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The Unlikely Area in Which For-Profit Colleges Are Doing Just Fine

The Unlikely Area in Which For-Profit Colleges Are Doing Just Fine

Graduate students borrow $5 billion per year in federal student loans to attend for-profit colleges. Because of a lack of data, however, little is known about how they fare.

A patron studies at the New York Public Library, on October 5, 2016. (AP/Mark Lennihan)
A patron studies at the New York Public Library, on October 5, 2016. (AP/Mark Lennihan)

Graduate education is far from the first thing that comes to mind when one thinks of for-profit education. This sector and the schools in it have largely built their reputations on short training programs tied to entry-level occupations in fields such as allied health or criminal justice. But make no mistake: Advanced degrees add up to a $5 billion business for the for-profit industry, which enrolls nearly half a million students per year.* And unlike the rest of the industry—which has been shrinking and reeling from scandal—the graduate for-profit sector is doing just fine.

Fifteen years ago, only 3 percent of graduate students attended a for-profit institution. Today, 11 percent attend these schools. Enrollment quintupled between the 2000–01 and 2014–15 school years.

Unfortunately, the area in which for-profit institutions seem to be thriving is also the area for which the greatest higher education blind spot exists: There is little public information about student outcomes in graduate school. On one hand, graduate degree holders earn higher lifetime wages, on average, than those without a graduate degree and flexible schedules and online program offerings may make for-profit education an appealing option. Yet these things are also true of bachelor’s degree programs, and there have been plenty of instances in which for-profit colleges engaged in aggressive recruiting or encouraged students to borrow loans that they struggled to repay later.

Knowing so little about graduate education outcomes is of particular concern for policymakers because these students can take on way more debt than undergraduate borrowers. Graduate and professional students can borrow up to $138,500—more than double the maximum amount an undergraduate is allowed to take out in loans. And those who seek additional financial support through the U.S. Department of Education’s PLUS loan program can borrow as much as they need. These higher limits mean that borrowers can put themselves in far worse financial circumstances than they can for undergraduate education. It also means that the cost of loan forgiveness, default, or other problems is much higher for taxpayers.

Given the stakes for students and taxpayers, it is crucial that policymakers and the public better understand how well for-profit institutions are serving their graduate students.

While federal financial aid funds flowing to for-profit colleges are in decline, graduate-level funds are steady

For-profit college enrollments soared during the Great Recession, as did the federal student aid funds that the companies collected. Unemployed workers sought to improve their skills, while many recent high school graduates chose college over entering the workforce.

For-profit colleges’ flexibility allowed them to dramatically expand capacity to meet demand. One executive boasted that his for-profit college could accommodate more students simply by adding more computer servers because the vast majority of students were enrolled online.

Since the recession, however, the industry has been in decline for a variety of reasons. As the economy recovered, more people sought employment rather than higher education. The Obama administration tightened oversight of the industry. And news reports about predatory practices and poor outcomes may have turned off some students.

As a result, annual student loan funds flowing to for-profit colleges have dropped steadily over the past five years. During the 2010–11 school year, students borrowed $24 billion from the U.S. Department of Education to attend for-profit colleges. By the 2014–15 school year, that amount fell by $7 billion—a staggering loss equivalent to the sum of federal student aid dollars that are received by all colleges in Texas annually.

Yet almost all of the decline was in undergraduate programs. Graduate for-profit programs continue to take in about $5 billion per year. (see Figure 1)

The same trend can be seen in enrollment figures. For-profit college enrollment peaked during the 2010–11 school year, when the sector enrolled 4 million students. By 2014–15—the most recent school year for which data are available—enrollment had fallen to 2.9 million students, a 40 percent decline. Graduate enrollment fell just 6 percent in 2014–15 from its peak of 460,000 students in 2010–11. Over 15 years—between the 2000–01 and 2014–15 school years—the number of people enrolled in for-profit graduate education increased from 82,000 to 436,000.

In addition to the flexibility to meet new demand, for-profit graduate programs expanded because they generally have open doors. These schools tend not to be selective apart from establishing minimum requirements. For example, Walden University’s master’s degree admissions requirements ask that students have a bachelor’s degree from an accredited institution and a 2.5 grade point average. Similarly, at Capella University, master’s degree programs generally require a 2.3 grade point average.

Graduate for-profit education is concentrated among 5 companies

Graduate for-profit education is unusually concentrated, with the five largest providers enrolling about 60 percent of for-profit graduate students in the 2014–15 school year. (see Table 1) Enrollment at the University of Phoenix has fallen sharply over the past five school years, and its losses outpace the sector’s decline. Meanwhile, enrollment at other top companies has dropped slightly, but at Walden University and Grand Canyon University, enrollments have increased.

Graduate for-profit education enrollment is mostly made up of students of color, and classes are primarily conducted online

The racial diversity among graduate students at for-profit colleges is striking. In fact, students of color are the majority—55 percent—in for-profit graduate programs. In contrast, nonprofit and public graduate programs enroll twice as many white students as students of color. (see Figure 2)

African American students in particular are overrepresented at for-profit graduate schools. About 3 in 10 black graduate students attend a for-profit college, while just 1 in 10 graduate students of all races attends a for-profit college.

Additionally, black women are the most predominant demographic group among graduate students at for-profit colleges. They accounted for just 8 percent of all graduate students in 2014 but comprised 22 percent of for-profit graduate students.

Another difference that sets graduate for-profit education apart from other types of graduate schools is that students at for-profit colleges are more likely to attend programs that have some online component. (see Figure 3) And graduate students at for-profit colleges are vastly more likely to be studying exclusively online as opposed to their counterparts at public and nonprofit schools.

Finally, the age of the student body is markedly different at graduate for-profit colleges. Among public and nonprofit colleges, the majority of graduate students are in their 20s. (see Figure 4) But at for-profit graduate schools, most students are older. Just 1 in 4 students at for-profit graduate schools is under age 30. And the largest group—42 percent of these students—is students over age 40.

This difference is significant because older students who finance their program with debt will be repaying student loans as they approach retirement. The income-driven repayment plan, called REPAYE, requires graduate students to make payments for 25 years before their loans can be forgiven.

More information is needed about students enrolled in graduate education

While for-profit enrollment in graduate school is not inherently bad, it unfortunately exists in the area of higher education about which the least is known. Existing federal data collection does not capture the information about graduate students needed to provide basic information such as graduation or retention rates. Other data sources, such as information on student loan default rates, merely combine undergraduate and graduate results. The College Scorecard—the newest and most exciting set of data on debt levels, repayment, and earnings for federal aid recipients—excludes graduate students entirely.

There is, however, one piece of good news: New federal rules will allow policymakers and the public to examine outcomes at career-education programs, including graduate programs. In 2014, the Obama administration finalized a regulation known as gainful employment that evaluates programs by measuring the debt-to-income ratios for students who graduate. The first set of data called for by these regulations will be made public starting in January. For the first time, this will allow the public to get a better sense of the actual results for students who attended for-profit graduate programs.

Still, the gainful employment metric will not offer a complete picture. The debt-to-income measurements will only cover students who complete a program. So if a large proportion of students in a particular program fail to graduate, the public will know less about their prospects. Thus, policymakers must keep graduate students in mind when looking for ways to improve higher education data.

Many industry watchers believe the for-profit industry is on the brink of collapse. Yet for-profit graduate education has grown explosively and now makes up a significant component of the education sector. Unfortunately, given how little is known about the performance of graduate education overall, these for-profit programs are falling into a $5 billion black hole. To date, the for-profit education industry has resisted accountability so, at minimum, these Obama administration metrics must be protected from rollbacks. However, that is not really enough. True accountability demands that students and taxpayers alike know much more.

* Note: Information about student enrollment in higher education is reported by colleges to the U.S. Department of Education’s Integrated Postsecondary Education Data System, or IPEDS. Information about funds that the U.S. Department Education disburses to colleges is released by its Federal Student Aid Data Center. The data and calculations in this column reflect the author’s analysis of these two sources unless otherwise noted.

Elizabeth Baylor is the Director of Postsecondary Education at the Center for American Progress.

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Elizabeth Baylor

Director, Postsecondary Education