For-Profit Higher Education

Growth, Innovation and Regulation


This report provides an in-depth examination of the for-profit higher education industry in the United States, including an “insider’s view” of the industry gained from talking to leaders of for-profit firms about what distinguishes their industry from traditional higher education. The report also takes a look at the challenges and opportunities that lie ahead for the industry as a whole. The authors suggest that the remarkable growth in and sustained demand for the education provided by for-profit colleges and universities indicate that the industry is in fact providing a valuable service, and that for-profit education serves other important functions, such as introducing a market-based approach to education and providing much needed competition for traditional colleges and universities.

By Daniel L. Bennett, Adam R. Lucchesi and Richard K. Vedder | July 2010

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During the 2008-2009 academic year, there were nearly 1.8 million students enrolled at more than 2,800 for-profit institutions of higher learning in the United States. Students in for-profit colleges and universities accounted for over 9% of all students enrolled in postsecondary education.[1] The numbers have continued to grow, and today (2010) the number is rapidly approaching two million, about 10 percent of total student enrollments.[2] The industry has also grown significantly in recent decades. Enrollment in for-profits has increased nearly six-fold since 1986, a time when the sector only enrolled about 2% of all students.[3] Once an insignificant part of the higher education landscape in the United States, for-profit institutions now command a substantial portion of the market and have established themselves as legitimate and viable participants in the postsecondary education arena.

The growth of for-profits is due, in no small part, to the variety of institutions and offerings the sector provides. Institutions range from small vocational and technical schools that offer hands-on career training to large fully-accredited colleges and universities that offer a traditional classroom experience. Many for-profits offer non-degree programs and technical certificates, however associates, bachelors, and doctoral programs, once reserved primarily for traditional universities, are now offered by institutions within the for-profit sector.

Traditional public and private nonprofit institutions of higher learning are similar to for-profit institutions in that they are all providers of instruction at the postsecondary level. The traditional universities and for-profits differ, however, in their control, operation, and mission. Traditional universities are configured as nonprofit organizations whose stated mission often invokes a service of the public good. In contrast, for-profits are structured as profit-maximizing firms whose success depends on providing a valuable service to the student/customer. For-profit institutions can only be profitable if they are able to provide a service that is valuable to the student.

While traditional colleges and universities rely heavily on government appropriations and private donations, for-profits must be self-sufficient and respond to market forces to be successful. The marketplace naturally forces for-profit institutions to offer an educational product that is valuable to students and to do so at a reasonable price. Traditional institutions, however, are not always subject to this threat of “creative destruction.” The recent growth and success of for-profits at a time when many traditional universities are struggling financially serves as a testament to the viability of the sector.

The recent growth of the for-profit education industry has aroused some criticism and concerns about the place of profit in an educational setting and practices within the industry. Critics argue that for-profit universities are simply diploma mills that push students through programs of dubious quality with the primary goal of increasing the firm’s bottom line. Supporters of the industry assert that it provides educational opportunities to traditionally underserved students in areas of study that directly increase students’ employability. While neither extreme view is likely to be completely accurate, there is no doubt that for-profit educational institutions are becoming a much more prominent part of the higher education landscape. The primary purposes of this report are to provide an objective overview of the industry and its students, to discuss operational differences between the traditional educational sector and for-profits, to assess the regulatory environment facing the industry, and to examine the economics of education as a profit-making enterprise.

Download the entire report (pdf, 60 pp.)


Notes

[1] U.S. Department of Education, National Center for Education Statistics, Enrollment in Postsecondary Institutions, Fall 2008; Graduation Rates, 2002 & 2005 Cohorts; and Financial Statistics, Fiscal Year 2008 (2010).

[2] Author estimates based on conversations with industry insiders.

[3] U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System, Fall Enrollment (1986-2008);  U.S. Department of Education, National Center for Education Statistics, Enrollment in Postsecondary Institutions, Fall 2008; Graduation Rates, 2002 & 2005 Cohorts; and Financial Statistics, Fiscal Year 2008 (2010).


Daniel L. Bennett is a Research Associate at the Center for College Affordability and Productivity. He holds a MA in Applied Economics, with a focus on labor and international issues, as well as a BBA, from Ohio University. He currently is a doctoral student in Economics at Florida State University.

Adam R. Lucchesi is a Research Associate at the Center for College Affordability and Productivity and an instructor of economics at Ohio University.

Richard Vedder is director of the Center for College Affordability and Productivity, distinguished Professor of Economics at Ohio University, and a visiting scholar at the American Enterprise Institute. He is the author of Going Broke By Degree: Why College Costs Too Much, and he has written and lectured widely on the cost of higher education. He received a BA from Northwestern University and a MA and PhD from the University of Illinois.


Acknowledgements

The Center for College Affordability and Productivity would like to thank Lumina Foundation for its generous support of this research.

Lumina Foundation for Education is an Indianapolis-based private foundation dedicated to expanding access to and success in education beyond high school. Through grants for research, innovation, communication and evaluations, as well as policy education and leadership development, Lumina Foundation addresses issues that affect access and educational attainment among all students, particularly underserved student groups, including adult learners. The Foundation bases its mission on the belief that postsecondary education remains one of the most beneficial investments that individuals can make in themselves and that society can make in its people. For more details on the Foundation, visit its Web site at www.luminafoundation.org.

The views expressed in this publication are those of the authors and do not necessarily represent those of Lumina Foundation for Education, their officers, or employees.