What’s the difference between nonprofit and for-profit schools?

In the United States education system, nonprofit and for-profit schools are the two largest segments of postsecondary institutions. The nonprofit sector is divided further into two groups: public and private schools.

The majority of students enrolled in degree-granting postsecondary institutions attend public nonprofit schools. In the 2017-2018 school year (the latest data available), public, nonprofit institutions enrolled 14.6 million students, or 73.7% of the total student enrollment. Far fewer students attended private nonprofit schools at the tune of 4.1 million, and only 1.1 million students attended private for-profit institutions (5.6% of the total).

Critical distinctions between nonprofit and for-profit schools determine the role each plays within education benefit programs that serve employers and employees.

For-profit schools

At for-profit schools, like for-profit companies, the goal is to maximize profit for the shareholders in that organization. As such, there is an invested interest to increase tuition and capture more federal financial aid dollars. These tuition spikes encourage students to rely on taxpayer-backed student loans, positioning them for a future buried under a mountain of student debt.

For-profit schools are likely to structure operational practices and decisions to prioritize revenue. This often results in egregious tuition costs being transformed into recruitment and marketing budgets or hefty bonuses for executives. Critics of for-profit schools argue that a focus on making money displaces more important priorities like hiring quality professors, updating curriculum, or supplementing educational programs with additional resources.

The most highly-profit driven schools are owned by private equity investing firms. A recent study examining outcomes of these schools shows that private equity control of schools leads to “higher enrollment and profits, but also to lower education inputs, lower graduation rates, higher tuition, higher per-student debt, lower student loan repayment rates, and lower earnings among graduates.”

Nonprofit schools

Nonprofit schools can offer high-quality degrees at scale. In general, nonprofit schools tend to offer traditional programs, like those in the sciences, arts, engineering, and mathematics. All of the top 100 schools in the United States are nonprofit schools; Whether the school is private or public is not relevant. In fact, all eight Ivy League schools in the United States are private nonprofit schools.

Tuition and fees comprise about one fifth of a public university’s total revenue. In contrast, 39.3% of revenue comes from tuition and fees at private nonprofit universities. And, the figure more than doubles to over 90% at private for-profits.

Schools for working adults

For-profit schools can be advantageous for working adults in certain circumstances. In contrast to their nonprofit counterparts, for-profit schools usually offer skills-based training, like that for automotive and hospitality, in addition to the more traditional programs. These institutions almost always have an open-admissions process, meaning that they request a high school diploma or GED for admittance.

One of the main draws to for-profit schools, that is harder to come by in the nonprofit world, is flexibility. While nonprofit schools are designed for a homogenous population, for-profit schools almost always let students complete coursework on their own time — providing ample accommodation for working adults and families.

The relationship between profit incentives and student outcomes is a messy one to say the least. Each model’s sources of revenue have different consequences for their student population, stakeholders, and investors. Ellen Aprill, a nonprofit law expert at Loyola Law School, summarizes the difference: “A nonprofit raises money to finance its mission. A for-profit has a mission in order to make money.”

Written by Guild Education

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