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FOR-PROFIT COLLEGES IN MICHIGAN: Path Forward or Dead End? Peter Ruark, Senior Policy Analyst | November 2020 Simon Marshall-Shah, State Policy Fellow Introduction The past several decades have seen a proliferation of private for-profit colleges. While private nonprofit colleges and universities operate much as other nonprofit organizations—with a board of directors or trustees, a system of by-laws and a charter that are meant to ensure the institution serves a public benefit with surpluses going back into the institution’s mission—for-profit colleges operate with the primary purpose of making a profit for owners and/or shareholders. Some for-profit college campuses are locally-based independent businesses, but many others are owned by educational corporations and holding companies headquartered outside of the states where campuses are located. While some might argue that Average Tuition and Fees at 2-Year Institutions, by Type of School profit-making in itself is not problematic for an institution of higher learning, problems quickly become apparent when taking into account that taxpayer-funded financial aid is nearly always used at such colleges, credentials are often seen as substandard in the job market, economically vulner- able populations are dispro- portionately targeted, and many for-profits have used misleading information and advertising to lure prospective students to their schools. For Profit Nonprofit Public (in state students) For-profit institutions com- Source: National Center for Education Statistics, Digest of Education Statistics, December 2019 (https://nces.ed.gov/ programs/digest/d19/tables/dt19_330.10.asp, accessed September 15, 2020) prise 47% of the institutions in the Great Lakes states that are MICHIGAN LEAGUE FOR PUBLIC POLICY | WWW.MLPP.ORG eligible for federal financial aid.1 There were approximately 77 for-profit college campuses in Michigan in 2018.2 In recent years, as the Great Recession encouraged cost-cutting, personal computers became more affordable and home wi-fi increased internet speed and capacity, there has been a shift from brick-and-mortar classroom buildings to online learning. This has enabled for-profits to deliver their services at a much cheaper cost (and likely a higher Michigan League for Public Policy, 1223 Turner Street, Suite G1, Lansing, MI 48906-4369 Phone 517.487.5436 • Fax 517.371.4546 • www.mlpp.org • A United Way Agency profit) while providing convenience for students, but it has also made it more difficult for state governments to enforce standards and provide consumer protections. For-profit colleges are often more expensive for students than public and nonprofit colleges offering similar programs. When comparing two-year colleges nationally, data from the National Center for Education Statistics shows that while tuition and fees at public community colleges cost an average of $3,313 per school year, for-profit two-year colleges cost an average of $15,360 per school year.3 Nonprofit two-year colleges cost a little more than for-profits in very recent years, but traditionally have been cheaper than for-profits. Some of those costs to students can be offset through institutional scholarships and public financial aid. For-profits, on the other hand, usually do not offer institutional scholarships (which are usually established by donors) and students at those schools cannot receive state financial aid in Michigan, although they can receive federal financial aid and some schools rely almost entirely on federal financial aid for their operations. For-profit Colleges Especially Target Students from Families with Low Incomes, Black and Latinx Students, and Veterans Despite comprising a small portion of the postsecondary market (about 3% of enrollment in Michigan in 2019), for-profit institutions use targeted marketing strategies to identify potential students and encourage them to enroll. A 2012 Senate Health, Education, Labor and Pensions (HELP) Committee report on the for-profit industry outlined how these schools employ thousands of recruiters to target as many students as possible in an effort to boost tuition revenue Recruitment materials through increased enrollment.4 emphasized the need to Many for-profit institutions target those who are considered “non- target people who traditional” or independent students.5 These terms are somewhat ill- receive public benefits, defined, though independent students meet criteria such as being may lack financial older than 24 years of age, being married, having legal dependents (other than a spouse) or being a member or veteran of the Armed stability or are less Forces. In addition, an analysis of 2016 postsecondary data found that familiar with higher “non-traditional” students tended to have lower incomes and represented 70% of the lowest-income undergraduate students.6 education. Students who decide to work and save income to pay for college prior to enrollment and students whose income goes toward children and other dependents may contribute to this trend, among other factors. Companies that run for-profit colleges know this; the 2012 HELP Committee report notes that recruitment materials emphasized the need to target people who receive public benefits, may lack financial stability or are less familiar with higher education.7 The industry is successful in its strategy, as 73% of all for-profit attendees were at or below 200% of the federal poverty level (FPL), about $24,000 in 2016. The majority of undergraduate students had incomes below 200% FPL, but when broken down by race, this included 70% of Black students, 64% of Latinx students and 42% of White students.8 Based on these disparities, when for-profit schools target “non-traditional” students with lower incomes, they are targeting a larger share of Black and Latinx students compared with White students. What’s more, race-explicit targeting by for-profits has been 2 Michigan League for Public Policy | November 2020 documented, including large amounts of money spent on advertising on Black Entertainment Television (BET).9 The result is overrepresentation of Black and Latinx students in the sector: 2015 analysis of postsecondary enrollment found that these students made up 29% of all college students, but nearly half of those attending for- profit colleges.10 In addition, Black students are profoundly underrepresented at other postsecondary schools in Michigan. There are systemic inequities that contribute to this underrepresentation. In Michigan, Black children are much more likely to grow up in homes with lower incomes, and there are educational disparities resulting from the impact of economic inequality on children and their school readiness.11 In addition, school funding systems do not meet the need and added cost of supporting schools that predominantly serve students with lower incomes, which influences high school completion rates, which are 12 While some might argue that lower for Black students than White students in the state. Systemic barriers also exist at the postsecondary level, with profit-making in itself is not significant weight given to standardized testing—where we see problematic for an institution persistent differences in scores based on race as well as class13— of higher learning, problems and admissions processes that are purported to be race-blind, quickly become apparent which limit recruitment, enrollment and support of all students of when taking into account that color.14 taxpayer-funded financial aid Therefore, many students of color, and particularly Black students, is nearly always used at such face systemic barriers to continuing their education, especially at colleges, credentials are public colleges and universities in Michigan. Based on a 2019 often seen as substandard in review, out of 41 states measured, Michigan ranked third lowest in the job market, economically terms of both (1) Black representation among bachelor’s degree vulnerable populations are earners as well as (2) the share of undergraduates at public four- 15 disproportionately targeted, year institutions who are Black. At the same time, there is an and many for-profits have effort by for-profit schools to target Black students and encourage enrollment through deceptive marketing regarding cost, degree used misleading information value and the lengths of programs.16 And, for some Black students and advertising to lure with lower incomes in particular, such recruitment is tailored in a prospective students to way that may present for-profits as an attractive option. their schools. All told, Black students are overrepresented in for-profit schools when compared to the overall population of potential Black students in the state. Recent estimates put the share of Michigan residents—ages 18 to 49 with a high school diploma but no bachelor’s degree—who are Black at 17.1%.17 In 2018, on average 30.6% of the student body at a Michigan for-profit school was Black.18 This percentage of Black enrollment was at least 20 points greater than that in other types of institutions in the state: Black students comprised an average of 10.7% of students at a four-year private nonprofit institution, 8.8% of students at a two-year public institution and 7.7% of students at a four-year public institution.19 Systemic inequities in postsecondary education by race and targeted, aggressive marketing strategies likely compound, creating overrepresentation of Black students enrolled in for-profit institutions in the state. Unfortunately, many of these students will be saddled with debt and may have earned degrees that do not go as far as promised in the job market, as examined further in this report. November 2020 | Michigan League for Public Policy 3 State Financial Aid Can Not Be Used at For-profit Colleges in Michigan Unlike many states, Michigan does not allow state financial aid to be used at for-profit colleges, but only at public and nonprofit postsecondary institutions.20 This is good public policy; Michigan taxpayers should not be expected to contribute to the profits of out of state investment companies that own many of the for-profit schools, particularly in light of the concerns outlined in this report.

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