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Getting a Student Loan to Attend a For-Profit College? Here's Why You Should Think Twice
Lyle Daly, The Motley Fool
Updated
Don't make a bad financial decision that could haunt you for years to come.
Dejected female student sitting on steps with head in her hands.
Image source: Getty Images.
If you live in the United States and you've had even the slightest interest in getting a degree, then you've probably heard of a few for-profit colleges.
These colleges work hard to sell themselves to prospective students, and their ads are all over TV and the internet. It's easy to get lured in by flexible class schedules and promises of a fast degree in the field you want to study.
Unfortunately, quite a few students who go to these schools end up with buyer's remorse. If you're thinking of getting a large student loan so you can go to a for-profit college, you need to know the statistics on how risky this can be.
The dangers of for-profit colleges
As the name suggests, for-profit colleges are private businesses whose goal is to make money, unlike traditional colleges and universities, which are non-profit.
This distinction results in some significant drawbacks among for-profit schools:
They're more expensive. There's a staggering difference in the average cost of for-profit and non-profit schools. Here's what you'd pay on average for various degrees, according to data from ProPublica:
A certificate program: $19,806 at a for-profit college compared to $4,250 at a public college.
An associate's degree: $35,000 at a for-profit college compared to $8,300 at a community college.
A bachelor's degree: $63,000 at a for-profit college compared to $52,500 at a state flagship university (you could also save money on the latter by completing your first two years at a community college).
Their degrees are lackluster. This isn't a case of "you get what you pay for," as a degree from a for-profit college will typically be far less useful than a degree from a non-profit school.
The numbers bear this out, as a working paper by The National Bureau of Economic Research found that on average, students who graduate from for-profit colleges experience insignificant gains in earnings compared to adults who don't attend college.
They use underhanded tactics. For-profit colleges can be aggressively sales-oriented, which often leads to shady recruiting methods.
Here's an example of these tactics in action. Many for-profit schools work with telemarketing operations, such as The CollegeBound Network. This company runs an online jobs board, but to access the jobs, you must check a box that gives your consent to be contacted about furthering your education.
People end up looking for jobs, only to receive calls from salespeople trying to convince them to sign up at for-profit colleges.
That's far from the worst practice among for-profit colleges. One Huffington Post investigation found that multiple schools under the Corinthian Colleges umbrella would pay temp agencies to hire graduates in order to boost their job placement rates. And a study by The Century Foundation found that 98% of student loan forgiveness requests alleging fraud come from students who went to for-profit schools.
They could close at a moment's notice: For-profit colleges have faced legal troubles due to how they operate, and that has led to some high-profile closures. ITT Tech shut down in 2016 with 43,000 students in the middle of their schooling. Education Corporation of America closed its schools at the end of 2018, leaving almost 20,000 students behind.
As if having your school close down weren't hard enough, you'd probably have to start from scratch at a new school. Students who go from for-profit schools to public schools lose 94% of their credits on average.
Student loans and for-profit colleges are risky business
When you have students getting loans for overpriced degrees that won't substantially increase their earnings potential, it's a recipe for disaster. Those students end up with a much higher likelihood of defaulting on their loans. Defaulting on a student loan puts a huge strain on your finances and can seriously damage your credit.
In a 2018 analysis of Department of Education data, the Brookings Institute found that among students who were in college in 2003, 52% of those who got student loans to attend a for-profit college ended up defaulting within 12 years. The default rate for community college borrowers was half of that at 26%.
Because of how much more it costs to attend a for-profit school than a community college, students of for-profit colleges finance their education with loans more often. When you zoom out and account for all students in the study (those who did and did not take on student loans), for-profit students were four times as likely to default on a student loan as community college students.
Statistically speaking, for-profit colleges offer the lowest reward and the highest risk of any type of school.
Alternatives to for-profit colleges
If you've been considering a for-profit school, then it's a good idea to look for public colleges and universities in your area instead. Whether you want a certificate, associate's degree, bachelor's degree, or more, you can pay less and get a higher-quality degree at a non-profit school.
Community colleges, in particular, have many of the same benefits as for-profit schools without the major drawbacks. These schools tend to offer:
Certificate and associate's degree programs in a variety of fields
Much more relaxed admission standards than universities
Flexible class times, potentially including online classes
Low tuition costs
You could also start at a community college, get your first two years' worth of credits completed, and then transfer to a university to complete your bachelor's. Combined with a loan from one of the top student loan providers, this is a smart way to get the degree you want while keeping your costs down.
Don't get scammed by a school
It's easy to get drawn in by the marketing and sales tactics of for-profit colleges, but the vast majority of them aren't worth the money. Regardless of your age, schedule, and grades, you can find a schooling option that will cost you less and get you a better degree.
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