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The Real Cost of For-Profit Colleges

Emma Kerr

For-profit, four-year colleges advertise sticker prices that are, on average, somewhere between those of public and private nonprofit colleges. But experts encourage students considering for-profit colleges to look critically at other factors that contribute to cost, too, like the amount of institutional aid available, how long it takes to earn a degree and the value of that degree.

The average price of tuition and fees for first-time, full-time undergraduate students at degree-granting four-year for-profit colleges was $17,000 in 2017-2018, according to the National Center for Education Statistics.

For comparison, that's more than public four-year colleges, which cost $9,000 on average in the same year, and less than that of private nonprofit colleges that were priced at, on average, $34,600 in 2017-2018.

What Is a For-Profit College?

There are three primary types of postsecondary institutions: public colleges, which are funded in large part by state governments and are overseen by state-appointed boards and trustees; private nonprofit colleges, which don't receive state funding and rely instead on tuition and private donations; and private for-profit colleges. For-profit colleges are funded by investors and can be subsidiaries of a larger corporation.

[Read: The Cost of Private vs. Public Colleges.]

Increasingly, many for-profit colleges offer online education options. For-profit colleges, whether online, campus-based or hybrid, often provide niche or job-specific programs, and these colleges typically attract nontraditional students who are drawn to their flexibility and convenience.

"For-profit colleges, in theory, address an important niche in the education sector by focusing on efficiency and practical knowledge rather than education for its own sake," Venkates Swaminathan, founder and CEO of LifeLaunchr, a virtual college admissions coaching service, wrote in an email. "They are supposed to lack the frills that have come to characterize the American education scene -- beautiful gyms, new libraries, menus catering to every dietary preference -- and focus on teaching primarily low-income, often adult students skills that will enable them to earn higher-paying work."

The Net Price of For-Profit Colleges

Students and families rarely pay the amount advertised for tuition and fees, known as the sticker price. Instead, families can rely on the net price, or the price students pay after grants and scholarships, to better estimate the actual cost of a particular college.

The College Board's Trends in College Pricing 2019 report found that while the average net price for low-income students in the private nonprofit sector fell by 2% from 2003-2004 to 2015-2016, the average net price for dependent students from low-income families at for-profit institutions rose 36% in the same period.

Robin Howarth, senior researcher at the nonprofit Center for Responsible Lending, says instead of comparing sticker prices, prospective students should consider the kinds of grant and scholarship aid available.

"Net price incorporates grant aid, and generally that's where even if you were to start out at the same sticker price for a for-profit and a nonprofit, more or less, for-profits have virtually no institutional aid for students, which is often not true for nonprofits," Howarth says.

[Read: What to Know About a College's Net Price Calculator.]

In addition to providing federal financial aid, some for-profit institutions offer unique course formats that may reduce costs, like FlexPath, a subscription-based plan offered at for-profit Capella University.

"Costs vary widely depending on program, how many transfer credits the learner is bringing in, and how fast they move through their program," Elaine Kincel, a Capella University spokesperson, wrote in an email. "For example, learners in the FlexPath model can choose to move faster and save money."

Completion Rates at For-Profit Colleges

Enrolling at a for-profit college may cost students time, as well.

Only 30% of students who completed their degrees at for-profit institutions did so in less than five years. By comparison, 68% of students enrolled in private nonprofit colleges and 59% of public college students completed their degrees in that length of time, according to the College Board.

Student Debt and For-Profit Colleges

Students who graduate from for-profit colleges are more likely to have taken out student loans, and the average amount of those loans is higher than the amount of debt incurred by students enrolled at other types of schools.

More than 80% of 2016 graduates from for-profit colleges had student loans, compared with 68% for those from private nonprofit colleges and 66% for those from public colleges. Graduates from for-profit colleges left school with, on average, $39,900 in student debt, according to a 2019 report from the nonprofit Institute for College Access & Success.

The Value of the Degree

Experts note that degrees conferred by for-profit colleges often do not produce the bump in salary and earning power graduates hope to achieve, and students may not receive the same educational quality and rigor they may expect at public and private nonprofit colleges.

Carrie Wofford, president of the advocacy group Veterans Education Success, says veterans have been particularly targeted by for-profit colleges because of the money they bring with the GI Bill, which pays more than $24,000 for college annually.

"Some colleges unfortunately are just after the money and aren't seeking to provide a great education," Wofford says. She encourages prospective students to ask, "How is the college spending your GI Bill?" She says, "Colleges should be giving you that amount of education, but sadly many for-profit colleges siphon away a lot of the GI Bill from education and spend it instead on private jets and marketing."

[Read: What Veterans Need to Know About GI Bill Benefits at For-Profit Colleges.]

Plus, earnings are typically lower for graduates of for-profit colleges overall than for graduates from the two other college sectors, Howarth says, further driving down the value of a degree from a for-profit.

"If you had to borrow more to attend a for-profit but your outcomes were spectacular, then it really wouldn't be as big of an issue, because your ability to repay the debt and your salary would be higher -- it would all come out in the wash and you'd come out OK, but in fact the opposite is true," she says.

Experts also note there are other issues beyond cost students should consider when weighing the decision to attend a for-profit college, like any prior or pending law enforcement or legal action.

"I think it's safe to say the majority of for-profit schools do not have good outcomes," Howarth says. "There are probably a few that are good at what they do, but without really delving into reputation, a general wariness about the sector is warranted."

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