46 Percent Of Federal Loans Paid To For-Profit Institutions Will Go Into Default

A whopping 46.3 percent of federal loans distributed to students at for-profit colleges in 2008 would go into default, according to new Education Department data.

This figure is significantly larger than the rate of default on student loans overall, which in 2008 amounted to 15.8 percent.

The staggering percentage of defaulted loans at proprietary institutions may garner support for federal efforts to regulate such colleges and provide a boost for the DoE's proposed "gainful employment" rule, which would screen for-profit institutions according to their students' ability to repay loans. Essentially, the rule would test the likelihood that students will graduate and then become gainfully employed.

If approved, "gainful employment" would mandate a two-part test for colleges, including an analysis of their students' debt to income ratio and a determination of whether those students are paying down principals on loans.

Colleges that fail the tests will not be allowed to receive tuition in the form of federal aid -- which is the source of up to 90 percent of most proprietary institutions' current revenue.

In attempts to thwart the rule, for-profit institutions have launched a lobbying campaign and argued that "gainful employment" will limit access to education for low-earning minorities. Others have argued that the rule implies that an education's value can be measured by the amount of money students earn after graduation.

But as things stand, for-profit schools have close ties with the government, leaving some to question the legitimacy of possible reform. Mother Jones has more:

The thing that's confusing about these for-profit schools is that they're actually almost fully supported by the government. Most of them receive 75% or more of their revenue in federal loan funding. And at The University of Phoenix's parent company, Apollo Group, federal dollars constitute more than 90% of revenue.

But The Department of Education is trying to crack down on the way these schools depend on federal money, by creating regulations that would mandate that for-profit college graduates earn enough to repay their federal loans. If not, DoE could withhold funding. Hopefully that happens soon. If these schools aren't helping their graduates earn more money after graduation, why do they exist?

What do you think should be done about for-profit colleges? Weigh in below.

Comments

[sarahinez]

11:01 PM on 12/27/2010

For-profit college recruiters are the educational equivalents of mortgage brokers who, in order to gain a bonus, 1) guided would-be home buyers to "creative" lending programs when they could have qualified for a standard loan OR 2) gave loans to people who had no reasonable chance of being able to pay them back. Some would-be students aren't adequately prepared for college, and admitting them, in an effort to "even the playing field," is as misguided as some home loans.

[lucyfurr]

01:51 PM on 12/27/2010

Most of these for-profit students are highly coerced and manipulated to enroll in these "screwniversities" through repeated, badgering phone calls by a multitude of for-profit schools after they fill out an internet "request for information." For-profits prey on the desperate and uninformed emotions of people trying to get ahead in the world by pressuring them to make quick decisions.....eerily similar to the mortgage crisis. The best way to put them out of business....tell EVERYONE you know to never EVER fill out an internet request for information about education. Once word gets around these schools will have no one to call.

[Karen Hamm]

07:52 PM on 12/26/2010

In addition, they need to regulate these "For Profit" online colleges. I have met people who have/are working on a degree from some of these schools. They can't put a correct sentence together.

I am not suggesting they are all bad, my gut tells me if they are not associated with a brick and mortar university, their standards are lacking.

[marknez21]

02:17 PM on 12/26/2010

College debt crisis is worse than housing crisis. Many college gradate (More than 50%) have loans over $70,000. Can they pay when they are unemployed and if they are employed their wages are $8 per hour.
Many these graduate have degrees in Journalism , Art, Security,. ...and no market for these degree.
This is very important, and government must bail out these young people not AIG and BIG FATS (Bank of America, JP Morgan Chase,....). I would like lawmaker pass a law, and forgive loans of graduates that make less than $20000 per year, or have a program for payment . For instance STUDENT LOAN PAYMENT per month be based on a percentage of student earning.

[marknez21]

02:11 PM on 12/26/2010

college debt crisis is worse then housing crisis. Many college gradate (More than 50%) have loans over $70,000. Can they pay when they are unemployed and if they are employed their wages are $8 per hour.
Many these graduate have degrees in Journalism, Art, Security,....and no market for these degree.

[Craigie7]

09:14 AM on 12/26/2010

Similarly, sociology/art history/etc. have lower student loan default rates than culinary/medical assistant/business/law enforcement/computer technology/etc. Again, social capital is just as important, or more important, than what is specifically studied. On the other hand, that doesn't mean that we shouldn't try to make sure that certificate programs aimed at getting someone quickly into a specific job/career are achieving that goal and are not simply leaving former students with debt they cannot repay. This is what the gainful employment regulation is all about.

Most importantly, for those who say they believe the national government should be in charge of what individual students are studying, is this really a role for the national government? The proposals to base schools' eligibility for federal student aid in part upon how former students are doing in repaying their federal loans seem to be fine because they are tied specifically (and Constitutionally) to the eligibility for federal aid. However, telling individual students what to study is not reasonable unless you dictate this both to average students as well as the wealthy who are not receiving any Pell Grants or federal student loans. And, if anyone should be doing this, isn't it the states, who have quietly transitioned from serving as a key member in the oversight triad to being merely passive recipients of federal largesse that play no role in the integrity of postsecondary education whatsoever?

[Fenrisulfr]

09:07 PM on 12/26/2010

While I cosign your sentiments regarding the harm of regulation, this nonsense about social capital is laughable.

Just do away with the federal aid and get government out of education; problem solved. Where in the Constitution does it authorise the Dept. of Education?

[Craigie7]

04:48 AM on 01/02/2011

Huh? Your ignorance is laughable. Sociology and literature majors from "top tier" colleges aren't making millions because of what they studied, it is because of their social capital, the contacts they and their parents have made, and so on.

There was some regulation, oversight and enforcement under GHW Bush, but only due to pressure from Senator Nunn's commission and the Congress. Early in the Clinton Administration it went back to "business as usual," and lack of regulation only got worse during W's Administration.

If you want no federal regulation, then you should have no federal funding channeled through these schools. Quid pro quo. "My choice, my education"? Hogwash. Then let the free market reign, and see how many employers want to pay out of their own pocket to send students to these schools, and see how many students and families are willing to "dig deep" and find $50,000 per year for culinary arts.

The Dept. of Educ. is authorized through the Constitution's commerce clause, and federal higher ed funding predates the agency's creation by more than a century. Major involvement began during the Cold War, right after Sputnik (1957). Even if you get rid of the agency, the student aid programs will simply be moved to another agency. By the way, the Constitution does not authorize a permanent standing army, and most of the founding fathers maintained this belief throughout their lives. Yet, since the Cold War we have had an enormous permanent military establishment.

[Craigie7]

09:04 AM on 12/26/2010

The data show that sociology/art history/etc. are higher-payback programs than culinary/medical assistant/business/law enforcement/computer technology/etc. Employers know that most of what their employees do were not specifically taught in a particular class and that liberal arts students know how to learn things on the job. Sure, you can find examples of high-cost sixth-tier nonprofit institutions where the student is unlikely to be able to find a job to repay loans obtained to study a particular topic. The other side that people are forgetting is personal relationships and, more importantly, social capital, which is more critical than what specifically the student has studied. Most likely an NYU art history major or a Harvard sociology major is going to be your boss someday, even if you majored in something "practical." Even in the sixth-tier nonprofit example, what if one of that school's grads owns the biggest business in your county and likes to hire from that school? The area of study is given too much focus and cannot be compared in all cases to career-specific training programs -- whether at for-profit or public institutions. This is why gainful employment applies to some programs of study but not others. A certificate program designed to lead directly to a specific job needs to be able to do so, at least for most of the students and families who are ponying up the tuition and going into debt to study in those programs.

[1donewrong]

09:36 PM on 12/25/2010

All federal loans should be stopped for programs that don't lead to jobs whether for profit or non profit. Non profits that offer degrees in sociology, psychology, art history, womens and black studies should be ended

[Mahi Joe]

10:00 PM on 12/25/2010

So in other words, we all should attend Hamburger U.

[1donewrong]

10:09 PM on 12/25/2010

the degrees I pointed out pay less than mcdonald's

[mr mitchell]

04:57 AM on 12/27/2010

My lovely neice was a fine arts major at UT and has found paying art related jobs since she graduated. She is currently applying to Grad schools in fine art and plans to make her artistic talents the basis for her life's carreer. Her boyfriend, who never graduated is a succseeful gallery owner. We are all so proud of her.

[Said One]

07:42 PM on 12/24/2010

So in other words 53.7 percent go to other universities which may include rated universities. These students in the 53.7 percent division may be met by a philosophy or religious studies major giving career guidance, on arrival and find themselves without a job once they exit university since they were duped into taking these courses.
 
All tertiary institutions need to be regulated - for profit and not for profit.

[Craigie7]

10:47 PM on 12/24/2010

No, it doesn't say anything about that. It means that, over the projected 25yr life of the cohort, 53.7 of the dollars originated through proprietary schools will have never tasted default. And this doesn't say anything about collections -- most defaulted dollars will be collected eventually.

In other words, if 23% of households in Utah has an iPod, that doesn't mean that 77% of the people in the other 49 states has an iPod. One has nothing to do with the other, except the "national" average will be weighted by the "influence" of Utah. If Utah has half the households in the USA, then this will strongly influence the USA national average. As the % of student loan dollars loaned through proprietary schools has grown, there is more of an influence of the overall average, whereas, not too long ago, only 10 or 12% of the loan dollars went through proprietaries.

[Corvid]

08:05 AM on 12/24/2010

How about this as a rule? If any school accepts a student into a program that has any kind of career-track promise, and that student graduates and doesn't find a job in that field that pays within the wage range that prevailed in the field when he enrolled, then his tuition is refunded.

This would be fair all around.

Separately, failing that, why don't we adopt the successful loan program they have in Britain? After students graduate, they're not obligated to repay anything on their college loan until they're making the equivalent of about $30,000 a year. And even then, they repay at a maximum rate of 9 percent of the amount in income that's in excess of that $30,000.

[Fenrisulfr]

06:00 AM on 12/24/2010

This discrepancy on the default rate may be explained by the demographics. The student at uPhoenix et. al. is more likely to have a house, family expenses, etc. Between loans, the car note, and the mortgage, the loans go out the window each time.

[BIGDO]

05:10 AM on 12/24/2010

college debt crisis is fixin to be the housing crisis part 2...

[Independent1969]

12:01 AM on 12/24/2010

Is there really such a thing as a non-for-profit college? Come on.

[thatboyzachary]

01:38 PM on 12/24/2010

Look up the difference between private and for-profit. Its a chasm.

[Independent1969]

10:50 AM on 12/27/2010

The difference is really only what forms they file in order to get tax-payer supplied cash to keep the money flowing in.

[American hobo]

10:31 PM on 12/23/2010

The cost of your education will be $150,000.00. After graduation you can expect to earn $45,000.00 a year as a 4th grade history teacher. Now for $45,000.00 we can put you through our business management college where you can earn $150,000.00 a week screwing the teachers unions.

[MG Metiva]

09:56 PM on 12/23/2010

It's a nightmare of the x to the infinite power.