For-profit colleges have occupied a particular position in the American higher education system: institutions that absorb large quantities of federal loan and grant money while frequently failing to deliver the credentials and economic outcomes they promise. The industry’s worst actors — Corinthian Colleges, ITT Technical Institute, and others — collapsed under investigations and enforcement actions. But the structural conditions that made those abuses possible have not been fully corrected.
How For-Profit Colleges Operate
For-profit colleges are accredited degree-granting institutions owned by private companies or investors. They are eligible to receive federal financial aid under Title IV of the Higher Education Act, meaning their students can use federal Pell Grants and federal student loans to pay tuition. Under federal rules, institutions that receive Title IV funding cannot derive more than 90% of their revenue from federal aid — this is the so-called 90/10 rule — though veterans’ benefits and Department of Defense funds were historically counted as non-federal revenue, creating a loophole that made military-connected students particularly attractive targets.
The business model of a for-profit college differs fundamentally from that of a nonprofit or public institution. A nonprofit reinvests any surplus into its mission; a for-profit college distributes profits to shareholders. This creates pressure to enroll students, collect tuition — which largely flows from federal loans and grants — and minimize costs. The result is often high enrollment, high marketing and recruitment spending, and underinvestment in instruction and student support.
For-profit colleges generally serve students who are harder to reach by traditional higher education: older adults returning to school, working parents, veterans, low-income students without the academic preparation or resources to attend selective institutions. These are students with real educational needs, which is part of what makes the predatory practices in the industry so consequential. The students who enrolled at failing for-profit colleges were often attempting genuine upward mobility.
Predatory Recruitment
The documented recruitment practices at the largest for-profit chains were not marginal violations. They were systematic. Federal and state investigations found that schools trained enrollment staff to use high-pressure sales tactics, to identify and target emotionally vulnerable applicants, and to misrepresent job placement rates, graduation rates, credit transferability, and accreditation status.
A 2012 Senate Health, Education, Labor and Pensions (HELP) Committee investigation of for-profit colleges — a two-year examination of 30 companies — found that the industry spent, on average, 22% of revenues on marketing and recruitment and only 17% on instruction. A school where marketing spending exceeds instructional spending is not primarily an educational institution.
Veterans and active-duty military personnel were disproportionately targeted, partly because military tuition assistance and GI Bill benefits were counted as non-federal revenue under the 90/10 rule, allowing schools to take even more in federal funds from other students. The Senate investigation documented specific marketing strategies designed to recruit veterans, including placement of recruiters near Veterans Administration offices and the use of veterans’ service organizations as recruitment pipelines.
Low-income students, including single parents receiving public assistance, were explicitly targeted in some recruitment scripts obtained by investigators. Some recruiters were trained to identify financial and emotional vulnerabilities and use them to encourage enrollment.
Accreditation Failures
Accreditation is supposed to be the quality-control mechanism for higher education. Accredited institutions can access federal financial aid; non-accredited institutions cannot. But the accrediting bodies that oversaw the largest for-profit chains failed to catch — and in some cases helped enable — their dysfunction.
The Accrediting Council for Independent Colleges and Schools (ACICS) was the primary accreditor for many of the largest for-profit chains, including ITT Tech and several Corinthian subsidiaries. In 2016, the Department of Education terminated ACICS’s recognition after a federal review found that the agency had failed to enforce its own standards, had ignored warning signs at troubled institutions, and had inadequate processes for detecting fraud and low-quality outcomes. At the time of its loss of recognition, ACICS was overseeing institutions enrolling approximately 800,000 students.
The failure of accreditation created a compliance gap that lasted for years, during which students continued to enroll and borrow. By the time enforcement action terminated major for-profit chains, many students held credentials of limited value and significant debt with no straightforward path to relief.
Corinthian Colleges
Corinthian Colleges, Inc. was one of the largest for-profit chains in the country, operating Everest, Heald, and WyoTech campuses with enrollment that reached approximately 110,000 students. Federal and state investigations found that Corinthian systematically falsified job placement data to maintain accreditation and attract students. California’s attorney general sued the company in 2013 for misleading students about job prospects and program quality.
The Department of Education began restricting Corinthian’s access to federal funds in 2014, limiting the company’s ability to enroll new students. In April 2015, Corinthian abruptly ceased operations and closed its remaining campuses, leaving tens of thousands of students mid-enrollment with disrupted academic careers and — in many cases — federal loan debt they had incurred for an education that would now produce no credential.
The closure triggered the activation of the closed school discharge program, which theoretically allowed borrowers to have their loans cancelled if their school closed while they were enrolled. However, the Department of Education’s initial implementation of closed school discharge was slow and inconsistent, leaving many former Corinthian students in limbo for years while their debt balances grew with accruing interest.
ITT Technical Institute
ITT Technical Institute operated for-profit colleges across the United States for decades before its 2016 closure. The Consumer Financial Protection Bureau sued ITT in 2014 for predatory lending, alleging that the company pushed students into high-cost private loan programs — some with origination fees of 10% and interest rates of up to 16.25% — and misrepresented their career prospects. Associate’s degree programs at ITT cost more than $44,000; bachelor’s degree programs reached $88,000 — prices comparable to or exceeding many private nonprofit colleges, while outcomes were significantly worse.
ITT’s accreditor, ACICS, failed to take corrective action despite documented problems. The Department of Education eventually cut off ITT’s ability to enroll new students receiving federal financial aid in 2016; ITT closed immediately, leaving approximately 35,000 students enrolled at the time.
Borrower Defense to Repayment
Federal law has long included a provision — borrower defense to repayment — allowing students who were defrauded by their schools to seek discharge of their federal loans. The Corinthian and ITT collapses brought this provision to prominence, as hundreds of thousands of former students filed claims.
The borrower defense process has been extensively litigated and administratively contested across administrations. The Obama administration established a regulatory framework for processing claims; the DeVos Department of Education largely halted processing and proposed a more restrictive standard that would have provided only partial relief to many claimants. After litigation, the Biden administration ultimately approved broad relief for Corinthian and ITT borrowers. That relief has since been contested under the Trump administration.
The borrower defense process is addressed more fully in the borrower rights article in this hub.
Ongoing Abuses
The collapse of the largest chains did not end the for-profit college industry. Smaller operators continue to operate, and some institutions that were previously for-profit have converted to nonprofit status in ways that maintain the underlying business relationships without the “for-profit” label — a practice known as “conversion” that has received attention from regulators.
The 90/10 rule was strengthened in 2021 to count veterans’ benefits as federal revenue, reducing the loophole that made military students particularly attractive targets. But enforcement of remaining requirements has been inconsistent across administrations, and the fundamental vulnerability — that access to federal student aid dollars creates strong incentives for institutions to enroll students regardless of educational fit or likely outcomes — remains.
The industry’s political operation, including its lobbying and its relationships with members of Congress, is examined in the power players article.
This article was researched and drafted with AI assistance under human review. See our full AI and editorial practices.