I can buy that for-profit universities are taking advantage of the fact that student loans (now only issued publicly, I believe — all my debt was issued by the government) cannot be cleared through bankruptcy. It is a good guarantee that your income won’t suffer from a sudden inability to pay from your clients. But, here the problem with government policy, not for-profit universities.
However, I don’t buy the argument that for-profit universities necessarily deliver an education of lesser quality. They might award the student with a degree that is worth less, but this is not the same as a bad education. I don’t think it’s controversial that the weight of some school’s degrees don’t correlate with the quality of learning, and this is evident in that while a degree from Harvard might be preferred to a degree from San Diego State University, I don’t think the (average) student from the latter necessarily knows less or is less prepared for any given job. So, when a degree holder from a for-profit university finds that the paper doesn’t hold the same weight as the equivalent paper from UCSD, it’s not because of the quality of the education (the employer probably couldn’t tell you the difference) but because of how people perceive the different institutions.
And if the “exploitation” is so bad, I wonder why these universities’ clientele aren’t aware of it. Or, why do they choose to be “exploited” rather than not pursue higher education at all? Maybe many students make mistakes, but it’s hard for me to believe that there isn’t a good reason for so many people to opt to pay the high prices of for-profit colleges. I know quite a few people who have chosen to go down this path, and they don’t seem to fit Stiglitz’ description of the “exploited.”