Washington
Students at for-profit colleges and universities are more likely than students at private and public institutions to default on federal student loans, according to a report issued today by the Government Accountability Office.
The report calls for more oversight of the basic skills test that students without a high-school diploma or GED must pass in order to receive federal aid. It also urged the Department of Education to write clear policies to ensure that students can't use "diploma mills" to get a high-school diploma and thereby gain access to federal grants and loans.
The report says that some proprietary colleges help students obtain high-school diplomas from diploma mills to become eligible for federal aid. In a separate audit of the test of basic mathematics and English skills, which gives students without a high-school diploma or the equivalent access to federal student aid, GAO analysts found that test administrators at a local for-profit college gave out answers and changed students' answer sheets so that they would be eligible for federal funds.
Students at for-profit colleges receive 19 percent of federal student aid, which includes Stafford and Perkins Loans as well as Pell Grants for low-income students. During the 2007-8 academic year, students at more than 2,000 proprietary colleges received more than $16-billion in loans, grants, and campus-based federal aid.
Four years into repayment, 23.3 percent of students at those colleges were defaulting on their federal loans—a higher rate than students at either public colleges, where 9.5 percent were defaulting, or private ones, where 6.5 percent were in default.
The default rates might be linked to the demographic characteristics of students at for-profit institutions, the report says. Such students tend to be older and to have lower family incomes, both factors that correlate with increased default rates.
Students who drop out also are more likely to default, the report says.
The report's authors recommend more Department of Education oversight of the basic skills test, including following up with test publishers, which must submit score analyses but often are not compelled to do so, and analyzing test scores more frequently than every three years. The report also recommends that the department provide reviewers with a comprehensive list of recognized high schools in order to identify irregularities.
Comments
1. ahammer - September 21, 2009 at 03:55 pm
FYI
2. jesor - September 21, 2009 at 04:14 pm
This is as much the fault of the non-profit and public sectors for neglecting that particular population segment as it is the for-profit institutions that swoop in, get government money through the students, leave the student with a debt that will never be repaid, and the taxpayers holding the bag.
I think for-profit colleges can work to the benefit of the student, but right now the high tuition, high federal aid demand, low income model is really starting to look more like parasitism rather than capitalism.
3. paievoli - September 21, 2009 at 04:18 pm
All academia needs to rethink the model or this will be going on all over. Academia needs to not become for-profit but derive a plan that aids in alternative revenue streams. Tuition, endowments and fundraising will not be enough. It is a global community and growing. Academia has got to expand its horizons and its goals.
4. saasaa - September 21, 2009 at 04:26 pm
But it is not all proprietary schools that behave this way. Some of us have higher admissions standards (you need much more than just a pulse), higher completion rates and much lower default rates than local public colleges.
5. haohtt - September 21, 2009 at 04:30 pm
There is plenty of room in higher education for both non-profit and for-profit institutions. The report found two instances where students were referred to a diploma mill to purchase high school diplomas. Diploma Mill activity is certainly not limited to instances like this. A 2006 U.S. Senate-Led investigation found hundreds of federal government employees with degrees from diploma mills that had been paid for by taxpayers. Let's home that the feds have cleaned up their own act before embarking on new reactionary regulation.
6. johnblee - September 21, 2009 at 06:03 pm
We did a study on student loan defaults that indicate that student characteristics are much more important in predicting default than type of school attended. The risk characteristics are addative; the more risk, the higher the chance of default. Risk include things such as being a single parent, having a child, low-income background, and having low high school achievement. Proprietary schools cost roughly the same as a community college, the difference is in who pays the price. Defaults do not cost society any more than a communit college dropout who does not prosper in the job market, defaults are just easier to count.
7. ttuenglish - September 21, 2009 at 08:57 pm
Just a point for clarification. The Federal Government diploma mill scandal was for Bachelors and Masters degrees, not GEDs. I am not sounding elitist, but if a person cannot pass a basic community GED program they should not be let into a higher ed institution. The institutions who perpetrate this scam have no illusion of these students ever graduating.
This scam was prevalent in the early 90's. Trucking schools would convince students to attend, get them to sign for aid, then wash them out of the classes and keep the financial aid. Unfortunately, more government oversight is probably necessary, as much I my libertarian leaning ideology hates to admit it.
8. cragie - September 22, 2009 at 07:25 am
Proprietary schools do not "cost roughly the same as community colleges." They cost much, much more. Even comparing a half-time proprietary school student to a full-time community college student, the proprietary school costs much more. This is evidenced by National Center for Education Statistics borrowing statistics. And, even then, hardly any community college students need to borrow because the cost is so low, while 90 percent of proprietary school students borrow. It's not demographics, it's cost. Comparing on an equal FT basis, a proprietary school costs more than Harvard.
9. theothershoe - September 22, 2009 at 08:49 am
jesor - you are absolutely right. These schools prey on students who are naive, poor consumers of higher ed. The idea that competition drives these schools to offer better job skills training is merely part of the advertising message - the real business model is to get loans approved then do the minimum necessary to keep the scam going.
If traditional higher ed institutions were able to reach this student group they would not be vulnerable to the exploitation.
10. veritable - September 22, 2009 at 10:45 am
It is misleading to say that for-profit schools cost more than public colleges. Generally about two-thirds of the cost of public higher education is borne by the taxpaying public. BOTH public and private institutions have taken advantage of Title IV funding to entice students into programs that are not cost effective and to raise tuition above what the market would otherwise support. Sure, loans for a public school education are smaller - but that doesn't speak to the moral superiority of the public sector. Instead of taking money from students and parents, public institutions take it from students, parents AND taxpayers.
11. mbelvadi - September 22, 2009 at 12:03 pm
I have a real problem with blaming the non-profits for "failing to serve this population". If legitimate driving schools failed to serve the population of blind people who want to obtain a driver's license, and a corrupt driving school opened up that would take the blind people's money and purport to teach them to drive, leaving them in debt and without the ability to get the license from the state anyway, would you blame the legit schools for failing to serve this population? ttuenglish has it right about these people simply not being ready for higher ed, This reminds me a lot of the housing bubble and the people who simply couldn't afford a mortgage being tricked into believing that they could by unscrupulous mortgage brokers, while the govt looked on and cheered the increase in the "percent of homeownership" statistic, until the payments stopped being made. The answer to that was not for more scrupulous bankers to give those people mortgages somehow, the answer was that those people weren't financially ready to take on those mortgages, period.
12. eddiemeboy - September 22, 2009 at 01:44 pm
propietary schools serve a purpose, they are a place for non traditional students to learn a trade without the need for becoming "well rounded" students. Additionally are we too assume that if all the Proprietary schools closed all the public schools would offer those curriculms....doubtful. while there are some problems in the private sector the public sector has it's issues as well.
13. intered - September 22, 2009 at 02:12 pm
This brush is far too broad to be useful. In my view, it is irresponsible.
Default rates at the large for-profits focusing on working adults (UOP, Argosy, DeVry, NAU, etc.) have tended to be lower than comparable not-for-profit averages. Default rates for 2-year, diploma, and certificate-level schools are higher as indicated in the article. This includes community colleges, which have always struggled with default rates.
Now, let's look at who these schools are serving. In the early days of the University of Phoenix, default rates were 1.8% -- an unheard of low. Why? Because at that time UOP required current employment, substantial work experience, and a minimum age of 23 and 25 for undergraduate and graduate admission. At that time, the same UOP executives were running a career school and struggling to achieve a default rate below 28%.
Virtually every study of which I am aware concludes that the majority of the variance in the default rate is accounted for by student SES and not the type of institution, except for the obvious fact that the career schools' market is the underclass. Whereas 4-year and higher colleges are facilitating modest improvements in the SES of individuals, career colleges are often putting their students on the taxpaying roles for the first time in their life.
While the career schools industry has its share of problems, including a few shady operators, most of them are competent. We should understand that career schools, when they succeed, make a very large contribution to the individual and to society. The fed's narrow-minded approach to assessing their performance has long been ridiculed by experts. A school may take 100 individuals off the social services role and make them taxpaying wage earners yet get closed down by the feds because their default rate is too high.
Robert W Tucker
President
InterEd, Inc.
14. eddiemeboy - September 22, 2009 at 02:37 pm
Well it is time for the annual bashing of proprietary colleges. The plain fact is that while as a percentage they have higher default rates the private and public college actually have more defaulters. Proprietary schools know that they are subject to higher rates and as a result actually track their borrowers and assist them with contacting their lenders and arranging for relief or repayment. The public sector by and large does none of this because their volume is so great that the percentages stay low. The numbers behind the rates are staggering no matter what type of institution you attended. The latest release of default data shows that of the borrowers entering repayment in Federal fiscal year 2007 225000 defaulted by 9/31/08. Proprietary schools accounted for roughly 90,000 of those defaults. Based on these numbers it is plain to see that EVERYONE could do a better job assisting student loan borrowers.
15. coybean - September 22, 2009 at 04:16 pm
This is the proposed focus of my doctoral thesis, for what it's worth. My professional experience in proprietary education says that this is a bigger social, anthropological and economic problem than most of us are willing to face. The commodification of education must be examined from all of these facets, but it is mostly marketed as a cost/reward proposition to those with the least amount of resources to adequently vett such equations. I have HEARD "admissions" people at these schools berate a potential student into "not being a loser" by getting a "grandparent who loves you" to cosign for their student loans...in associate's programs that cost $40k. Of non-transferrable credits. You think these students want to brick themselves into a hopeless cycle? No, they do not. But the cachet of higher ed and authority in our culture imbues anyone with "director" in their name or anything loosely resembling a school with the king of cultural authority that effectively robs people of their critical thinking skills as any law ever did. This is just a very complicated situation and this just one piece of the puzzle.