For-Profit Higher Education and Financial Aid: Are Differences Driven by Schools or Students?

By Ullrich, Laura Dawson; Pratt, Emily Katherine | Journal of Social Research & Policy, July 2014 | Go to article overview

For-Profit Higher Education and Financial Aid: Are Differences Driven by Schools or Students?


Ullrich, Laura Dawson, Pratt, Emily Katherine, Journal of Social Research & Policy


(ProQuest: ... denotes formulae omitted.)

Introduction

The terms "for-profit" and "higher education" do not seem to be at absolute odds upon first glance. Many current college students likely believe that their institution turns a yearly profit; after all, paying for college tuition is increasingly a struggle and includes private and public loans, work-study and scholarship applications. In 2012 the average student at a four-year public institution paid 32 percent higher tuition just ten years ago (National Center for Education Statistics, 2012). One might think the logical outcome of such a situation would be an increase in competitive, lower-cost institutions like community colleges and vocational schools, or even more students choosing to forgo college entirely. Yet college degree conferment has increased alongside the aforementioned tuition increases and data show a 160 percent increase in the number of students attending oftentimes pricier for-profit institutions over the past decade (Miller, 2011). Since 1980, for-profit higher education institutions have grown at nearly nine times the rate of their not-for-profit counterparts (Wilson, 2010).

Not long ago, for-profit education was mostly restricted to small certificate-granting institutions and family-owned cosmetology schools. Over the past ten years, however, for-profit institutions have made their presence known via flashy billboards, television commercials spots and glossy ads, much of which is paid for using money from students' federal financial aid (Wilson, 2010). Forprofits have moved out of their small locations and into skyscrapers and even scenic (and formerly financially-strapped) college campuses, and have begun conferring degrees previously restricted to more typical college environments. In 1996, only 5 percent of undergraduate students and 14 percent of those seeking vocational education chose to enroll in for-profits, mostly for said vocational training (Apling, 1993). This number had increased to 11 percent of undergraduate students by the year 2010. Over forty percent of about three thousand for-profit institutions are publicly traded and business is booming; this begs the question-where is the money coming from, and who is paying for for-profits' breakneck growth?

The money trail at for-profits seems less complicated than with not-for profit higher education. This is because many for-profits use federal aid up to the legal cusp (Miller, 2011). As the number of students attending for-profits has increased, so has the pressure on those institutions, particularly the more expensive ones, to make them Title IV eligible. Title IV of the Higher Education Act of 1965 created the Direct Loan and Pell Grant programs. On average, for-profit students (and thus their schools as well) get more out of the Pell grant program, to the tune of two hundred dollars more per student. Pell recipients may be awarded up to $5,645 per academic year, and award size is proportional to cost of attendance. Thus, students attending higher-cost for-profits receive larger awards than those studying at relatively inexpensive community colleges (Cellini, 2010; Deming, Goldin & Katz, 2012).

The "90/10 Rule" permits schools to receive up to ninety percent of revenue from Title IV funding. Many for-profit institutions have chosen to take full advantage of this rule, to the tune of $26 billion per year (Miller, 2011). According to a report issued by the Department of Education in 2012, 29 for-profit institutions actually failed the 90/10 test that year, receiving more than 90 percent of their revenue from federal sources.2 Table 1 presents the five largest recipients of federal student aid in the United States during the 2011-2012 school year. All five are for-profit institutions. The table includes the total amount received in federal financial aid as well as the percentage of their revenue this represents. The University of Phoenix, now the largest higher education institution in the United States, receives over $4 billion in federal financial aid each year, which represents greater than 86 percent of their revenue. …

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