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What is the difference between a profit and non-profit university/college?

I have heard both terms but don't understand the significance behind them. I know that some scholarships only apply to schools if they are either profit or non-profit but I still don't understand why. Why is there such a difference? college university higher-education nonprofits profit

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Matt’s Answer

It's a great question! Many major colleges and universities such as Harvard, Princeton, State Universities and Community Colleges are non-for-profit. This means that should the college have revnue that exceeds expenses (a profit), it has to be reinvested into the school (often times in the form of scholarships). Basically they do not have owners or stakeholders who make money from the schools success. For-profit colleges are the opposite, they are businesses the same as Starbucks, Walmart, etc. Like those businesses, they have owner, share holders,etc., who invest to earn profit.

The government over the last few years has cracked down on many for profit school as they feel that like any company, their priority is the bottom line, not the education.


In my experience the biggest thing to be careful of is schools with National accredidation, (mostly for profit schools) - as often credits from those schools WILL NOT TRANSFER. Generally, Regionally accredited schools credits do transfer.


If you have furthe questions, please feel free to reach out. AND, GOOD LUCK!

Thank you so much for the amazing clarification Matt! This helped a bunch! Nada D.
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Jaron’s Answer

Dear Nada:


I am glad that you asked such an important question. The major difference between for-profit and non-profit college is how the school's money is managed. For-profit college, in addition to providing an education to its students, must also have money left over for its shareholders who have invested in the school. That leftover money is called profit. A non-profit college is primarily focused on providing the best education experience possible. If a non-profit college has extra money, it is used to support the college's services in some way. While they have a governing board to guide their operations, they do not need to ensure that they make a profit on their operations.


One thing to keep in mind is the students at for-profit school tend to take our more debt than students at public and private non-profit schools. Here is an article from the Brookings Institution discussing this issue: https://www.brookings.edu/blog/brown-center-chalkboard/2016/06/23/the-for-profit-student-debt-dilemma/.

Thank you for the great explanation Jaron! Nada D.
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Ollie’s Answer

Beware. beware. beware. For your financial safety, keep this in mind: In the USA, people who lend money to students are dangerous predators, and you are their lawful prey. You can get a great education. But you have to be careful.


Almost all reputable accredited institutions of higher learning are run as not-for-profit organizations. That is, they are registered educational charities in the USA under internal revenue service regulation 501(c)(3).


Now, "not for profit" doesn't mean they are prohibited from bringing in more money than they spend in any given year. It does mean they can solicit money from donors to help cover the cost of YOUR education, and the donors get a tax break. They don't have to pay income tax on that money. But they must reinvest it; they can't pay dividends to shareholders. It also usually means their buildings are exempt from real estate tax, which reduces their costs. Those are good things for you the student.


In the aftermath of the US wars of the 1990s and 2000s, the US veterans' administration provided funds to former service members to pay for school. Quite a few entrepreneurs started for-profit colleges to get some those funds. Some of those entrepreneurs were honest, and others were not (look up Corinthian Colleges).


Be VERY careful with for-profit colleges -- actually with any educational institution.


-- Are they accredited by a reputable accreditation agency? Find out who accredits a well-known college in your area and make sure the college you're considering is accredited by the same agency.
-- Ask their graduation rate in the program you'll be in. Do most students finish the program, or not? Keep in mind that you still have to pay your loans if you don't graduate.

-- Look at the course catalog, not just the view book. What courses do they offer? Who teaches them? What is the class size?
-- You can often visit the library and ask for the syllabus for a past year for a course you're interested in taking. Do that. It will give you an idea of how solid the curriculum is.


A lot of for-profit colleges offer "hook" scholarships. You have to keep your grades at a certain level to keep receiving the scholarship after your first semester or first year, and if you don't the scholarship vanishes. It is impossible to keep your grades at that level because the teachers have an incentive to make sure you don't keep getting the scholarship. But once you've spent time at the institution, they've got you hooked.

Thank you for the great advice Ollie! It was very helpful! Nada D.
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Gary’s Answer

Hi,
Very good question...for profit colleges/schools are usually private and run like businesses...while they can be good schools and nothing is wrong with for profit institutions, it is important to know that they are in business to make money and can be more expensive than not for profit schools (NFPS). NFPS's are community colleges, state universities, etc...they are typically run by States or other organizations and boards that are typically not in business to make money but provide education for the areas they serve.
Good luck.

Thanks for the clarification Gary! Nada D.
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