Categories: Student Loans

Why Have For-Profit Colleges Failed Students?

It’s not news that for-profit colleges have been failing students. It’s only news because now that failure is costing them to the point at which they can no longer receive students financing their educations with federal financial aid and student loans. As far back as 2007 and 2008 – the down and dirty start of the recession – these colleges were already under scrutiny from the Senate Committee on Health, Education, Labor, and Pensions.

A two-year investigation drew some damning conclusions.

● Congress failed to balance investor demands for ever-increasing profits with the need to provide students with a quality education.

● While for-profit colleges were positioned to best benefit non-traditional students, they also asked students to take on high tuitions with expensive student loans. After taking out these loans, as much as 63 percent of those students left without completing a 2-year degree. This left students loaded in debt, without a degree to give them the earning power to pay off the loans.

● Across the board, the costs for certificate programs, associate and bachelors degrees exceeded costs at public community colleges and universities. Further, costs were generally set higher than federal student aid levels, requiring students to supplement with private loans.

● Recruitment programs were run like boiler rooms, and employed misleading and deceptive practices in order to get students in the funnel. Students were targeted based solely on their eligibility for federal student loans and financial aid.

Profits over people. Greed before graduation. Shareholders over students. At every turn, the private, for-profit colleges had a chance to be an important bridge to the middle class for underprivileged and non-traditional students. Instead, they looted the programs that made funds available to a desperate population and lined their pockets. At least until someone put the brakes on the gravy train.


The recent closing and subsequent bankruptcy of ITT was precipitated by several factors. The most important one was the cash cow of students with federal student aid being put in the barn. Once ITT was shut off from the supply of new students with federal cash in pocket, the spiral began. The second factor was the demand from the Department of Education that ITT pump $153 million into its surety fund – a fund that would issue refunds to students should the school close. This was twice the cash that ITT had on hand. As a final blow, Cerberus Capital Management declared the school in default on a loan that was nearly $35 million. And the lights went out, stranding 35,000 students.

The failure of for-profits is not universal, but it is widespread. Some schools have stepped up to the closer scrutiny by getting over that bar and serving their students. However, all too many seem to have been predicated on parting the vulnerable student from their money, then their future and their dreams. Whatever intentions these schools began with, they ended as nothing less than a con job clothed in affinity with their students’ hopes for a future that started with a good job.

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Published by
Chad Van Horn

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