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Non-Profit vs. For-Profit Colleges: What You Need to Know

Between 1990 and 2010, the percentage of bachelor’s degrees earned from for-profit schools increased seven-fold. Their success was primarily based on their ability to uniquely address the needs of nontraditional students. But by 2015, Corinthian Colleges, once the second-largest for-profit college chain in the country, went bankrupt, while the University of Phoenix’s enrollment dropped by 50%.

How did this change happen so rapidly?

Instituting the Gainful Employment Rule

The Gainful Employment (GE) Rule (as it’s commonly called) was instituted in 2014. Under GE, students risked losing access to federal financial aid if debt-to-earnings ratios of graduates from their school exceeded certain levels.

So, what did GE mean for schools?

The regulation required for-profit institutions to disclose specific information to prospective students for all their degree and certificate offerings, including program costs, debt of graduates and program length. Public and private, nonprofit institutions, meanwhile, were required to post the same information, but for their non-degree offerings only.

(GE has since been rescinded, with Education Secretary Betsy DeVos issuing a final repeal of the regulation on June 28, 2019.)

The Lasting Impact of the Gainful Employment Rule

While some for-profit colleges went out of business, some others have merged, rebranded, or applied to become nonprofit institutions. Enrollment at these schools, meanwhile, continues a steep decline—dropping 19.7% year-over-year from spring 2018 to spring 2019 (Chronicle of Higher Education). At the same time, nonprofit colleges and universities have made sizeable investments in meeting the needs of nontraditional students with robust online courses and student support services.

So, where do for-profit schools stand today and how do they compare to their nonprofit peers? Let’s look at how nonprofit colleges and for-profit colleges have evolved and what that means to a prospective student.

Online Colleges and For-Profit Colleges Are Not the Same

It’s a common misconception that all online colleges are for-profit. While for-profit colleges are often credited with spurring the popularity of online courses, today, nearly every nonprofit college or university offers some form of distance learning. Even more, there are many nonprofit online colleges that specialize in creating flexible degree programs that meet the needs of adults juggling jobs, family and life.

But with more options than ever, you need to understand how the nonprofit vs. for-profit status of an online college or university can affect you as a student, so you can choose a program that’s right for you.

For-Profit Colleges Spend Significantly Less Revenue on Educating Students Than Nonprofit Colleges

When you pay your tuition and fees, where do those dollars go?

At for-profit colleges, a significant portion of tuition revenue goes directly to investors or other non-education related spending, like advertising and marketing. Creating a positive return on investment is how for-profit colleges stay in business.

At nonprofit colleges, revenue must be reinvested into the institution—whether that’s improving operations, instructor salaries, library resources or student services—to fulfill its educational mission.

And there’s data to back up how much of your tuition dollars go directly to student instruction and education-related spending. The Century Foundation (TCF) took on a comprehensive effort to evaluate instructional spending as a percentage of tuition collected at every higher education institution.

TCF found that for-profit colleges spend the least on instruction, generally less than half of overall tuition revenue. Some of the lowest instructional spending was found at for-profit colleges with large online enrollment. Nonprofit colleges, on the other hand, spend the majority of tuition dollars on enhancing the academic experience. When education-related spending, like student services and academic support, is taken into account, nonprofit institutions actually invest more money, on average, than they receive in tuition.

Graphic showing how much tuition dollars for profit colleges and nonprofit colleges spend on education

Here’s a real-world example of the nonprofit business model at work.

“At a nonprofit university, student success is our lifeblood,” says Dr. Lynne Hull, vice president of Student Affairs at Franklin University, “A significant portion of our university’s spending goes toward efforts to keep curriculum and instruction methods on the cutting-edge, while supporting our students every step of the way.”

Hull goes on to describe the types of investments Franklin University can make because of its nonprofit status, “We have extremely engaged program advisory boards who tell us about workforce demands so our curriculum is always fresh and up-to-date. We employ practitioners to develop and teach courses, so you’re learning directly from people who are leaders in their field. We hire experts in teaching and learning who establish instruction best practices and design engaging online learning environments. This type of reinvestment directly impacts the student experience.”

Out-of-Pocket Costs Are Less at Most Nonprofit Colleges

Tuition and fees at both for-profit and nonprofit colleges and universities may seem daunting. As tuition rates steadily increase, determining how you’ll pay for your education, for many people, is a major influence in choosing a college.

When comparing tuition, there are two ways to look at it: published tuition and fees and net tuition and fees.

  • Published tuition and fees are the total cost of attendance before any financial aid is considered.
  • Net tuition and fees are a college’s published sticker prices for tuition and fees minus the grants, scholarships, and education tax benefits received. Some net tuition and fee statistics take loans into account.

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Rarely do students pay full price for their education. According to Money Magazine, only 12% of private college students pay the full cost of published tuition and fees.

As reported in the CollegeBoard Trends in Pricing 2018 Report, at all income levels, larger shares of full-time students at private nonprofit colleges and universities than at for-profit institutions paid net tuition and fees less than $5,000 in 2015-16.

In fact, 66% of students pay less than $20,000 in net tuition and fees at private nonprofit institutions yearly, as opposed to 31% at for-profit institutions.

Graphic showing net tuition of for profit and nonprofit schools

Most Students Spend Less Time Earning Their Degree at Nonprofit Colleges

Another consideration when planning for the cost of a degree is how long it will take you to earn your degree. While many people budget for a four-year undergraduate education, averages indicate that most students do not complete a degree in four years.

The difference between graduation rates at four-year nonprofits and four-year for-profits is staggering. For-profit average enrollment, at 5.8 years, is a full year longer than four-year private nonprofits at 4.8 years. Four-year nonprofit colleges also far exceed for-profit colleges in six-year completion rates. Where 76% of students complete a degree in six years at four-year private nonprofits, only 35.3% of students graduate in six years at for-profit colleges.

Graphic showing graduation rates of nonprofit and for profit colleges

How to Choose the Right College For You

If you’re looking to pursue an online degree, you’ll probably compare nonprofit universities with for-profit universities. Here are a few tips to help you determine the quality of the program—regardless of its nonprofit or for-profit status.

  • Review the college or university’s accreditation status through the U.S. Department of Education
  • Research graduation rates and employment data. American Institutes for Research provides data on higher education institutions that may be useful.
  • Review curriculum and instructors to ensure they are well established and respected
  • Talk with colleagues and mentors about their college experience. Getting insights from people you trust and admire can be extremely helpful in making your decision.

Once you ensure a college or university will provide a high-quality degree, you can choose a program that will give you the knowledge and skills to reach your career goals.

Franklin University is a regionally accredited university that is dedicated to the success of nontraditional students, especially professionals who want the flexibility to earn a high-quality online degree without taking time out from their career. Explore Franklin University’s degree programs to see how they can help you reach your professional goals.

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