“For profit” colleges are crony capitalism at its worst

The benefits of profit are seen throughout society. Friedman’s Law states that “it costs any government at least twice as much to do something as it costs anyone else.” A business that must produce for itself to survive has the greatest incentive to be cost effective, innovate, and provide what the public demands.

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But imagine a private organization that receives 90% of its business from the government. Would anyone deny that its incentives would be drastically altered from a business selling exclusively to the public? Such is the case of so called “for-profit” colleges, which receive roughly 90% of their revenue from Federal student aid, mainly in the form of Pell grants (which aren’t paid back by students).

The quality of education at so called for-profit schools is lacking, to say the least. For those who even manage to complete their education (only 22% of students among all for profit colleges graduate), they enjoy starting salaries a mere $37 a week higher than someone with only a high school diploma.

One rebuttal that for-profit apologists have to their poor graduation statistics is that they’re at least higher than community colleges, which have average graduation rates of roughly 18%. Yet community college graduation rates aren’t as easy to calculate as for four year schools.

Let’s say 10 students enroll at a community college’s 2 year associate’s degree program. One of those student’s graduates with the associate’s degree before moving onto a four-year institution to receive his bachelor’s degree, and another student drops out permanently. Those other eight students stay at the community college for one, two, or three semesters before transferring to a four year institution to finish their degrees. The graduation rate of that community college would be a paltry 10%, despite the fact that 90% of those students will eventually receive bachelor’s degrees in this hypothetical.

To give some actual numbers, the American Association of Community Colleges found that had graduation statistics been calculated by looking at students who earn at least 30 credits at a community college before transferring, the proportion of community college students who will earn a bachelor’s degree approaches 40%.

Even if we assumed both statistics had no faults, the cost of failure at a community college, where the average tuition is $3,264 a year, are minor in comparison to the cost at the average for-profit, whereas the average tuition comes at a massive $15,130 (nearly double that of the average public school’s in-state tuition). Only 11% of community college students have to take out Federal student loans to fund their education, compared to 96% of students at for-profits, according to the Government Accountability Office.

To put this cost in perspective, the average debt of a graduating senior in 2012 was $29,400, compared to $39,950 at for profit schools. To put that amount of debt in perspective, if that for-profit debt is borrowed at 5% interest, it accumulates $2,000 in interest the first year (assuming no change in the principal balance), while the income gain from a for-profit degree amounts to only $1,850 a year – not even enough to pay a year’s interest.

With a track record like this, how can for-profits even claim accreditation status? Pay close attention to detail and you’ll notice that “accredited” for-profits are “nationally accredited,” an accreditation that lacks the rigorous requirements it takes for a college or university to become “regionally accredited.”

To give you some idea how meaningless national accreditation is, if you apply for a teaching position at nearly all for-profit colleges, they require you to have a Master’s or Doctoral degree from a regionally accredited institution. In other words, earning a Ph.D. from a for-profit university usually won’t even qualify you to teach at a for-profit university.

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