Just how well do students who attend five of the largest, most well-known for-profit schools in the U.S. do when it comes to repaying their loans? The Hechinger Report decided to take a closer look following the release of new federal rules meant to police institutions that critics contend take advantage of poor and unprepared students.
Under the new rules, which go into effect in 2015, if alumni aren’t able to obtain “gainful employment”—jobs that allow them to repay their student loans—institutions can lose their federal aid. To ensure that schools comply, the U.S. Department of Education will track whether students get jobs with salaries high enough to repay their loans.
For-profits have fought the new rules vigorously, arguing that they fill a necessary role by educating students whom other schools won’t take or don’t have room for.
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Which institutions meet the bar won’t be known for some time; institutions are required to start collecting relevant data on July 1. But there are other numbers available now that offer a window into how some of the biggest for-profit players may fare.
Starting next month, all institutions of higher education will have to prove that their programs meet one of three criteria: 1) at least 35 percent of former students are repaying their loans; or 2) the loan repayment doesn’t exceed 30 percent of an average graduate’s discretionary income; or 3) the loan repayment isn’t more than 12 percent of the average graduate’s total earnings.
The new rules are a significant shift from the original proposal, which would have required institutions to demonstrate a 45 percent loan-repayment rate. Also, they apply to programs, not institutions, so a program can lose its eligibility without endangering the entire school.
Below is a chart looking at federal loan repayment rates for Kaplan University, the University of Phoenix, Capella University, ITT Technical Institutes, and DeVry, along with several private and public universities for the sake of comparison.
The loan-repayment rate differs from the criteria the federal government will use, and the data aren’t perfect. However, the rate suggests how these schools might fare when the new rules go into effect.
Last fall, when the DOE announced its original proposal, officials noted the following statistic: Students at for-profit institutions represent 11 percent of all higher-education students but 43 percent of all loan-defaulters. At the five for-profit schools we looked at, default rates have risen steadily in recent years:
At most of ITT Tech’s 29 campuses, default rates have risen significantly, in some cases to as high as 15 percent. The rise in defaults has corresponded with large increases in enrollment at ITT from 2006 to 2008, along with the other schools. Kaplan University’s enrollment doubled in that time frame, from 31,000 to 60,000. DeVry went from 77,000 to nearly 87,000. University of Phoenix gained 9,000 students between 2006 and 2008.
For many for-profits, losing their federal aid would be devastating, and in many cases would effectively shut them down. Federal law permits up to 90 percent of a higher-education institution’s revenue to come from federal loans and grants, and many for-profits tread closely to this line.
There is good news for for-profits, though. In addition to lowering the percentage of graduates who must be repaying their loans from 45 to 35 percent, the new regulations also lowered the debt-to-income ratio and gave schools more time before the regulations kick in.
Some credit these changes to lobbying efforts by for-profit colleges and their supporters—The New York Times reported that this cost $12 million. Below is a chart that looks at what four of the big for-profit players paid lobbyists in 2010 and the beginning of 2011. (Information for Kaplan University was not available separate from Kaplan, Inc.) This is one instance, though, where for-profits don’t stand out from their public and nonprofit peers.
Lobbying is a relatively small expenditure at for-profits—and, indeed, all institutions. The bulk of their money is spent on instruction and services and administrative costs. For-profits have also come under fire, however, for spending large sums on marketing. Last fall, the U.S. Department of Education introduced rules to stop deceptive advertising among for-profits.
In 2010, the University of Phoenix spent over $1 billion on “selling and promotional costs.” Its instructional costs and services were about twice that. At Capella University, the gap was even smaller, with marketing and promotion taking up $1.2 million of the budget and instructional costs and services about $1.6 million.
Based on an analysis of the Presidents FY2011 budget, in FY2009 there were a total of $605.6 billion in federal education loans outstanding, comprised of $149.4 billion in the Direct Loan program and $456.2 billion in the FFEL program. The projected totals for FY2010 are $672.0 billion and for FY2011 are $745.5 billion. Each year more than $100 billion in federal education loans and $10 billion in private student loans are originated. At this rate the total student debt in America will approach a trillion dollars. In 2010 student loan debt exceeded total credit card debt. Consider this, if the projected default rate continues to grow by 2012 it could reach 56 percent for non-profit graduates and 70 to 90 percent of the for-profits. By the end of 2012 the amount of defaulted loans will be between $600 billion and $800 billion. Most of these defaulted loans are government backed, meaning the tax payers will pick up the tab. In 2010 gross public debt in America was $14 trillion, or over 95% of GDP. Over the next 10 years this public debt which includes student loans is expected to grow adding over $10 trillion to outstanding federal debt.
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I see the repayment rate for Harvard’s continuing ed program is identical to U of Phoenix’s rate. Since for-profits primarily enroll adult students, this is a better comparison than NYU or U of California. For-profits also educate many more black and Hispanic students than NYU or UC. A comparison with the repayment rate at historically black colleges would be helpful.
The default rates, whether cohort default rate or lifetime default rate, are for very specific groups of loans and borrowers: borrowers or loans entering repayment during a specific 12-month period or dollars originated during a specific 12-month period. The outstanding dollars in default divided by outstanding total dollar balances has declined steadily over the past two decades. An upward blip in defaults within a particular cohort does not move the needle on the outstanding portfolio. It is like turning a large cruise ship using a small rudder. With total direct and guaranteed federal loans in the $820 billion range and the balance in default at $60 billion, how is that even close to 50%. People confuse gross default rate, which is a one-time event that doesn’t include the fact that most defaulters resume some time of payments (voluntary or otherwise) with the pool which is in default at any given time — which includes loans that defaulted very recently as well as loans which have been in default for many years.
There are so many flaws in this issue, I could write a thesis going over them. Here a few small observations. 1. Many For-Profit colleges attract currently unemployed people trying to better themselves and get back to work, so when they graduate they are still unemployed looking for a jib which leads me to 2. We are in the middle of a MASSIVE recession, a real bad time to look at statistics 3. A quick search reviled dozens of so called non-profit colleges with dismal graduation rates and employment rates.You can’t pick and choose for comparisons and 4. Many of the students who go to for-profit colleges are adults with kids and mortgages and other financial obligations. So while a 22 year old can still live with mom and dad and pay their loan, for many adults, when faces with feeding their family or paying a mortgage…the student loan is way down on the list.
The government does almost nothing unless someone is “asking” them to (hint: lobby). I have zero doubt that the brick and mortar colleges are behind this recent witch hunt. Give me a break….If the current administration would come through on all the hope and change BS, everyone would have the job they need and this would be a non-issue.