According to a US Department of Education report, mentioned in a New York Times editorial, of the thousands of for-profit programs the department analyzed, “an astonishing 72 percent produced graduates who, on average, earned less than a high school dropout who worked full time.”
That is stunning.
These schools give people “degrees” in assorted careers, and they’re nothing new. What is new, however, is the amount of money these schools are costing taxpayers, stemming from defaults on federally guaranteed student loans.
I’ve seen ads for a bunch of for-profits on buses. Just this morning, I saw an ad for Fortis on a bus. (That’s a stock photo, by the way, not a Fortis graduate. I’ve seen that same guy, dressed like a surgeon, in another ad for a different company. No connection between Fortis and the charges in this story is implied.)
Buses, of course, are typically ridden by poor people, adults or veterans who can’t even afford a car—or can’t drive or get a license for some other reason. That’s the market for the for-profit college and vocational school business.
With ads that promise successful careers in areas frequented by poor people, for-profits lure prospective students. Based on the data, they’ve been successful: about 13 percent of US college students are enrolled at a for-profit vocational school.
Connecting to a website for one of these schools will take you, within just a few steps, to a Free Application for Federal Student Aid. A great deal of the revenue generated by these schools, sometimes as high as 90 percent, comes from the federal government, and that all starts with students filling out the FAFSA.
Unfortunately, as the US DOE found out, many students who graduate from these schools don’t make enough money to pay back their student loans. New rules being proposed by the Obama administration would seek to deny federal loans to students at schools that force students to run up debt while giving them useless credentials, and they’re a good start.
But if the administration hopes to get some bang for its buck, they need to take a stronger stand. For-profit or “vocational” colleges get about 31 percent of all federal loans, which is disproportionate to the number of students. On top of that, about half of all student loan defaults in the country are on loans that originated in for-profit schools. The problem is that these schools can’t deliver on the promises they’re making students.
“Too many of these programs fail to provide students with the training they need—at the taxpayers’ expense and at the cost of these students’ futures,” USA Today quoted Education Secretary Arne Duncan as saying in a call with reporters to preview the new rules last month. “That’s why we are taking action to protect Americans from poor performing career programs that burden students with debt and leave them few opportunities to succeed.”
The new rules:
- Graduates’ debt load, on average, can’t exceed 20% of their discretionary earnings or 8% of their total earnings
- Former students’ loan default rate can’t exceed 30%
If schools fail the debt load-to-earnings rule in two of the most recent three consecutive years or fail or come close to failing it in four consecutive years, they could be denied federal student aid. If the loan default test fails for three consecutive years, the school could also be disqualified.
Of course, the schools see this as discriminatory. No such test is applied to state universities or private colleges, according to a statement about the new rules released by the Association of Private Sector Colleges and Universities. And if it were so applied, the debt-to-earnings test alone would fail in many programs, such as a journalism degree from Northwestern, a law degree from George Washington, or a bachelor’s degree in social work from Virginia Commonwealth.
OK, but the student loan default rate at Northwestern went from 0.4 percent in 2006 to 1.3 percent in 2010. That’s a long way from a 30-percent default rate seen at many for-profits and a much lower burden on US taxpayers than many for-profits cause.