06/27/2010 05:12 am ET | Updated May 25, 2011

Are For-Profit Colleges Peddling Subprime Education?

The case for for-profits: They concentrate on students who are nontraditional (aka the new normal: working adults) and underserved by traditional colleges. They offer them help filling out the FAFSA forms, more convenience and better customer service. They aggressively pursue growth in enrollment -- growing at an estimated rate of 5% to 10% a year or five times to 10 times faster than the overall market. That type of growth is needed to fulfill student demand, not to mention our national goals of a more credentialed population. And to the extent that the sector is truly market-driven, they have the potential to be more innovative and efficient than public or nonprofit colleges have proven to be (although the majority of online students are found at public and nonprofit colleges, for-profits certainly have a disproportionate share of the online market at 42% vs 9% of all students). Some for-profits have good fit with some DIY U ideas: open enrollment, unbundling of services, judging their programs on quality of results rather than prestige, and tying degrees more closely to workforce needs. In my book I relate these ideas back to John Holt's Instead of Education, where he praises the Berlitz language school, among others, as a "schools for do-ers". "We view access as critical," Jonathan Kaplan of Walden University, which concentrates on graduate programs for teachers, nurses and therapists. "An institution doesn't need to be elite to be outstanding in terms of quality."

The case against for-profits: they are not so much "serving" the underserved as they are targeting or exploiting them. Although students take out loans similar in size to those at private colleges, the quality of education is really in many cases more like community colleges. Although enrollment rates are high and growing, graduation rates are very low. And students who attend these colleges are twice as likely to default on their loans. A recent paper by Mark Kantrowitz found that 60% of the discrepancy in default rates was due to the demographics of their students, which leaves 40% that the for-profits still have to answer for.

Some have argued that this situation is highly reminiscent of the mortgage crisis: these colleges are peddling yet another false promise of the American Dream (in this case, the college diploma part of the dream, rather than the homeownership part) to those who are truly not qualified to take advantage of it. That their graduates and especially their non-graduates will have a very hard time pulling in salaries commensurate with their debt. Yet unlike the hapless homeowners, they can't go into foreclosure or walk away from their debt under any circumstances, and so they'll be stuck all their lives.

This dynamic is truly troubling, and it certainly exists. I may have been guilty in the past of bending over backwards to be fair to the sector, perhaps out of my own contrarian streak.

I just want to add a couple of observations: One is that for-profits, even more than other colleges, essentially operate as federal contractors, because their revenue comes from tuition which comes mostly from federally subsidized student loans and Pell Grants. That means if we're concerned about quality in the sector, federal regulations are the way to go.

The second is that the same kind of policies that would improve the performance of for-profits would improve the performance of all colleges, but they freak traditional higher ed out. Things like administering tests to see what students are actually learning, or imposing real accountability for terrible graduation and default rates.

I think these reforms would be a good idea across the board, and if they happen, for-profits might surprise us. The historical tendency in higher education has been for successful institutions' goals and aspirations and standards all to drift upwards. Some may see it as naive if I celebrate the fact that a Grand Canyon University has community service extracurriculars and liberal arts classes, but I see it as part of a necessary trend if we're going to get to a higher education future that serves everybody.