For-Profit Schools Leave Students With Debt They Can’t Repay

Published on Friday, August 20, 2010 by ColorLines

by Julianne Hing

For-profit schools are trying their mightiest to lay low these days, but the federal government isn't going to have any of that. Last Friday the Department of Education released the loan repayment numbers for 8,000 American colleges and universities which showed that for-profit school graduates face massive amounts of debt that far outstrip the debt of their nonprofit and public school peers. Higher numbers of students who go to for-profit schools end up being unable to repay their loans, too.

The DOE data showed that students at for-profit schools are two times more likely to take on debt for an associate's degree and that their debt is more than double that owed by students at nonprofit and public schools. But it's not just about the amount of debt students graduate with, another indicator of a school's performance is a graduate's ability to pay back their loans. For example, the University of Phoenix, which is by far the biggest player in the for-profit school arena, had almost 350,000 students start repayment in 2009 on their loans with almost $5 billion in outstanding loans. But according to the DOE, just forty-four percent of their students are able to repay their loans. Only 38 percent of graduates from the for-profit school DeVry University are able to pay back their loans; students leave there with an average of $12,00 of federal student loan debt.

Congress has been positioning itself to take up for-profit school regulation for months and may soon act on it. At a series of Senate hearings this summer, congressional leaders have discussed several measures to reign in the for-profit schools industry, which include evaluating the legitimacy of schools' accredidation programs and ending for-profit schools' practices of paying admissions officers (who are in actuality just sales reps) commission. According to other proposed regulations being floated around right now, higher education institutions could lose their eligibility for federal student aid money if they send off their graduates with crushing amounts of debt that they're unable to repay.

This rule is aimed primarily at for-profit schools, which often depend on federal student loans and grants for the majority of their revenue. In 2008, for-profit schools made $3.2 billion every year in Pell Grants, the federal money designated for low-income students. Students from for-profit schools are more likely to depend on financial aid to get through school, are more likely to graduate with tens of thousands of dollars worth of debt, and are more likely to eventually default on their loans.

Recently, a federal investigation led by the Government Accountability Office found for-profit schools engaging in fraud to lure students in the door and help students falsify financial aid forms to get federal aid. For-profit schools saw their stock plummet this week after the numbers were announced.

But back to that DOE data. It shows that across the board, from private universities on down to public schools, higher education is getting more expensive for all students. Unsurprisingly, the wealthy don't feel the pinch as much. Students at top-tier schools were both more able to already afford their elite schools' tuition, and also able to graduate with very little debt because of generous financial aid packages. At tony Princeton University for example, just 22 percent of students leave with an average of $5,667 in debt. Two out of five students in Princeton's freshman class can already afford to pay the full cost of tuition, a whopping $52,180 for the 2010-2011 academic year.

For the rest of America's students, the reality of crushing student debt is much more bleak. The Department of Education is planning to rule on these proposed regulations by November 1. 

Check out the DOE data here.

© 2010 ColorLines Magazine - The Applied Research Center