Wednesday, September 29, 2010

For-profit colleges face a day of reckoning

The for-profit college industry is in full-on damage control mode. The Senate Health, Education, Labor and Pensions (HELP) Committee, led by Tom Harkin, has been in hot pursuit. After a GAO report on extremely high loan default rates, some damning hearings this Summer, another GAO report on deceptive recruitment techniques, one more blow will land this morning (September 30.)

That's because at 10 AM, the HELP Committee will hold another hearing that is sure to provide new insight into an industry that has been shrouded in mystery. The HELP committee's request for data from for-profit colleges will provide the most complete picture we've ever had of the industry. A counselor from Art Institute of Pittsburgh (owned by Education Management Corporation, also owner of Art Institutes International Minnesota) will detail how she was instructed to fake job placement figures. The more that Harkin digs, the more he finds. And the longer the spotlight is focused on for-profit college practices, the more witnesses will come forward.

This is why the for-profit college industry is hiring the best lobbyists and lawyers, and working hard to curry favor with Democrats currently in charge and Republicans who would be in positions of power should one or both houses of Congress fall to Republicans. Sen. Mike Enzi, ranking Republican on the HELP committee, doesn't require much persuasion. He's already their apologist. But on the House side, probably a more likely place for a change in power, the for-profit college industry's got their man in the form of Rep. John Kline. He's signed several letters in support of the industry sent to Education Secretary Arne Duncan this Spring and Summer. Campaign contributions totalling $4500 from Westwood College and Career Education Corporation (owner of Brown College) followed in a two day period in April. Kline would be a great friend for the for profit college industry to keep. As ranking Republican on the House Education and Labor Committee, he'll be in a position to protect their interests if Republicans take control of the House.

But back to the hearing this morning. While you're waiting for the new data to come out, here's some loan default data to think about over your coffee.

There are several ways that the federal government measures loan default rates for federally guaranteed loans. The most commonly reported figure is what is called the "cohort default rate" which measures the percentage of people who go into default within two years of entering repayment status. Another measure is the "budget default rate," which measures the percentage of dollars that will go into default over the 20 year life of a loan. And here's where it gets pretty shocking.

The federal government, for budgetary purposes, projects that 47% of dollars lent to for-profit college students in 2007 will go into default during the 20 year life of the loan. That doesn't mean that 47% will go unpaid; student loan debt cannot be discharged in bankruptcy and the federal government has the power to garnish income tax refunds until the loan is repaid. But each defaulted dollar is a mark on a borrower, a mark of pain, a black mark on a credit report. In short, it's a cruel hoax perpetrated against those who went to school for their betterment.

Last year, the Department of Education started an experimental "three year cohort default rate" (.xls file) which measures the percentage of loans that go into default within three years of entering repayment status. Minnesota's largest for-profit colleges have impressively high rates of default using this measure.

Minnesota School of Business 12.0%
Rasmussen College (divided by campus)
- Eagan 16.7%
- Eden Prairie 18.7%
- Mankato 16.2%
- St. Cloud 17.5%
Brown College 14.9%
Art Institutes International - Minnesota 10.0%
Everest Institute 31.8% (includes Cross Lanes, WV)
National American University 15.7% (all campuses nationwide)
Globe University 12.3%
High Tech Institute 22.0% (Branch of Phoenix, AZ Anthem College)
Argosy University 5.3% (All campuses, based in Chicago, IL)
University of Phoenix 15.9% (all campuses combined)
Thanks to Senator Harkin's doggedness, we will soon have an even more complete picture. Tune into the hearing this morning - it sounds like it could be a doozy. And keep in mind the implications of a shift in party control in one or both houses of Congress. Where do you think the investigative resources of a Kline-chaired House Education and Labor Committee would be directed?

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Tom said...

So, if I read this correctly, students at for-profit colleges default (on their government loans) more than students who attend not-for-profit schools.  So?  I'm not sure how this transfers to wrongdoing on anyone's part.

There are plenty of people defaulting on 2nd chance mortgages from the government too, and again, I would not assign wrongdoing.

I do think that there are a lot of bad loans being given out and if those giving out the bad loans were not bailed out, there would be less bad loans given out by these companies or the government.

Aaron Klemz said...

Well, that's one interpretation. Coupled with the evidence that for-profit colleges engage in deceptive recruiting and marketing practices, that's a different interpretation entirely.

Actually, the notion of bailouts is instructive here. Student loans, while being low interest and relatively flexible in terms of repayment, are not dischargeable in bankruptcy. To make a long story short - you are stuck with it, no matter what. That's the opposite of a bailout, Tom.

This is not a moral failing on the part of students. This is a legal and moral failing on the part of the colleges.

Tom said...

So if I fail to repay the debt that I incurred out of my own free will, it is the college's fault and not mine.  Well, that's one interpretation.