I just read the GAO report about default rates among for-profit institutions, and while I have a great deal of respect for George Scott and his GAO colleagues, there are some astounding errors in the methodology used for this study … not to mention some key omissions in the Chronicle article about it by Libby Nelson.
A key finding of the GAO study is that for-profit institutions are growing at a rate that outpaces their nonprofit competitors, including in the four-year degree sector. Whereas once for-profit schools dominated the technical and certificate degree market, they are now competing for some of the same students, and more importantly the same Federal Student Aid dollars, that have been the traditional domain of the non-profit sector. That may explain why there is such a great deal of disdain for these highly successful institutions. Well, that and a great deal of misunderstanding on the part of individuals who have never attended a for-profit institution. For the record, I attended public nonprofits (for my B.S. and M.S. degrees), as well as a for-profit institution (to complete a certificate program) during my own educational career, and also taught at a public nonprofit, and my personal experience tells me that there are more similarities than differences among these institutions, especially since the nonprofits I attended served a large population of low-income, first-generation, and minority students.
What the GAO report found to be the most different between for-profit and nonprofit institutions are the students served. For example, for-profits serve a much larger percentage of “nontraditional” students, including those who are over 25 years of age, are financially independent, or are more likely to be women, African-American, or Hispanic. Additionally, the GAO study highlights that students who attend for-profit institutions are much more likely to come from low-income families and have parents who lack a postsecondary credential, two of the key factors linked to student loan defaults in the academic literature cited by the GAO study.
This is where the GAO methodology becomes seriously flawed. If the GAO found that for-profit institutions serve a population of students that is significantly different than the population served by nonprofit institutions, then it seems inappropriate for the GAO to have compared the default rates for general populations of students rather than comparing default rates among cohorts of demographically similar students at both types of institutions. If done correctly, the GAO study might have found that it is the demographic background of the student that determines his or her default rate, not the type of institution he or she attended (which is consistent with the research literature). Or, the GAO could have compared institutions in the nonprofit and for-profit sectors that serve relatively similar student populations.
It is noteworthy that an earlier study by the GAO found the cohort default rate for HBCU’s to be nearly 25 percent, which is higher than the four-year default rates projected by the Department of Education for proprietary schools. Like for-profit institutions, many HBCU’s serve large numbers of first-generation, low SES students, many of whom go on to make significant contributions to society, all of whom benefit from the experience, but sadly some of whom will — despite their best efforts — go into default on their loans. While wealthier students sometimes have a family cushion that keeps them from defaulting on their loans when they can’t find a job, or if tragedy strikes, poor kids have no backup when the unthinkable happens. Similarly, wealthier students are more likely to go on to graduate school after college, thereby deferring repayment on their undergraduate loans well beyond the 2- or 3-year time frame when default rates are measured.
It is important to read the fine print in the GAO report that clarifies the difference between the two-, three-, and four-year default rates. While the two-year cohort default rates come from data collected by the Department of Education, the numbers for the three-year and four-year default rates are calculated using models generated by Department of Education personnel. It is significant that in the standard two-year cohort default rates, proprietary schools have a slightly lower cohort default rate than private, nonprofit two-year schools, despite the fact that they serve a riskier population of students. Only when looking at the modeled (not measured) four-year default rate do we see such alarming differences among the sectors, which may or may not prove to be accurate.
However, an important finding by the GAO — and one omitted from Ms. Nelson’s article — is that some proprietary schools had among the lowest default rates of all schools in the country. In fact, 121 proprietary schools, or about 9.3 percent of schools in this sector, had cohort default rates of under 5 percent, and 18 of the schools had no students who defaulted on their loans over a three-year period. Perhaps there is something that the nonprofit schools could learn from these institutions, or perhaps these schools simply serve a more “traditional” population of students, but this finding clearly demonstrates that there is as much variety among for-profit institutions as there is among nonprofit institutions.
The next issue examined by the GAO was compliance among for-profit institutions with the Department of Education’s requirement that students participating in the Federal Student Aid programs must possess a high-school diploma, a GED, or pass an Ability to Benefit Test (ABT) of basic skills. There are good reasons for this requirement, and it is troubling that the GAO found several examples of institutional tampering with ABT tests and scores. However, while there are some 2,000 for-profit institutions in this country, and GAO analysts visited schools in four states, analysts found direct evidence of ABT tampering at only one institution. Beyond those direct findings, the GAO cited earlier reports by the Department of Education and the Office of Inspector General regarding a single institution in Louisiana and two investigations in New York that uncovered similar examples of ABT tampering. Another OIG case found a single institution that failed to follow the rules when administering retests to students.
The examples cited were egregious and unacceptable, but these data are little more than anecdotal and certainly not the result of a scientifically valid, large-scale survey or study. With 2,000 for-profit institutions in the U.S., many more site visits would be required to draw a statistically valid conclusion that could be extrapolated to the entire sector. Beyond that, the report makes clear that these violations are not unique to the for-profit sector. The OIG reported that they have had similar findings at nonprofit institutions, though the reader is left to speculate whether or not there are data to substantiate the claim that while “some” of these findings were at non-profit institutions, “most” were at for-profits. Institutions that violate the ATB criteria should face action by the Department of Education, but the data contained in the GAO report in no way demonstrate that this is a problem that is unique to, or widespread across, the for-profit sector.
However, the real question is, what are we to do with the millions of students who cannot meet the ABT standard, yet are being told almost daily that to be successful in life, they MUST go to college? Do we take away second chances from those who need them most because some won’t fully benefit from the opportunity? Are we as a society ready to just throw away, or add to the welfare rolls, the millions of students who were born into the wrong family or forced to attend (or drop out of) a dysfunctional K-12 school? Has anyone yet found the “magic bullet” to remediate those who were failed by so many during their most formative years? How many students who didn’t meet the ABT criteria went on to graduate from college, and repay their loans? Are all of the students in default — or even most of them — those who could not demonstrate an ability to benefit?
Now let’s get to the mythology. This report, like so many before it, makes the claim that defaulted student loans are costly to the taxpayer. As a former assistant secretary of education, I want to dispel that myth once and for all. While it is true that a student-loan default is harmful and expensive to a borrower, and for that reason should be avoided at all costs, it does not represent a loss to the government. In fact, the government uses all if its resources, including the IRS, to collect on the loan, plus interest and some very steep penalties. The federal government definitely takes a loss on loan-forgiveness programs, as well as on disability discharges, but it makes a tidy sum on defaulted student loans. As my staff at the department used to tell me, unless a borrower is living under a rock, the department will find him (or her), and make him pay.
If we are serious about increasing higher education-participation rates, and meeting President Obama’s call for all students to complete at least one year of postsecondary education, then we had better stop pointing fingers at each other and start thinking about how best to handle the millions of students who come to college underprepared, financially independent, and from low-income households with parents who are not college educated … and how to prepare for the rising
defaults associated with students who attend college for a year but do not complete a credential.
In the meantime, let’s celebrate that fact that the majority of students served by for-profit institutions don’t default on their loans, despite the fact that research findings say they should.