Skip to main content

NEW YORK (MainStreet) — The last 12 years have been a period of explosive growth for private, for-profit two-year schools as concerns have been raised about the quality and cost of instruction. Yesterday, the Federal Reserve Bank of New York released its own findings in a report called "Lifting the Veil—For-Profits in the Higher Education Landscape."

Whether the Fed is trying to lift the veil or blow the cover off for-profit colleges, the report seems to acknowledge that they have lived in the shadows for too long. The Fed's report comes on the heels of one released last week by the New America Foundation, a Washington, D.C.-based think tank that supports closer regulation of for-profit colleges.

"While we know much about traditional four-year public and private non-profit institutions, the for-profit sector seems more opaque." the report stated.

"What services does it provide?" its authors, Rajashri Chakrabarti and John Grigsby asked. "Who enrolls at for-profits, and how has their enrollment changed during the Great Recession? What are their tuition levels? How about their net prices and student loans? And do their students succeed?"

The latter point—what percentage of student finish their programs and find work—has become a flash point. Student outcomes, which have become a focus of the Obama administration's assessment of a school's performance, are increasingly going to be a benchmark against which non-profits are judged.

"While student outcomes at for-profits have not been too rosy, and the gap in student loans with comparable publics has been a source of concern and debate, it is too early to pass judgment on the sector," the Fed said. "Their remarkable enrollment growth during the Great Recession suggests that for-profits have allowed laid-off workers to train in new skills, and young adults to receive a college degree, which they may not have otherwise accomplished."

TheStreet Recommends

The Fed report noted that for-profits are more comparable to two-year public community colleges and undergraduate certificate programs than to four-year programs. There is a vocational focus, the report noted. "For-profits are primarily trade schools, where enrollees can learn specific skills such as hairdressing, massage, welding, mechanics, or network and computer systems administration," it read. But these schools might have difficulty satisfying outcomes assessment-focused evaluation models, such as the Department of Education's Gainful Employment rules. A new version making increased demands on the colleges was released last week.

The Fed report noted that for-profits were an enrollment magnet due to the Great Recession: "Between 200 and 2011, for-profit enrollment in the less-than-two-year institutions more than doubled, with 52% of this growth taking place in the three years after the Recession." During the same period, enrollment in public school equivalents fell by 3%.

And an issue that wraps back to student loans is tuition—the Fed noted that it was much higher at for-profits than their public counterparts.

"Although for-profit student entrants have relatively lower incomes, tuition at for-profits has also been on the rise," the report said. "In 2012, the average sticker price of a for-profit program was more than $14,300, up almost 100% from 2000. Despite availing themselves of higher Pell Grants, students at for-profits pay considerably higher net prices than those at public colleges." The Fed found that this was partly due to "the absence of state and institutional grants."

"The high net price at for-profit programs has forced students to take out large loans to finance their education," the Fed report concluded. "In 2012, 60% of for-profit students not in four-year colleges took out subsidized student loans, at an average of $3,445 per loan; by contrast, just 15% of comparable public college students took out loans, with an average size of $3,096."

--Written by John Sandman for MainStreet