Students at For-Profit Colleges Earn Less, Study Says

Applicants deciding between for-profits and nonprofits should also weigh their loan packages.

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Prospective students who are considering nonprofit schools—whether public or private—and institutions such as University of Phoenix and DeVry University that operate as for-profit businesses may be discouraged from enrolling at the latter type of schools, according to a recent study from the Center for Analysis of Postsecondary Education and Employment at Teachers College, Columbia University

The report—titled "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators"—suggests that alumni of for-profit colleges tend to get lower salaries and are less enthusiastic about their degrees six months after enrolling than are their peers at nonprofit schools. 

"I think one of the messages of the paper is that there's a lot more variation in for-profit colleges. It's more of a 'buyer beware' kind of sector than community colleges," says David Deming, a coauthor of the report and assistant professor of education and economics at Harvard University's Graduate School of Education. "There are schools that are doing really well, and there are schools that have shockingly high rates of loan default." 

[Read about government crackdowns on for-profit schools.] 

It's important for applicants considering for-profit schools to make sure they understand not only the nature of the grants and loans in their financial aid packages, but also from whom they're borrowing, Deming says. Students may not be aware that they're borrowing from the government rather than private loans through the for-profit school, he warns. 

"I'm not sure that many people know that basically—and this is a slight exaggeration—only death discharges you from your obligation to pay your federal student loans. They're very hard to get rid of," he says. "It's possible that students don't always understand the gravity of their undertaking." 

[Learn about a fall 2011 report on college student debt.] 

Jim Erickson, who holds an M.B.A. from Western Governors University and a B.S. from University of Phoenix, says his fellow WGU alumni have been discussing the report that Deming cowrote. 

"I feel more value in my degree from the nonprofit than I do from my bachelor's degree from the for-profit institution, but maybe it's because I feel that they were doing me a service more than they were collecting my check," says Erickson, a vendor manager for a cash management equipment company in Southern California. 

One experience at Phoenix that particularly convinced him the school was run as a business was the disappearance of an instructor two classes into a nine-week course, Erickson says. He and the other dozen students in the course approached university staff asking for help. 

"We just didn't get any real response," he says. "The overall feel of the organization of the University of Phoenix was just collecting the check and moving on to the next class." (The professor was eventually fired, and another instructor filled in for the rest of the semester.) 

[Check out etiquette tips for E-mailing professors.] 

At Capella University, a for-profit school, the average student is 39 years old, female, already employed, and looking to advance her career, so the report by Deming and his colleagues doesn't really apply to Capella, says Mike Buttry, vice president of corporate communications. 

"It seems they focused heavily on institutions that don't look like Capella—specifically, institutions educating undergraduates with high cohort [loan] default rates and low graduation rates," he says. 

Capella graduates report, on average, that their salaries rose 44 percent by the third anniversary of their graduation, and 62 percent by the five year mark, according to Buttry. 

Deming, the coauthor of the study about for-profit alumni, says there may be cause for optimism. Although the study shows that students who graduate from for-profit schools are less likely to find employment, he says, new government regulations could pressure for-profit schools to change their loan offerings. 

"We know that for-profit colleges respond to regulation," Deming says. "We know it's going to happen; we don't exactly know if it's going to make students better off or not. I think that chapter is still yet to be written."