The For-Profit College Trap

10/29/2016 02:45 pm ET

When ITT colleges closed, no one was cheering. Confusion, logistical issues, and uncertain futures marred the for-profit chain’s collapse. Students only learned of the closure as the school year was about to begin. But the suddenness of the announcement wasn’t the only problem; questions quickly mounted about transferring credits and forgiving loan debt. To advise ITT students, the Education Department created a website, which was nearly as clunky as the advice itself. An application for student loan debt forgiveness was posted, but this option is not available for ITT students who wish to finish their programs. These students will have to apply to transfer –– and the extent to which their ITT credits will extend to a new school is up to that school entirely. Predictably enough, the situation left students scrambling to choose a least bad option, without enough guidance in the process.

Nobody would question that ITT’s closure was managed disastrously. But the difficulties ITT students are currently facing obscure a more important fact: ITT’s closure was probably a very good thing. Most for-profit colleges survive by charging students exorbitant tuitions for a mediocre education. Graduates (and drop-outs) of for-profit programs are saddled with debt. These crippling debts far exceed the costs of comparable programs at community colleges. And worst of all, for-profit colleges enrich their coffers by preying on veterans. These factors paint a grim picture of an exploitive and ruthless industry which survives at the expense of students aspiring to pull ahead. If there’s anything to be learned from a study of for-profit colleges, it’s that ITT’s closure is not enough.

On the face of it, for-profit colleges sound deceptively benign. For-profit colleges pitch themselves as ideal for older students with inflexible schedules. Their entire appeal is in keeping with the American dream –– disadvantaged students too old for conventional schools get the opportunity to advance their careers, and, with help from the federal government, do so at a supposedly manageable cost.

But for-profit colleges are a scam. First, their graduation rates are abysmal. The National Center for Education Statistics put six-year attainment of a degree at 44.4% for for-profit students. Hardly a brag-worthy statistic. For students looking for a bachelor’s degree at for-profit institutions, the graduation rate becomes more dismal yet, at 27% in 2008. The Center for Analysis of Postsecondary Education and Employment (CAPSEE) shows that low graduation rates aren’t the only problem. For-profit colleges leave the few students who do graduate in poor standing, especially those pursuing bachelor’s degrees. Compared to students at nonselective public and non-profit institutions, for-profit students with bachelor’s degrees had higher rates of unemployment and lower pay, according to CAPSEE. In 2013, most for-profit chains (around 55%) were failing the Department of Education’s discretionary earnings standards, used to measure students’ post-education employment success. Students at for-profits also were more likely to feel that their education wasn’t worth it.

That’s probably because a for-profit bachelor’s degree isn’t worth it. Low earnings, unemployment, and dismal graduation rates aren’t even the full story. For-profit colleges also give their students one final graduation gift: debt. And lots of it. Everyone’s heard of the student loan debt crisis; too many graduates shoulder mountains of debt, largely courtesy of Uncle Sam. High interest rates have transformed these loans into a monstrous curse that detracts from the economic stability of students for decades after graduation. What comes as a surprise to most is the disproportionate role for-profit institutions play in this crisis. By the recession, “non-traditional borrowers” (read students at for-profit institutions and in two year programs) came to account for half of all student loans. This in spite of the fact that for-profit students were only 9% of all students in 2011. And since for-profit students tend to be poorer and are more likely to drop out, added debt is hardly welcome. Hence a 21% default rate for these “non-traditional borrowers.” For reference, about 8% of conventional undergraduates with student loans will default.

Debt and low graduation rates were cited in a recent study, which found that for-profit students earn less five years after leaving their programs than they did before. If for-profit institutions were honest, this could lead to interesting advertising campaigns: For-Profit U, First in Bankruptcy, Last in US News and World Report.

But if you thought for-profit colleges couldn’t get any worse, they do. For-profit institutions don’t just impart debt upon demographics least able to cope with it (i.e., poor non-graduates from low income families). They particularly love to prey upon veterans. If the notion of scheming corporations going after soldiers and the poor to maximize their profits sounds cartoonishly villainous, just remember that it’s very real.

The so-called “90/10” rule incentivizes the targeting of soldiers. The 90/10 rule is a funding regulation that supposedly prevents for-profit institutions from receiving more than 90% of their revenue from most forms of student aid. The problem? Student loans taken out by veterans are counted as private. Which gives for-profit colleges a huge incentive to recruit as many soldiers as they possibly can. All this leaves us with a situation in which veterans are pressured to attend terrible programs at great expense. Many don’t graduate; many don’t see earnings increases; many default on their loans. And don’t forget that taxpayers are funding most of this scheme.

For-profit colleges exist because federal loans make them seem affordable. They thrive because veterans have become their favorite target. This must stop. The Obama Administration enacted a few admirable first steps in cracking down on lousy institutions: these include the administration’s college scorecard and the creation of a task force. Most notably, new guidelines allow the government to cut off federal aid to schools which fail to sufficiently improve student earnings (this is what led to ITT’s bankruptcy).

But these steps, though laudable, are not enough. The fact remains that the federal government must not fund predatory programs, especially when those programs go after the poor and those who served their country. For-profit bachelor’s programs shouldn’t be the beneficiaries of federal aid at all. And particularly terrible institutions (like ITT) shouldn’t get a single penny from the American people. We don’t need the weight of their guilt on our conscience. And we certainly don’t need this outsize debt on our ledger.

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