A Degree At Any Price

Ninety-nine percent of student loan fraud claims involve for-profit schools. How can students judge if the tuition is worth the price?

College Scorecard

Five Figures to Consider

$8,100 average cost of a one-year certificate program at a for-profit college
$720 average cost of a one-year certificate program at a community college
87,000 is current backlog of student loan fraud complaints, 99% against for-profit colleges
4.5% less income earned by for-profit college students post-graduation than by peers who didn’t attend school at all
2X is the rate at which two-year, for-profit school students default on their loans compared to students at two-year public community colleges

Fraud complaints against for-profit colleges arrive at the Department of Education at a rate of 8,000 a month. That is on top of the current complaint backlog of 87,000. No wonder Betsy DeVos is trying to make it more difficult for students to file claims. At least it would help her catch up on the paperwork. But the student debt load related to for-profit colleges, which are the source of 99% of fraud claims, is no joke. For-profit schools account for a disproportionate share of federal student loan volume and loan defaults. That’s one reason 18 states and the District of Columbia sued to stop DeVos’ effort to freeze an Obama era plan to help student loan borrowers. Last week they won their case. That’s good news for students who were defrauded in the past. But can we reduce student loan fraud in the future?

Here’s an idea. What if every time a student took out a Stafford loan or applied for a Pell grant, they were given the statistics on their selected school’s cost, graduation rate and expected salary after attending? That’s the aim of the College Scorecard, an effort begun under the Obama Administration and that DeVos would like to expand. It’s up and running now, though the database is incomplete. Say you want a two-year associate’s degree in business in New York State. The College Scorecard will tell you that for-profit LIM College will set you back $35,879 a year with an average salary of $45,800 after attending. University of Buffalo, on the other hand, will cost you half as much and earn you twice as more. That’s good information and probably worth the effort of collecting it, given the relative performance of for-profit schools.

A 2016 National Bureau of Economic Research study looking at the outcomes of 1 million for-profit certificate students between 2006 and 2008 found that even when controlling for differences in student demographics, students who attended for-profit schools left with higher debt, less likelihood of employment (except for cosmetology students) and 11% lower earnings up to five years after graduation than their counterparts in public institutions. Additionally, while they were more likely to be employed, they earned about 4.5% less after graduation than their peers who didn’t attend school at all. Sounds like a rip-off. Especially with a price tag of $8,100 for a one-year certificate program at a for-profit college compared with $720 at a community college.

A good chunk of that for-profit school revenue is at taxpayer expense. Students at for-profit schools, which don’t have the benefit of endowed scholarships or local government funding, borrow more often than community college students and default at twice the rate. So how do for-profit schools stay in business? A lot of them don’t. DeVry, ITT and Corinthian are giants among some of the 100 for-profit schools that have shuttered in recent years. Others survive on federal student aid, the source of 70% of their revenue.

So why support for-profit colleges at all? They are good at short-duration programs aimed at a specific job. For example, cosmetology, culinary arts, HVAC maintenance, graphic design, dental hygienist and vehicle repair. While for-profits award 18% of all associate’s degrees, they account for 51% of those awarded in computer science and information technology and fill major skills gaps in the market including in cybersecurity. That’s one reason 1.8 million students enroll in for-profit schools every year. For-profit schools also easily accommodate non-traditional students (65% female, 65% over twenty-five, 22% African American, and 25% GED-qualified). They are nonselective. Sign-up is easy. No remedial work required. Students often shoulder multiple responsibilities and might not otherwise return to the classroom without the flexible programming for-profits offer.

Another way to limit for-profit school fraud – and to improve their performance by increasing the competition – is to expand access to community colleges. Currently community college courses are often over-subscribed. In a national survey of community college students, 37% reported that they had been unable to enroll in at least one course during the fall 2011 semester because it was full, and 20% reported that they would have trouble enrolling in courses required for their degree or certificate. Part of the reason community colleges can’t keep up with demand is that state investment in education has plunged (as Five Figure News reported in Squeezing Public Schools) since 2008. Still 17 states have made community college free to certain populations.

Now that the federal Department of Education, charged with policing the for-profit sector, is staffed with alumni from the for-profit sector (including Julian Schmoke, a former dean at scandal-prone DeVry University), it’s more important than ever that students have access to the information they need to make smart borrowing decisions. That means data on program accreditations, alumni outcomes, prospective salary information and the future cost of student loan debt.

FIVE FIGURE THINKING
The Department of Education is unlikely to be able to review 87,000 fraud claims any time soon. A better way to clean up the for-profit college sector is to put relevant data – and access to community college – in the hands of prospective students.

Sources

College Scorecard, Congress.gov, Educationdive.com, insidehighered.com, Insidehighered.com, Journal of Economic Perspectives, National Bureau of Economic Research, National Center for Education Statistics, New York Federal Reserve, scholar.harvard.edu, The Brookings Institution