Higher education is commonly assumed to be an investment on one’s individual future. Learning the specifics of a trade or profession and proving them with the knowledge to know how to meet the demands. There are many for profit colleges that are preying on individuals with useless credits that will not arm them for their future. Therefore the pressure lies on the federal government to prevent student aid from being used to inflict excessive debt while providing no real future advantages. “That’s a potent threat from the government, given that for-profit schools can get as much as 90 percent of their revenue from federal student aid programs” (Reining, 2014). This would require the violators to answer to much stronger criteria.

As a method to create a solution for a problem that should never exist, new requirements are being presented. The college needs to meet the two standards, the annual loan payment for a graduate could not exceed 8 percent of the annual earnings or the discretionary earnings of 20 percent. The second condition is that the default rate for previous students cannot exceed 30 percent. “The Department of Education recently reported that, of the thousands of for-profit programs it analyzed, an astonishing 72 percent produced graduates who, on average, earned less than a high school dropout who worked full time” (Reining, 2014). Predatory schools need to have their ability to take advantage of student revoked completely.

In economics we learn about the cost & profits. The equation of this is profit=total revenue-total cost. Within any type of secondary learning situation, the ultimate goal is to obtain a higher rate of return through working, based upon the money spent on education. Businesses calculate implicit and explicit cost, and this is viable for a student as well. Explicit costs are input costs that require a company to outlay their money. Implicit costs are input costs that do not require a company to put money out. In the end, economic profit is calculated by total revenue minus total cost, including both explicit and implicit costs.

The student has a method to calculate their economic profit as well. By calculating their own investment and the total cost, and subtracting it from their own new revenue potential, this will allow them to see if their educational venture is worth the investment. When colleges are using predatory methods to rack up student loans while providing a worthless education, clearly this has no economic benefit outside of the for-profit college. There is also the accounting profit, based upon the cost minus expenses. Obviously this will yield a larger return, but it can still give a false sense of profit. Clearly there is some cost and profit consideration when choosing to pursue a high education.

Another consideration that has economic bearing, it the elasticity of demand. This is calculated as the price elasticity of demand = percentage change in quantity demand divided by the percentage change in price. If the absolute value of the elasticity term is less than one, the demand is inelastic. If the absolute value of the elasticity term is greater than one, the demand is considered elastic. And lastly, if the absolute value of the elasticity term is equal to one, the demand is unitary elastic.

Changing the prices for traditional education could force students to look to these predatory colleges to pursue an education at a lower cost than the other universities can afford. When there are more options available, the more elastic the demand will be. By the government getting involved and limiting the amount of federal money that can be used by colleges who are looking to exploit potential students, this will make the demand more elastic because it will mandate personal money to be used versus depending upon a Federal loan. This is another economic consideration that could aid in better understanding this article.