A college education is practically a necessity in the 21st century. President Obama highlighted this by setting a goal to regain the world lead in college completion by 2020. More graduates with a high value, low cost education will strengthen the social and economic fabric of our country.
This is why it's a problem when a growing number of specific educational programs plunge their students headlong into unmanageable, and often unrecoverable, student debt.
Rapidly increasing student debt has serious consequences. After graduation many college graduates experience impassable financial obstacles that prevent important life decisions like buying cars and homes, and even getting married and starting a family. Borrowers who cannot repay face wage garnishment and even seizure of tax refunds and social security benefits. High debt also drives students away from social valuable careers like childcare or teaching, even if that is the career they trained for. Paying for college to accumulate unmanageable levels of debt is never good, and never a way to get ahead after graduation.
In the fall of 2010 the US Department of Education began a process of rule reform to protect the federal financial aid program from waste and fraud, and to protect students from staggeringly high debt levels. One of the rules defines what it means for programs to prepare students for gainful employment, something they are already required to do. Programs where students regularly take out huge loans that they can't repay may be cut off from federal grants and loans. The new rules were released in July of 2010 and will affect programs that are less than two years at public and non-profit schools and most programs at for-profit schools.
While the majority of college programs that must adhere to the rule are at public and non-profit private schools, for-profit colleges are fighting the rule tooth and nail to protect their profits. For-profit education programs run by the biggest education corporations receive $24 billion in taxpayer investment annually, accounting for almost 90% of their total revenues. This revenue mainly comes from federal aid, including loans that are pushed onto students.
Students at for-profit colleges borrow more and at higher levels than any other school. In 2008, 96% of students at for-profit colleges borrowed loans compared to 15% at community colleges. Those who graduated with a bachelor's degree from a for-profit college in 2008 had student debt that averaged $33,050. This volume of debt is so unmanageable that some for-profit colleges have up to 30% of their borrowers in default. For-profits have piled so much debt on their graduates that students now represent 43% of all federal student loan defaults even though they make up about 10% of college students.
No student wants to graduate with unmanageable debt. The Department's new rules will rein in the most abusive and over-priced programs that drive students into debt. By eliminating the most toxic education programs, students will be able to choose from more cost effective and higher quality programs.