U.S. Markets closed

Are For-Profit Colleges Wasting Your Money?

Tim Parker

Have you ever wondered if colleges like the University of Phoenix offer programs that compare favorably to the more traditional colleges?

If you're not up on your college lingo, there are two basic types of colleges and universities in the United States. The not-for-profit schools are what most of us know best. State sponsored schools like Florida State University or Ohio State University and most private schools like Georgetown University, Johns Hopkins University and the University of Notre Dame are some of the best-known examples of not-for-profit universities. These, and many others, are the schools that most high school students think of when they begin planning for college.

SEE: 6 Ways To Fund A College Education

In recent years, a new type of college or university has taken off. These are often referred to as "for-profit schools" because they're operated by companies that are expected to make a profit for their shareholders. The best-known for-profit college is the University of Phoenix but other such schools include DeVry University, Argosy University and Everest College.

There is a lot of debate among educators whether one type of school provides a better education than others, but for-profit institutions now educate 12% of college students and a recent study found that many students come from lower-income households.

The Institute for Higher Education Policy released a study that found low income students between the ages of 18 and 26 were overrepresented at for-profit colleges but underrepresented at not-for-profit institutions. Within this demographic, enrollment at for-profit schools has increased from 13% to 19% between 2000 to 2008, while enrollment at not-for-profits decreased from 20% to 15% in the same time frame.

The other group flocking to for-profit schools are military veterans and their families. Congressional legislation allowed veterans to receive 100% of their education costs from government-sponsored student loans. This, according to another study, resulted in government student aid payments to for-profit colleges increasing from $66 million to $521 million between 2006 and 2010.

Default Rates
According to a Boston University study, graduates of a for-profit college are less likely to a get a job than students that attend a not-for-profit school and if they do get a job, they're often paid less. According to another study, because these students are less likely to get a job, their student loan default rate is higher. Students at for-profit schools account for nearly half of all student loan defaults but only make up 12% of college students.

Recent data doesn't do much to help the for-profit education sector's image and as a result, the U.S. Department of Education has asked these schools to prove that they are helping their students find employment upon graduation.

SEE: 5 Financial Mistakes New Graduates Must Avoid

With data hardly singing the praises of for-profit education, should all students avoid these schools? First, set your goal. Once you finish your college education, what kind of work do you hope to do? For degree programs, like trade, vocational or certifications added to an existing degree, for-profit colleges offering classes that don't interfere with a person's work schedule may be a good choice. For degrees where employers may take the school into consideration, for-profit colleges may not be the best choice.

The Bottom Line
As online classes become more mainstream, recruiters are looking less at the degree and more at the person. The best way to improve your chances of gaining a position in the field of your choice is to use the old-fashioned methods of networking, interning and gaining a reputation as a hard worker who produces quality results.

Data appears to show that the stereotype is true. Until for-profit colleges improve their results, it may still be best to attend a not-for-profit college or university.

More From Investopedia