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The Growing Student Debt Crisis at Career Colleges

Is there a looming student debt crisis at our nation's for-profit colleges and trade schools? The latest data from the U.S. Department of Education's National Center for Education Statistics (NCES) certainly seems to suggest so.

According to an analysis of this data by the College Board, 60 percent of bachelor's degree recipients at for-profit colleges graduate with $30,000 or more of student loan debt. That's one-and-a-half times more than graduates at higher-cost private colleges and three times more than those at public universities and state colleges. At the same time, one in five students who earn associate degrees at proprietary schools graduate with a debt load of at least $30,000. That's four times more than associate degree recipients at community colleges. [The average annual salary of associate degree recipients is around $38,000.]

The data in question comes from the 2007-08 edition of the National Postsecondary Student Aid Study (NPSAS), a nationwide survey of college students that the NCES conducts every four years. The study provides the most comprehensive data available on how students and their families pay for college.

But even this data doesn't provide a complete picture of the burdensome amount of debt proprietary college students are taking on -- as it does not include median debt levels for the millions of low-income and working-class students who drop out each year from for-profit colleges and trade schools buried in debt but without the training they need to find jobs that will help them repay their loans. Many of the largest publicly traded for-profit school chains have an extremely spotty record of graduating students.

Overall, according to the study, 92 percent of full-time students attending proprietary institutions took out loans in 2007-08 to finance their education. In comparison, two-thirds of students at private colleges, and a little more than half of those attending four-year public colleges, borrowed student loans that year. This is not entirely surprising as for-profit colleges tend to be expensive and serve the most financially needy students.

More disturbing is the extent to which proprietary school students are being asked to rely on high-cost private student loan debt to help cover their costs. In 2007-08, 43 percent of students at for-profit colleges borrowed private student loans, compared to 28 percent at private colleges, 15 percent at public four-year colleges, and 7 percent at community colleges. As we reported in April, the proportion of private loan borrowers at proprietary institutions has skyrocketed over the last five years. In 2003-04, about 15 percent of students at these schools took out private loans.

Meanwhile, the median debt load of bachelor's degree recipients at for-profit colleges in 2007-08 was $32,653. In comparison, the median debt load of students graduating from private colleges was $22,375, and from public colleges was $17,700. A quarter of these proprietary school students left with $40,000 or more in debt, compared to 22 percent at private colleges, and 10 percent at public universities

Nearly two-thirds of bachelor's degree recipients graduated from proprietary institutions that year with private loan debt, compared with 42 percent at private colleges and 28 percent at public colleges.

The news isn't much better for students who earn associate degrees at  proprietary schools. Overall, nearly all associate degree recipients at for-profit colleges graduated with student loan debt in 2007-08, and 60 percent had private loans. The median debt load for these graduates was $18,783. In comparison, only 38 percent of associate degree recipients at community colleges graduated with debt, and only 15 percent had private loans. The median debt load for those students was $7,125.

In looking at this data, we think that it is critically important to understand the population of students that for-profit colleges and trade schools serve. According to the Career College Association, 43 percent of proprietary school students are members of minority groups and almost half are the first in their families to attend college. Of those who are of traditional college age, more than 50 percent come from families with an annual income of less than $40,000.

Research shows that each of these factors correlate with a student's likelihood of defaulting on their student loans. And in fact, the Department of Education estimates that about 40 percent of federal student loans going to for-profit students ultimately end up in default. That's compared to about 12 percent for college students overall. [Unfortunately, there is no comparable data available on private loans.]

For-profit college lobbyists and leaders like to talk about the role they play in helping low-income and working-class students achieve their dreams. But by loading up financially needy students with unmanageable levels of debt, including high-interest private loans, they are actually destroying the dreams of many of their students.

The time has come for policymakers to take notice -- before this looming crisis becomes full blown.


It isn't looming...

The full blown crisis is already here. With private loans, original loan amounts can balloon out of control after graduation or dropping out of school. Saying that a student graduates with X amount of "loan debt" doesn't include the fact that the private portion of that debt can double and even triple in very short order. How many low income working class families earned the lender's lowest interest rate? Even with a co-signer, the interest rates on these loans can be higher than the worst credit cards. Also, the average student debt loads do not include the private loans taken out by their family on the student's behalf, nor do they include the debt that students accumulate living on credit cards while in school.

To get the whole picture, factor in the collection fees and costs assessed on loans taken out by students who do graduate, along with those who do not graduate.

Most of these private loans would never have been made in the first place were it not for the fact that Congress has stripped private student loans of all consumer protections, including the ability to discharge private loans in bankruptcy.

This is what a crisis free of moral hazard looks like, the same as the subprime mortgage crisis. Lenders are insulated from risk and predatory lenders like Sallie Mae are allowed to operate unrestrained.

So what's your solution?

You condemn for-profit education with a broad brush, but you propose no solution.

The for-profit industry only thrives because traditional higher education is not meeting the needs of most of the students that choose for-profit higher education opportunities.

And outside of student loan debt, the results (persistence, graduation, etc) from the traditional higher education community aren't much better, and in many cases they are worse.

Would you support an increase in federal loan limits to reduce the need for private loans?

What solution would you propose or would you rather sit in your ivory tower and throw bombs?


The problem is too much debt--not just private loans, but Title IV loans too--on students that are in many cases getting limited value added from the educational experience. As the rules and subsidized loan programs stand now, we incentivise schools (particularly those with a profit motive) to enroll only, whether or not the student has a good ability to benefit.

You say, "the for-profit industry only thrives because traditional higher education is not meeting the needs of most of the students that choose for-profit higher education opportunities." For sure, that is the for-profit school's party line, so often proclaimed by its officers and lobbyists...but the real reason why the for-profit industry thrives is because it enrolls so aggressively. Taking on an admissions counselor at a proprietary school will likely remind you of when you last shopped for a used car. T

These schools have enjoyed the "Safe Harbor" provisions implemented in 2002 by the Department of Education and have financially rewarded their most aggressive admissions officers, their closers. It's not student oriented admissions advice/counciling that keeps revenues rolling and shareholders happy; it's hard sales! There is little to disuade these schools from pushing all comers into classes and debt. Not every person is appropriate for every course offering. A particular education has a discreet value for each individual and may not be of any value (or of less value than debt taken on)for a vast majority of candidates.

Until we reward and penalize schools for outcomes--improved-pay job placements, cumulative lifetime default rates, etc--and not just for aggressive enrolling, the student loan crises will continue to grow and wreck young lives.

Growing Student Debt Crisis

One of the factors causing proprietary students to borrow more than "traditional" students is the fact that most, if not all, states deny state aid to students attending proprietary schools. In the state of Texas, where I live and attended school, traditional (4-year state and private/non-profit) schools have access to TEG, TPEG, and several other grant programs. The federal and state aid count towards the school's "cost of attendance" (COA), a number which, by federal regulation, schools cannot exceed when awarding aid. Addtionally, schools are required by federal regulation to determine eligibility for, and award, grant aid before considering a student's eligibility for loans.

Because proprietary schools do not have access to state grants, there is a wider gap between the COA and the federal grants awarded. For many of these students, loans are the only means by which they can cover this gap.

I believe that states should be pressured by the organizations representing proprietary schools to allow these schools access to the same state grant aid that the traditional colleges have. Not every student is "college material," and for those students, proprietary schools are a great alternative for training...IF they could afford it.

My two cents' worth! :-)

Education About Debt

I believe that the solution is to educate students about student loan debt prior to loans being taken out. Most schools, private, public, and for-profit do not offer real education to students about their potential debt. Student loan paperwork is complicated and full of hard to understand lingo and fine print. Many students, especially those that are in a bad financial situation to begin with, look at student loan money as easy money and they take out the maximun so that they can live off of it or use it for non-educational expenses without any real understanding of what it will mean to them in the future. I think that all schools need to step up to the plate with debt education!

Good idea....

...and that counseling needs to start in high school where it should be a graduation requirement to complete a financial education class with the website studentloanjustice.org as required reading.

Sound extreme? Not when you consider the thousands upon thousands of young lives that have been ruined by taking on too much college debt. Most student loans are arranged before a student even sets foot on their college campus. By the time a college has face-to-face contact with a student, the student is probably already on the hook for at least one private non-certified loan, which is the deadliest form that a student loan can take. By marketing directly to students and their families, these loans are intentially designed to sneak right by the college financial aid office, circumventing any safeguards the school may have in place.

Self-sustaining college cost centers

Costs always rise, period. I used to buy my father cigarettes for 23¢ in the 1970's, not that long ago. Houses were $25,000.00 as well. Cars were $6,500.00 for a really good one. Costs always rise. What needs to be addressed is how to change the educational paradigm to one that is more self-sustaining. Give a man a fish or teach him how to fish. It is as simple as that.
The old model of raise tuition, endowments, and fund raising just isn't enough anymore. Colleges have to adopt to a new model. One that is coherent with the user/student base. The college textbook industry is feeling the same pinch. Technology is changing the process. Some are adapting to the change and others are not. Those that had the foresight to see what was happening made plans. Those that didn't well...didn't. The famous words of the "computer executive..."why would anyone want a computer in their home?" Or sound in movies is just a fad.
Times are changing and college business models need to change with the times. There is a new, new educational paradigm being put in place. Please read my blog to see what I mean. I have been an academic for 23 years and before that i was in the educational publishing industry. So I know both sides of the fence.
We are entering a new, new economy just like the Industrial Revolution but this is simply the Digital Revolution. Are you selling bits or atoms? Please read my blog and leave a comment.