The for-profit education sector has exploded in the last 15 years — here’s why

The New York Federal Reserve Bank published a report that displays in stark terms just how much the for-profit college sector has exploded over the past 15 years.

“In 2015, nearly three times as many students attended for-profit schools as did in 2000, and there were 36% more for-profit schools,” according to part one of the four-part report, titled The Changing Higher Education Landscape.

The findings are especially relevant in light of the recent closure of ITT Technical Institute, which stranded 40,000 students and 8,000 employees just a week and a half after the Department of Education (ED) imposed harsh sanctions on the for-profit school.

While the for-profit education sector spans four-year, two-year, and less-than-two-year programs, the Fed pointed to the growth of four-year schools as the most startling, with enrollment increasing by a factor of seven from 2000 to 2011. In fact, more students were enrolled at four-year for-profit colleges in 2011 than were enrolled at public flagship universities or elite private schools.

Both two-year and less-than-two-year programs also saw increases during this time, but represent a much smaller segment of the overall undergraduate enrollment population.

Still, less-than-two-year for-profit programs have long dominated the for-profit market, accounting for more than 50%, and between 2003 and 2006 experienced a boom which brought its share to 81%, according to the New York Fed.

New York Fed for-profit college

Some of that growth can be attributed to the the regulatory environment during the time period, David Halperin, an attorney and former vice president at the Center for American Progress, told Business Insider.

For-profit colleges were able to expand their market share during the Bush Administration when lobbyists catalyzed the relaxation of rules that the Clinton Administration placed on monetary incentives for recruiters to enroll more students.

Halperin’s analysis echoes that of other student advocates who point to a 2002 memo the ED wrote under Bush which indicated that colleges would not face harsh penalties if they paid recruiters based on how many prospective students they could sign up — one of the main criticisms of the for-profit model. According to these experts, that leniency allowed exponential growth in the for-profit college industry.

In addition, lobbyists worked with Congress to relax a provision in a law that made colleges ineligible for financial aid if they offered more than 50% of their courses online, Halperin explained.

“That law was amended so that you could have as much online as you wanted and still be eligible for federal aid,” he added.

In its report, the Fed also acknowledged a “post-recession bounce” that affected all segments of higher education, especially for-profit two-year and less-than-two year institutions, where upticks in enrollment occurred between two periods: 2000 and 2005 and 2008 and 2011.

During a recession, workers taken out of the labour force might choose to go back to school, especially because the “opportunity cost” of lost wages is lower, according to the report.

ITT Tech

More recently, however, enrollment at for-profit colleges has begun to decrease, dropping 25% between 2011 and 2015, according to the New York Fed’s report. Despite this decline, there are still two times as many students enrolled at for-profit schools than are enrolled in elite private schools.

Halperin points to a confluence of efforts that contributed to that decrease and noted that whistleblowers and investigations into fraud at certain colleges prompted action by federal and state law enforcement agencies.

Even outside ITT Tech, The ED has begun to tamp down on for-profits for their so-called abusive behaviour. The agency goes after what it calls “bad actors” in the business and hands down fines while threatening to eventually close schools if changes don’t happen.

While there are thousands of for-profit colleges that operate in the US, many of the biggest been investigated by state attorneys general, including EDMC, ITT Tech, Career Education Corporation, Kaplan, DeVry, and Bridgepoint.

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