Sunday, January 02, 2011

For-profit colleges and debt

Another example of why opting for a for-profit college could lead to difficult financial circumstances down the road.

Why are for-profit schools facing such scrutiny? On one level, it's obvious -- they're in business to make money. There's nothing wrong with that except that under such circumstances schools might take students who will face a hard time paying the bills. As Bloomberg notes in this story,
Today, one in seven minority students attends a for-profit college, as does one in four poor students who receive federal Pell grants for low-income families, according to the U.S. Department of Education and an industry group. Students in for- profit college programs graduate or stay in school less than those at community colleges, according to a study sponsored by the U.S. Department of Education and released this month.
Students in two-year programs at for-profit colleges are also eight times likelier to be in debt than those at community colleges, according to a report last month from the Education Trust, a nonprofit advocacy organization based in Washington.
Then there are the recruiting practices that critics say border on the unethical. Consider an excerpt from this report:
For-profit colleges enroll 12 percent of U.S. undergraduates and consume 24 percent of U.S. Pell grants for low-income students.

Now those colleges, after flourishing under loosened regulations during George W. Bush's presidency, are under attack from President Barack Obama's administration, which wants to tighten the rules. Stock prices for the parent companies of for- profit colleges have plunged.
The colleges use deceptive practices to lure homeless people, veterans and individuals who aren’t prepared for college into unsuitable courses in order to obtain tuition funded by grants and also by federal loans that students have trouble repaying, according to advocates for the homeless, veterans’ groups and current and former students. Almost 90 percent of Phoenix’s students use federal grants or loans to pay tuition.
One critic left little doubt what he thinks of the for-profit educational companies:
But don't confuse "for-profit" with "capitalist." Without federal subsidies in the form of Pell grants and federal loan guarantees, the for-profits might not exist. At the very least, they would be much smaller. About 87 percent of the revenue at the biggest for-profits comes from federal taxpayers, according to the Chronicle of Higher Education. They belong to a class of company that I call Subsidy Sucklers.
Echoing those sentiments, though with less vitriol, is the San Jose Mercury News, which says the federal government needs to continue pressing for reforms of the industry:
The department [of education] wants to establish a two-part test measuring graduates’ debt-to-income ratio and the number who are paying down principal on their loans. If a college program fails both tests, it will be barred from accepting federal student aid, which makes up a majority of the colleges’ revenue.
These rules narrowly target the bad actors, the 5 percent or so of programs that enroll students and take federal money knowing that the degrees aren’t likely to lead to success. Nonetheless, the industry has launched an aggressive lobbying campaign arguing that poor and minority students, who disproportionately enroll in for-profit colleges, will be denied access.
You would be wise to keep an eye on this issue and ensure that companies that are using federal education dollars are providing programs in which their students can find meaningful future employment.

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