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Why the Feds Should Regulate For-Profit Colleges

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For just two more weeks, the Department of Education is seeking public input on a regulation for colleges and universities that promise gainful employment -- essentially, the ability to find a job that can pay off a graduate's student debt. The Department was right to propose a rule, but the one being considered fails to sufficiently protect students and taxpayers.

The rule affects many public and private non-profit, institutions as well as for-profit schools, but the will have the greatest effect on the latter. The for-profit college lobby, the Washington Post editorial board, and others argue that the Department shouldn't write and enforce a rule that disproportionately affects one sector of higher education, and not others (full disclosure: Young Invincibles served as a negotiator on the rule and has publicly criticized the rule for being too lenient).

But when you look at the interactive chart below, you realize that the real disproportion is how the for-profit schools serve their students.

For-profit colleges only enroll about nine percent of all college students in America, yet they cause nearly half of all student loan defaults. Borrowers who attended for profit schools default on their loans 22 percent of the time, well above the average for non-profits. For-profit student borrowers also take on higher levels of debt, with nearly a quarter of borrowers taking on more than $40,000 in debt.

For-profit institutions argue that they serve a disadvantaged population, and they're right. Over two-thirds of students at for-profit schools receive a Pell grant, the largest need-based financial aid program targeted at students from low-income families. It's also true that for-profits disproportionately serve students of color: African-Americans make up 14 percent of the total student population, but make up 29 percent of for-profit student population.

These realities about the for-profit student population are actually arguments for targeted regulation of the for-profit sector. Vulnerable students need a quality, low-cost education, without being saddled with excess debt and degrees that don't show value in the job market. More than anyone else, and these students deserve protections from institutions that don't produce a return on investment.

Taxpayers need protection as well. As the chart also shows, for-profits disproportionately rely on Pell and G.I. benefits to operate. We should invest in institutions that demonstrate results, not those that profit on the public's dime at the expense of students.

It's not that there isn't room for-profits in our higher education system. If a school succeeds in serving its students, the tax status shouldn't matter. And the Department of Education is applying the rule to all career programs - for profit and non-profit alike. But with statistics like these -- where for-profits disproportionately produce loan defaults while relying on taxpayer-funded financial aid -- it just makes sense that the worst actors in the system have the most shaping up to do. Taxpayer dollars should be serve students, not shareholders.

The Department of Education should strengthen its proposed rule by providing financial relief for students misled by promises of meaningful work only to find mountains of debt, preventing poorly performing schools from enrolling thousands of new students, and closing loopholes that leave students exposed to the industry's abuses.

Citations from chart:

1. U.S. Department of Education, National Center of Education Statistics, Digest of Education Statistics, Table 306.50, 2013. 2. The Institute for College Access & Success, "New Data Confirm Troubling Student Loan Default Problems", 2013. 3. Department of Education, 3-Year Official Default Rates, 2013. 4. College Board, Trends in Student Aid, 2009.5. U.S. Department of Education, National Center for Education Statistics, 2011-12 National Postsecondary Student Aid Study, 2012, Computation by NCES PowerStats on 5/8/2014.6. United States Government Accountability Office, Report to Congressional Questioners, VA Education Benefits, 2013. 7. Ibid. 8. U.S. Department of Education, National Center of Education Statistics, Digest of Education Statistics, Table 331.20, 2013 9. U.S. Department of Education, National Center of Education Statistics, Digest of Education Statistics, Expenses of Postsecondary Institutions, Figure 1, 2013.