Are Some For-Profit Universities Scams?

College has long been touted as the key to a financially successful career. While higher education certainly isn't the only path to career success, college plays a valuable role for many individuals. Studies have shown that those with Bachelor's Degrees earn far more than their high-school-educated counterparts. This disparity is fairly pronounced even among the youngest workers.

A recent Pew study showed that young workers with a Bachelor's Degree earned a median salary of $52,000 while those with a high school diploma earned only $30,000 - a difference of $22,000. In 1965, the gap between the two was a mere $7,000 - evidence of the devaluation of the high school diploma as a credential and the increasing value of a college degree.

Unfortunately, not all degrees are created equal. Some degree programs may harm your ultimate financial prospects more than good. That's because they require steep tuition fees that can put you into serious debt but offer little real-world credentials. Many of these programs are offered by for-profit schools, and the worst of these offenders have come under fire for predatory behavior against their students.

So, let's take a few minutes to review the dangers involved with some for-profit schools.

Why For-Profit Schools Have Come Under Fire

If you've ever watched television during the day, you're likely familiar with for-profit schools. They tend to advertise heavily during these periods, and their ads are often targeted at people desperately seeking a new career or any job. Getting a degree is usually presented as the key to doing just that.

Unfortunately, the truth is often not so rosy. After enrolling, students frequently borrow money to pay steep tuition costs, hoping the degree will pay for itself in future earnings. What is rarely divulged, however, is that many of these degrees are essentially worthless in the job marketplace. In the eyes of recruiters and human resource professionals, a credential from a dubious for-profit college is little better than no credential at all.

That's partly due to the widespread perception that the education and training offered at many of these schools is substandard - in some cases dramatically. That perception is supported by the staggeringly high dropout and loan default rates that plague the for-profit college industry. The U.S. Justice Department and the U.S. Education Department have cracked down on the industry in recent years, suing and investigating some of the most prominent names in for-profit education.

Despite this negative attention, the for-profit education industry continues to thrive, thanks mainly to billions in federal loans made to students. Many of these schools are entirely dependent on government loans for revenue, which means they need to convince more and more students to become borrowers, no matter how poorly equipped for college they may be. They use media commercials, recruiters, and a variety of slippery sales tactics to keep enrollment numbers high.

The result is often a loan default, which typically can't be discharged in bankruptcy. Students at for-profit institutions represent 11 percent of all higher-education students but 43 percent of all loan defaulters. Compared with public or private non-profit institutions, those who attend for-profit institutions are less than half as likely to graduate—a truly worst-case scenario since debt is incurred without ultimately earning a credential. 

The Takeaway

While not every for-profit school is an outright scam, even the relatively good actors in the industry are tainted by association to some degree. If you have any misgivings about your readiness for college or the quality of the education offered, reflect seriously on your goals and research the outcomes of students who previously enrolled. Our College Explorer tool uses real-time data from the Department of Education. It offers crucial measures of student success - from graduation rates to post-degree earnings.