Thanks to the hearings on for-profit schools organized by the Senate education committee and the anticipated “gainful employment” ruling from the Department of Education many policymakers are now considering the costs and benefits of America’s for-profit schools.

Sen. Richard Durbin (D-IL) said in a speech at the National Press Club yesterday:

There is growing concern that we could be looking at a repeat of the subprime mortgage fiasco, with low-income, high-risk students mortgaging their futures – not on overpriced homes this time, but on worthless diplomas.

Let me be clear: There are many good trade schools and for-profit colleges, and they serve a vital purpose, supplying job training that helps people take the next step up the economic ladder.

The problem is that that for-profit schools tend not to help people “take the next step up the economic ladder” using money students actually have. Most of the cost of for-profit schools appears to be met by federal grants and federally-backed loans. The San Francisco Chronicle has an interesting article on this. As Terry Connelly of Golden Gate University put it:

The U.S. taxpayer has unwittingly been the lead underwriter of the tremendous marketing success of the for-profit higher education sector but bearing most of the downside risks with few rewards.

For-profit college revenues are generally about 90 percent tuition-driven, and many operate close to the limit of 90 percent revenue dependence on federal education aid.

More importantly, however, not all of this federal money goes to pay for education—or even institutional profit. About a quarter of that tuition revenue goes to pay for recruitment, advertising campaigns and call centers. That’s fine for a business to do (I wouldn’t presume to tell anyone how to run his private company) but should the American taxpayer really fund this? [Image via]

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Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer