Policy Documents

For-Profit Higher Education: Growth, Innovation and Regulation

Daniel L. Bennett, Adam R. Lucchesi, and Richard K. Vedder –
July 1, 2010

Introduction (to read the full copy, click the link at the bottom):

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.