Why Are Many For-Profit Schools So Costly?

For-profit colleges receive a lot of financial aid. What’s more, it turns out those proprietary colleges receiving federal financial aid end up being more expensive for students, like 75 percent more expensive than those that don’t use federal aid.

According to new study issued by the National Bureau of Economic Research:

Many for-profit institutions that are not Title IV eligible offer programs and certificates that are similar, if not identical, to those given by institutions that are part of Title IV. We find that the Title IV institutions charge tuition that is about 75 percent higher than that charged by comparable institutions whose students cannot apply for federal financial aid. The dollar value of the premium is about equal to the amount of financial aid received by students in eligible institutions.

The sort of for-profit colleges reformers tend to focus on are those receiving federal financial aid, but in fact there are a great variety of for-profit colleges (cosmetology schools, for example) that aren’t eligible for federal funds. These institutions, it turns out, are cheaper.

According to the one of the authors of the study, Stephanie Riegg Cellini of George Washington University, the difference in price between financial-aid eligible institutions and others “seems to match, pretty well, the size of a Pell Grant.”

What’s more, these cheaper schools tend to do pretty well without charging higher tuition or accessing government money. Many, according to the study, “are long-lived, surviving and apparently thriving without access to Title IV funds and the imprimatur of the U.S. Department of Education.”

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