• September 1, 2015

For-Profit Colleges Offer Another Way to Measure 'Gainful Employment'

Warning that a proposed limit on student borrowing would force thousands of programs serving low-income students to close, the Career College Association on Thursday released an alternative that would require for-profit programs to provide prospective students with more information about their graduates' debt levels and salaries.

The move comes as the Education Department is finalizing a rule that would withhold federal aid from for-profit programs whose graduates are likely to carry high debt-to-income loads. An early version of the "gainful employment" rule, released during a negotiated rule-making session that ended in January, put the cap on loan payments at 8 percent of graduates' expected earnings, based on a 10-year repayment plan and Bureau of Labor Statistics. Programs could escape penalty by showing that their graduates' true earnings were higher than the government averages or that 90 percent of all graduates repaid their loans. (Existing law requires for-profit colleges to show that they are preparing their graduates for "gainful employment," but the Department of Education says the term hasn't been well defined.)

The association, which represents for-profit colleges, says the department's proposal lacks an empirical basis and appears to be driven by stories of students who took on large debt loads to finance worthless degrees. The department recently rejected the association's Freedom of Information Act request seeking the data behind the 8-percent limit.

"The department is basing this on anecdotes, not systematic research," said Harris N. Miller, president of the for-profit college association.

To bolster the case for its alternative, the association released a study of more than 10,000 for-profit college programs estimating that a fifth of those programs would exceed the 8-percent cap and be eliminated. The study, which was conducted by a professor at the University of Chicago, also predicted that more than 300,000 students would be displaced by the proposed rule. However, the study did not consider how many programs would be exempt from the rule because their graduates earned more than average or repaid their loans.

Rule Due Out Soon

The department is expected to release its rule by mid-June. Last week, analysts at Credit Suisse reported that the department is weighing another exemption to the rule, for institutions with a completion rate of at least 50 percent and a job-placement rate of at least 70 percent. The first draft of the rules had set both rates at 70 percent, but the exemption was removed from later drafts.

In addition to expanding disclosures to prospective students, the association's plan would require programs to prove that they prepare students for employment by vetting them with employers in the field and making sure they pass licensure and certification exams.

Asked about the association's study and alternative proposal, the department issued a statement saying it was "pleased that many participants in the program community have expressed views and presented information in this important area.

"We look forward to considering their comments as they react to what we will propose in our notice of proposed rule making," it continued.

Congress weighed in on the controversy in March, sending a letter to the Education Department that raised "serious concerns" about the department's plan and urged its officials to consider "other means to address overborrowing that would not create additional barriers to service for at-risk students." The letter, which asked the department "why your goals for this proposal cannot be met simply through expanding disclosures," was signed by 15 Democratic and Republican lawmakers.


1. rkitchner - April 22, 2010 at 05:49 am

It would be both appropriate and much more instructive if the authors of articles such as this refrained from the tendency to group all market-supported or for-profit institutions together. If the focus of this piece was on the Department's concern for community college graduation rates, I doubt that the author would have used a headline such as "Not-for-profit colleges struggle with retention rates." The for-profit higher education industry is as diverse as the non-for-profit - perhaps more so, and the Department of Education rules currently under consideration are focused on a relatively narrow segment of that industry. The CCA represents some for-profit colleges, but not all of them, and fewer yet of the for-profit universities. Moreover, the specific interests of CCA member institutions may or may not be congruent with those of non-members. Inappropriate grouping leads to misleading generalizations, and this article is a case in point, its other merits notwithstanding.

2. bdbailey - April 22, 2010 at 08:37 am

Full disclosure is necessary, but not adequate. There is the implicit assumption that an 18 year old from a disadvantaged background understands the value of $20k, or $30k, or $60k, and what it means to try to repay this debt from their as yet unrealized earnings. How about independent credit counseling by an independent organization well versed in the probably outcomes, and funded by, but not responsible to, the for profit institutions.

3. director19 - April 22, 2010 at 12:20 pm

How about the sam group monitoring and reporting on the colleges and universities? The cost to attend many of them is more than proprietary schools and the outcomes much worse. Also, I don't think that students in colleges and universities understand the value of money much better than proprietary college students. They jus figure it will be taken care of for them. iF not by mommy & daddy, then our legislative geniuses in the Congress.

4. intered - April 22, 2010 at 12:32 pm

I second #1's call for greater understanding of higher education's landscape in reporting news. Some for-profits offer only doctoral degrees. For other institutions, the highest educational outcome is a six-month certificate in truck driving. While both are important, they have little in common. When we organize analyses around how efficiently an institutional type manages itself (for-profits are substantially more efficient and better managed overall) and how surplus revenues are distributed, we invoke a variety of unexamined cultural biases, most of which are false.

This particular article should have headlined that CCA, (a professional association representing career colleges the vast majority of whose members offer certificate and AA-level education in allied health, technology, and law enforcement) has proposed a more workable approach to defining 'Gainful Employment." (It is a good proposal, by the way.) The large degree granting for-profits do not belong to CCA.

Separately, the Department of Education's elitist bias in this issue is shameful.

All institutional types are operating in ways that are not aligned with the taxpayers' interests. An intelligent Department could insert a variety surgically precise incentives to nudge alignments in the right direction while contributing to the self-direction and responsibility of the institutions. This Department's mentality seems capable of understanding only the one-sided meataxe.

The most chilling aspects of the Department's proposal, however, lie in the unfair favors accorded public institutions, the sector that is provably the least efficient, most wasteful, least responsive, and offers the longest time to graduation of all institutional types. If there were to be a priority for reform in the taxpayer's interest, it would be the public universities. These institutions waste more taxpayer money every month than five year cost of career college defaults.

The Department refuses to recognize that students pay an average of $105K in tuition at private colleges ($26K/year average) for a four-year degree that qualifies them to earn $35K as a teacher. In public universities, students will pay $38K for the same four year degree that takes five years to deliver and the total cost to the taxpayer will be in excess of $85K.

How do these figures look in comparison with the career schools that worry the Department of Education so much?

Any one of hundreds of career colleges will charge $14K/year ($28K total) for a two year degree that qualifies them for a job in one of a variety of allied health careers with a starting salary of $35K. More importantly, these students, many of whom are fresh out of the underclass, now work in a culture where vertical mobility is not only possible but encouraged.

The bottom financial line is that all in, costs (student + taxpayer contributions) are highest in publics and lowest in the for-profits. Independents fall in the middle. Efficiency metrics (credits and degrees out for dollars in) follow these same lines.

None of these facts seem to matter to the Department. Yellow journalism is at work, stirring up negative sentiment about student loans to for-profit schools (again, the meaningless broad brush). Irresponsibly, no one seems to have made clear to the reporters that student loans do not flow to the institution. They flow to students who then choose an institution. What does it mean that the for-profits have grown from 0.5% to 10% market share in the past 20 years? Are these millions upon millions of satisfied customers just too stupid to understand that they would have got a better deal at a state university whose customers are the professoriate, where their degree will run to 125% overtime, where they will be largely ignored in massive lecture halls and ESL TAs?

Where does the problem lie if the publics are not getting the share of student loans that they once were? Are they free to join the modern society and compete for the business or are we somehow holding them back?

The bottom line, however, is that the entire theme represents intentional misdirection. Student loans are a juicy profit center. That's why the feds wanted to take them from the private banks. Taxpayers only lose incremental money when a loan defaults and loans default based on the social and economic conditions of the borrower. Defaults are highest for community colleges and career colleges and lowest for for-profit units serving only working adult professionals. Net/net, though, money is made, not lost.

Several parties on various sides of this issue have suggested that the consumer protection policy should be driven by some form of ROI. Objective individuals who are concerned to improve higher education should welcome this. Unfortunately, the Department will not move in this direction because aggregate ROI analyses will generally favor career colleges, community colleges, and a handful of independents. The publics will come in dead last, and by a long way. Remember, I said "aggregate." This means no institutional type gets to pick that 99th percentile outlier that makes them look much better than they are.

The economists I have consulted tell me that the Department's perspective benefits the upper middle class and further punishes the underclass. Let them eat cake.

It is unlikely that the resolution of these issues will be driven by the relevant facts. The Department of Education has gone out of its way to collect a narrow set of outliers that support its biases, manipulate public opinion, and disfavor the for-profits.

5. 11209892 - April 22, 2010 at 06:38 pm

In considering a higher education choice it seems to me that the student should be made aware of the debt to income ratio. This will euclidate what the student is getting into and give some idea on the probability of improving their lives with the degree they are going to receive.

6. davehamilton - April 22, 2010 at 10:20 pm

I am upbeat that the department of education is looking into this and I hope they pass a rules with serious safegaurds. We have a local for-profit that appeals mainly to those who have either dropped out of the community college or just plain "are not ready". I work at a local community service agency and the students don't understand the level of debt they are taking on, they haven't a clue! This for-profit charges $465 per contact hour (4.5 or 6 contact hours per class) which is 10X what our local community college charges ($48 per hour). Students end up exhausting their Pell Grant options and $40K in debt with an associates degree that is greatly depreciated in the local workplace. They can not find work; they can not pay their student loan so the for-profit urges them to return to complete their bachelor's degree and defer the student loan. I recently spoke to two students who were now pursuing master's degrees via the online option. These are people on public assistance, without the skills to hold a secretarial or maintainence job who are being urged on, they are not job ready inspite of thier credentials. It's silly and needs to be addressed. The for-profit's over-agressive marketing does not inform students, neither of the above even knew how much they had borrowed or realized that they had to repay the loan.

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