After the government-induced collapses of high-profile for-profit colleges such as Corinthian and ITT Tech, at least one education company has decided it wants to stay ahead of regulators. DeVry Education Group, which operates the eponymous for-profit college along with a slew of other proprietary schools, recently announced that it would try to limit its funding from federal student aid programs such as Pell Grants and student loans to 85% of its revenue intake. More schools should follow its lead.
Currently, for-profit colleges are required to derive no more than 90% of their revenues from these federal programs, known collectively as Title IV programs. This requirement is called the 90/10 rule. Many schools just barely make the cutoff. During the 2013-14 academic year, 34% of for-profit schools derived between 80% and 90% of their revenues from Title IV sources. Just 12% depended on Uncle Sam’s largesse for less than half their revenue.
Pause for a moment and consider that here we have an industry in which 88% of firms depend on the taxpayer for more than half their revenues. In 2013-14, for-profit colleges absorbed $23 billion in Title IV aid. Half this money went to just nineteen institutions, out of nearly 2,000 schools in total. Despite the label “for-profit,” this is not a free market in any sense of the term.
As I have previously argued, the generosity of Title IV programs has enabled many for-profit institutions of dubious quality to stay in business for far longer than a truly private...
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Preston Cooper is a fellow at the Manhattan Institute's Economics21. Follow him on Twitter here.
This piece originally appeared in Forbes