For-Profit College Costs Surpass Nonprofit Peers in U.S. Study

The average cost of attending a four- year for-profit college surpassed expenses at both U.S. state and private nonprofit universities, a government report found.

Full-time students paid an average of $30,900 annually at the for-profit schools in the 2007-2008 academic year, almost double the $15,600 average paid at public universities, according to U.S. Education Department data released today. The average cost of attending a private nonprofit college was $26,600, the study said.

Congress has been investigating costs and students’ debt burdens at for-profit colleges, which get as much as 90 percent of their revenue from federal student grants and loans. Default rates among former students at for-profit colleges jumped to 15.2 percent, the biggest rise in the higher-education field, the Education Department said May 20 in a separate report.

“The career-college industry readily admits that they cost students more than some alternatives,” said Pauline Abernathy, who oversees policy and advocacy for the Institute for College Access and Success, in a telephone interview. “The question, particularly for the lower-income students these colleges target, is whether it’s worth the higher cost.”

The Bloomberg U.S. For-Profit College Index of 13 companies fell less than 1 percent yesterday. Apollo Group Inc. (APOL), operator of the University of Phoenix and the biggest U.S. for-profit college, declined $1.05, or 2.6 percent, to $39.92 in Nasdaq Stock Market trading.

‘Traditional’ Undergraduates

The study’s cost estimates, which used constant 2009-2010 dollars, included living expenses such as housing and food, for students at all colleges. It looked only at students who were still considered dependent on their parents, to get a picture of the costs paid by “traditional” undergraduates, said Tom Snyder, an Education Department statistician.

The report looked at a small sample of the students at for- profit colleges, where only about one-quarter are dependents, said Harris Miller, president of the Washington-based Association of Private Sector Colleges & Universities, an industry group. Other data show that for-profit colleges cost less than private nonprofit institutions because many students study at home through online courses, keeping living expenses lower, Miller said.

Four-year, for-profit colleges also spent less than nonprofits on instruction, averaging expenditures of $2,659 per student in 2008-2009, according to the study. Private, four-year nonprofit colleges spent almost six times as much -- $15,289 per student -- in that same period, and public institutions spent an average of $9,418.

Less Expensive Faculty

Most for-profit colleges use lower-paid faculty, providing students access to teachers at less cost, Miller said.

“They get a better student-to-faculty ratio than you would get when you have a high-priced professor in a large lecture,” Miller said.

The study looked at the average cost of attending college after subtracting scholarships that students don’t have to repay, including U.S. Pell Grants. About one in four students at a U.S. for-profit college receives a Pell Grant, which provides as much as $5,550 annually for poor students.

The costs for students at private nonprofit colleges were lower, in part, because they received an average of $10,900 in annual scholarships, while for-profit college students got an average of $2,600 in grants. Public university students received an average of $3,700 in such assistance.

Pending Regulations

Average costs after grants at four-year, for-profit colleges rose 37 percent from $22,500 in the 2003-2004 academic year, the study said. During the same period, costs at public universities rose 8.3 percent from an average of $14,400, and by 8.6 percent from an average of $24,500 at private nonprofit institutions.

The Education Department is preparing to release regulations that may further restrict access to financial aid at for-profit colleges. California lawmakers passed a measure that will restrict students’ ability to get state grants to cover costs of for-profit colleges.

The figures were included in a report, called The Condition of Education, which the Education Department provides for Congress annually. The figures on average college costs are collected every four years, said Snyder, the department statistician.

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net.

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net

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