for-profit colleges

Beyond the fact that they’re almost all open-admission institutions, there are more differences than similarities between community colleges and for-profit colleges, including when it comes to student debt. New data released by the U.S. Department of Education in conjunction with the updated College Scorecard show just how different. Three comparisons are below.

  1. The vast majority of schools where debt problems are most severe are for-profit collegesInside Higher Ed’s recent analysis looked at schools where the majority of students borrows, and a minority of students is paying down their debt seven years into repayment. Our additional analysis found that, of the 257 schools that meet those criteria, 227 (88%) are for-profit colleges. Only two schools (fewer than 1%) are community colleges.
  1. Community college borrowers are much more likely to be paying down their debt. Three years after entering repayment, federal loan borrowers who attended community colleges were much more likely than for-profit college borrowers to have begun paying down their balance. Most strikingly, the available data on repayment rates by completion status show that borrowers who completed their studies at a for-profit college were about as likely to be paying down their loans as students who withdrew from a community college (53 and 51 percent, respectively). 
  1. Many more students at for-profit colleges are neither paying down their loans nor in default. While available default and repayment rates have some differences (most notably, default rates include graduate students and repayment rates do not), they are comparable enough to identify trends and outliers. Comparing default rates and repayment rates tells you how many students have avoided default but still aren’t faring well: perhaps they’re delinquent, in forbearance or deferment, or in a repayment plan where their balance is growing rather than shrinking. Some for-profit colleges have admitted to what the Department, in its documentation of the Scorecard data, described as “gaming behavior that may push students toward forbearance and deferments, meaning they stay out of default but don’t make progress on repaying their loans and may continue to accrue interest.”

    ​Across all schools, this missing middle group – those neither in default nor paying down their loans – composes on average about 21 percent of borrowers three years into repayment. But at 483 schools, 40 percent or more of borrowers are neither in default nor paying down principal. The vast majority of these schools (79%) is for-profit colleges, including Kaplan University and several Kaplan Colleges and Kaplan Career Institutes, which previously shared a parent company that hired private investigators to track down former students to put them in forbearance. It includes several campuses of Education Management Corporation-owned schools Argosy, Brown Mackie, and the Art Institutes. It includes Harris School of Business, Drake College of Business, and Westwood College. This missing middle group also makes up more than half of all borrowers at several Everest College campuses that remain open for business. While Everest schools are now under new corporate management, the former CEO had this to say about managing cohort default rates during a 2011 investor call: “Forbearance, as you well know, is a pretty easy, just a question you have to agree to it and you’re on your way [sic].”

    ​Forbearance abuse for the purpose of evading accountability is well documented in the for-profit college sector, but has not been documented at other types of institutions. Just 6% of the schools where 40 percent or more of borrowers are neither in default nor paying down their loans three years into repayment are community colleges. 

Any college with default and repayment problems of any scale should be focused on better enabling their students to repay their loans. But as the newly available data continue to underscore, for-profit colleges have by far the farthest to go.

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Yesterday, Corinthian Colleges abruptly closed its remaining 30 campuses in California, Arizona, Hawaii, New York, and Oregon, where 16,000 students were enrolled. While nothing can give these students back the time they spent at Corinthian, they deserve a fresh start.

The good news is that the Higher Education Act (HEA) provides for the discharge of students’ federal loans if a school closes before students finish their programs. In fact, the HEA says “the Secretary shall discharge” students’ loans, and the Education Department’s regulations specify that the Secretary will mail each borrower a discharge application and an explanation of the qualifications and procedures for obtaining a discharge.

The bad news is that the HEA does nothing similar to restore students’ eligibility for Pell Grants, which needy students can receive for no more than six academic years. Because the law doesn’t reset the clock on a student’s eligibility for Pell Grants when a school shuts down, low-income students may not be eligible for enough aid to complete a program anywhere else.

For example, the students enrolled in the pharmacy technician certificate program at Corinthian’s Everest College in West Los Angeles – which cost more than $11,000, and had a 25% job placement rate and a 35% student loan default rate – will be able to get their federal loans discharged, but they won’t get their Pell Grant eligibility restored to what it was before they enrolled at Everest. As a result, they may not have enough Pell Grant eligibility left to complete the much lower cost pharmacy tech program at the nearby community college. 

For the more than 12,000 Pell Grant recipients estimated to be enrolled at the Corinthian campuses that suddenly closed yesterday, this is an oversight needing swift correction.

How did Pell Grants get left out of the closed-school provisions? Prior to 2008, students could receive Pell Grants for as long as they were making satisfactory academic progress towards a degree or certificate. So if a school closed before a student could finish, the student didn’t need to worry about their Pell Grant eligibility running out. 

However, in 2008 Congress limited future Pell Grant eligibility to nine years.  Then, in 2011 Congress lowered this lifetime limit to six years and applied the new limit immediately and retroactively to all students, including those just a semester away from completing their degrees.

Unfortunately, Congress didn’t amend the HEA to restore students’ eligibility for Pell Grants when a school closes before they can finish. This was likely an oversight, not a conscious policy decision. As a result, the lowest income students at Corinthian campuses may not have enough Pell Grant eligibility left to complete a program at another school. 

It’s time to fix this harmful omission. In the last Congress, Representative Janice Hahn introduced the Protecting Students from Failing Institutions Act (HR 4860) to restore Pell Grant eligibility for students at campuses that close. We recommend going a step further: Pell Grant eligibility should be restored for any student who has their federal student loans discharged, either because their school closed or because of school fraud. Current and former Corinthian students deserve a true fresh start and the chance to get a meaningful degree or certificate at another school.  

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The release of the final gainful employment rule today is a step in the right direction, but the following examples of programs that meet the final standards make clear just how modest a step it is.

The draft rule released in March would have measured career education program outcomes in two ways. First, the debt burdens of program graduates who received federal aid would be compared to their later earnings. Second, students’ ability to repay their loans – including both graduates and noncompleters – would be measured through a program-level cohort default rate.

Based on the data released in conjunction with the draft rule, we identified 114 career education programs where more students default than graduate. In other words, these are programs where students receiving federal aid to attend these programs are more likely to find themselves unable to repay their debt than they are to complete the program. The particularly shocking part was that, under the draft rule, 20% of these programs passed the Department’s proposed tests, underscoring the need for the rule to be strengthened.

So, what does final rule, which eliminated the use of program-level cohort default rates, mean for those 114 programs that we called parasitic because of their consumption of resources to the detriment of students and taxpayers? It means that 15 more of them will pass the gainful employment tests (in addition to the 23 that passed the draft rule’s tests). Fully one-third (33%) of the 114 parasitic programs would now pass, giving schools no incentive to improve them.

Of the 15 newly passing programs, seven are at the University of Phoenix and include the following:

  • The associate’s degree in web page, digital/multimedia and information resources design, from which the almost 1,600 borrowers who entered repayment defaulted at a rate of 47%.
  • The associate’s degree in corrections and criminal justice, with a cohort default rate of 44% and where the number of defaulters exceeded the number of graduates by more than 3,000.
  • The associate’s degree in professional, technical, business, and scientific writing, where more than four times as many students default as graduate (316 students default vs. 70 students who complete).

For more information about the final gainful employment rule and what more should be done, see our statement here.

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In College, Inc., correspondent Martin Smith investigates the promise and explosive growth of the for-profit higher education industry. Through interviews with school executives, government officials, admissions counselors, former students and industry observers, this film explores the tension between the industry --which says it's helping an underserved student population obtain a quality education and marketable job skills -- and critics who charge the for-profits with churning out worthless degrees that leave students with a mountain of debt.

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