll students who relied largely on federal grants and loans to pay for their education.
As for-profit institutions gained popularity during the latter half of the twentieth century, policymakers raised concerns about whether such institutions relied too heavily on federal student aid funds and military education benefits. To address that issue, Congress amended the Higher Education Act in 1992, introducing a regulation stating that for-profit universities and colleges would be eligible to receive Title IV funds only if those funds made up no more than 85 percent of the institution's revenues. The remaining 15 percent of revenues had to be derived from sources other than Title IV funds, which could include private loans as well as military education benefits and state or local student aid. The percentages were changed to 90 percent and 10 percent in 1998, establishing what became known as the 90/10 rule. In addition to complying with the 90/10 rule, colleges and universities receiving Title IV funds had to be accredited by a federally certified accrediting agency.
As military benefits did not count toward the 90 percent of revenues outlined by the 90/10 rule, military veterans and their families remained a major student base for many for-profit universities and colleges into the early twenty-first century. In addition to students affiliated with the military, for-profit institutions also enrolled large numbers of women, minority students, and low-income students as well as students who were older than the traditional college age and sought to balance their educational pursuits with existing career and family obligations. The stated benefits of for-profit institutions, which often included flexible class schedules and high job-placement rates, attracted an increasing number of students throughout the early twenty-first century. According to the National Center for Education Statistics (NCES), undergraduate enrollment in degree-granting for-profit colleges and universities grew from 403,000 students in 2000 to 1.1 million students in 2015. Graduate-level enrollment, which includes enrollment in law, medical, and dental programs as well as master's degree and doctoral programs, rose from 47,000 students at for-profit schools to more than 200,000 during the same period.
For-Profit Universities Today
For-profit education remained popular into the second decade of the twenty-first century, although it became the focus of significant public debate, particularly as the global recession of 2007–9 drew attention to high levels of student debt and unemployment was widespread. According to NCES, undergraduate enrollment in degree-granting for-profit colleges and universities decreased by about 600,000 between its peak of 1.7 million in 2010 and the year 2015. The debate surrounding for-profit education encompassed not only students and educators but lawmakers. Consequently, in 2010 the US Senate Committee on Health, Education, Labor, and Pensions conducted a two-year investigation into the industry. The US Department of Education (ED) under President Barack Obama likewise sought to address concerns about for-profit schools and investigate claims of wrongdoing. Among other institutions, investigators focused on Corinthian Colleges, which operated a chain of for-profit institutions under various names and served seventy thousand students. Corinthian Colleges ceased operations at fifty campuses in 2014 and closed the last of its campuses in April 2015 after being fined $30 million for misrepresenting graduates' job-placement rates as well as students' scores and attendance. Federal investigators also focused on ITT Technical Institute, which shut down in September 2016 after the ED prohibited it from accepting new federal aid of any kind and placed it under greater financial oversight. The embattled ITT Technical Institute was also being sued in federal court by the Securities and Exchange Commission and the Consumer Financial Protection Bureau for allegedly misleading students about ITT student-loan programs.
At the same time, the ED also implemented new standards for for-profit schools that accept federal student aid. Among those changes was the gainful employment regulation, which stipulates that to be eligible to receive federal student aid funds, most for-profit programs and nonprofit certificate programs must successfully prepare students to find gainful, decent-paying employment in a legitimate field. Under that regulation, which took effect in July 2015, schools were assessed through the comparison of graduates' annual loan payments against their discretionary income or total earnings. Lawmakers in Congress also have tried to revise the 90/10 rule and eliminate the loophole through which military benefits were not counted toward the 90 percent. However, their efforts have failed repeatedly. Following the election of Donald Trump to the presidency, the federal government and ED shifted their approach to for-profit universities, seeking to reverse Obama-era rules and regulations.
In 2019, NBC News reported on for-profit colleges that targeted veterans. The following year, Congress passed a bill to protect veterans from predatory colleges.
These essays and any opinions, information, or representations contained therein are the creation of the particular author and do not necessarily reflect the opinion of EBSCO Information Services.
Bibliography
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Przybyla, Heidi, and Laura Strickler. "Veterans Could Be First to Pay as DeVos Rolls Back For-Profit College Oversight." NBC News, 14 Apr. 2019, www.nbcnews.com/politics/politics-news/veterans-could-be-first-pay-devos-rolls-back-profit-college-n985891. Accessed 29 May 2024.