For decades, regulators have had only limited success in taming a for-profit college industry that routinely defrauds students, inflates prices, and produces devastatingly bad outcomes for student loan borrowers. But recently, instead of promoting complex regulatory schemes, some policymakers have offered a simple solution: take away for-profit colleges’ federal subsidies. Today, Rep. Pramila Jayapal (D-WA) and Sen. Sherrod Brown (D-OH) introduced the Students Not Profits Act to remove for-profit colleges from eligibility for federal student financial aid. A ban on federal subsidies is currently the only solution that truly confronts the power imbalance that has built up in the for-profit education sector and also ensures sustained improvement in affordability and equity for all students.
To understand why a ban on subsidies for for-profit education is important, it’s helpful to have a little background on the industry—and its relationship to the federal government. For-profit colleges represent a relatively small slice of our nation’s higher education system—just 5 percent of students attend these institutions—but they eat up a disproportionately large share of federal grants and loans for college. About 13 percent of Pell Grant dollars go to for-profit institutions, and almost a third of for-profit colleges derived between 80 and 90 percent of their revenue from federal sources in 2014. And students who attend for-profit colleges are far more likely to incur significant debt.