The rise (and fall?) of for-profit colleges

Children, Education, Family/Kids, Politics, Taxes

In the last article, we looked at how college student demographics have changed as more mature students enroll in increasing numbers. For-profit colleges, also known as proprietary colleges, have also grown as so-called “nontraditional” students look for schools that fit their lifestyles. The rise in the popularity of these institutions over the last few decades has been meteoric, but will the government’s proposed guidelines be the end of it?

Almost 1 in 10 students attends a for-profit school

For-profit schools are what they sound like: schools run as businesses to make a profit. They’re the kind of school you see advertised on TV, like Miller-Motte Technical College or ITT Technical Institute, and they are usually vocational, or focused on training students for particular jobs.

While the total number of students in college in 2010 was about 2.5 times what it was in 1970, the number attending for-profit schools increased over a hundredfold during that same time span. To put it another way, in 1970, approximately one student in 500 attended a for-profit school; in 2010, that ratio rose to around one in 10.

Data from the National Center for Education Statistics

Flexible schedules, high student loan default

What makes these schools so popular? For one, most offer flexible hours and job-specific training, features many adult students look for in a school. They also have a lower barrier to entry, often requiring nothing more than a GED certificate and tuition check to gain admission. This allows adults with noncompetitive high school GPAs and SAT scores to continue their education.

But not everyone loves them. Tuition is high, graduation rates are relatively low, and the quality of some programs is questionable. The federal government has taken aim at for-profit schools for their high student loan debt, which is the highest among all types of institutions. Although for-profit schools account for only 13 percent of college students, they are responsible for 31 percent of student loan debt.

They also have the highest student loan default rate. The most recent data on federal student loan cohort default rates is bleak for students at these schools, where the three-year default rate is 21.8 percent. Compare this to a three-year default rate of 13 percent for public schools and 8.2 percent for private nonprofit colleges.

Department of Education guidelines to hold schools accountable

The government plans to address the student loan debt and default problem by holding for-profit schools accountable. In March, the Department of Education released proposed guidelines that would require schools offering certain kinds of programs to report relevant data. These “gainful employment” regulations would apply only to programs intended to train students for specific occupations, so all programs at for-profit schools would be included, as would some certificate programs at other types of institutions.

The Department of Education would require the programs to collect data on graduation and completion rates, job placement rates, student loan default rates and average student debt load. Schools would be required to display this information on their websites and in promotional materials.

The thinking is that the government could stop giving federal student loan money to underperforming schools that show high student loan default rates, high student loan debt and low post-graduation job placement rates. Taxpayer money would no longer be used to fund ineffective schools, and students would not take on federal student loan debt only to find they have bad job prospects after graduation.

The APSCU Fights Back

The Association of Private Sector Colleges and Universities wants to prevent the guidelines from being implemented. They argued that under the proposed guidelines, 13 to 22 percent of schools would be affected, a figure significantly higher than the 5 percent the government had estimated. The APSCU believes that 7.5 million students would be denied access over 10 years as a result. They also argue that the report does not take into account financial issues affecting students’ ability to get jobs or repay loans that have nothing to do with the quality of their education.

If the measures are adopted as is, it’s likely they will be challenged. Indeed, the APSCU was already the plaintiff in a 2012 case over the same issue. In Association of Private Sector Colleges and Universities v. Arne Duncan, a federal judge ruled that the Department of Education’s cutoff for determining a school’s funding eligibility was arbitrary, but the ruling did uphold the department’s right to develop and enforce such guidelines.

What’s next for proprietary schools?

Students considering enrolling in any school should search for data on graduation rates, job placement rates, student loan debt and student loan default rates. Many schools already post this information online. If a school is unwilling to share this information, ask why. If nearby schools do not have satisfactory statistics, look into online programs.

The Department of Education must base its guidelines on hard numbers, not arbitrary cutoffs, or it will likely face challenges again. The government says it is offering for-profit schools an “opportunity to improve.” If they don’t, we might see the decline and fall of the proprietary school.

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