Tressie McMillan Cottom worked as an enrollment officer at two for-profit technical colleges before she went on to earn a PhD., join the faculty of Virginia Commonwealth University, and write a book, “Lower Ed: The Troubling Rise of For-Profit Colleges in the New Economy.”
Cottom says that for-profit colleges get one important thing right: They invest resources in the front-end process of helping students enroll: everything from applying for financial aid to having their textbooks waiting for them on the first day of class. But she, like many other critics of for-profit education, is concerned by the high indebtedness and high default rate of students. Those who attend for-profit colleges represent only 26% of all borrowers but account for 35% of federal loan defaults.
The high default rate is a sign of the trouble graduates have finding quality, high-paying jobs, Cottom told Karin Kapsidelis, higher ed writer for the Richmond Times-Dispatch. For-profit colleges are a varied lot. While some deliver value for the students’ investment, others are marketing machines designed to enroll students and collect revenue with little heed to results. “The profit motive changes everything. It means that instead of helping students, you’re selling students.”
The industry took off when the financial sector figured out how to make money from it, Cottom says. Wall Street underwrote for-profit educational enterprises to “monetize” peoples’ aspirations and their faith in education as the way to improve their lives.
Writes Cottom in the introduction to her book:
Lower Ed refers to credential expansion created by structural changes in how we work, unequal group access to favorable higher education schemes, and the risk shift of job training, from states and companies to individuals and families, exclusively for profit. Lower Ed is the subsector of high-risk post-secondary schools and colleges that are part of the same system as the most elite institutions. In fact, Lower Ed can exist precisely because elite Higher Ed does. The latter legitimizes the education gospel while the former absorbs all manner of vulnerable groups who believe in it: single mothers, downsized workers, veterans, people of color, and people transitioning from welfare to work.
Bacon’s bottom line: No question, the high default rate is a huge problem — student indebtedness is creating a new class of Americans who have little hope of paying back their tuition and, as the law stands now, little chance of discharging their debts through loan forgiveness or bankruptcy like overextended homeowners can do. But I am concerned by how many people, including, Ms. Cottom, it seems, blame the problem on for-profit institutions and the profit motive.
As the Kapsidelis story points out, for-profit colleges account for 35% of all federal loan defaults. But 65% can be traced to non-profit colleges! The driving force behind high defaults isn’t the for-profit status of the school, I would suggest, but the socioeconomic status of the student. Students from poor families are more likely to drop out and default on their debt than students from better-off families. Historically Black Colleges and Universities (HBCUs), which are non-profit, have high default rates, too, as do institutions that cater primarily to lower-income whites and Hispanics.
For-profit institutions are motivated to accept marginal students in order to fill seats and generate revenue. But guess what, so are many non-profit institutions. They, too, have expenses to cover, salaries to pay, and bonds to finance.
The problem, I would suggest, isn’t for-profit versus non-profit, it’s the erosion in lending standards. Anyone who wants a student loan can get one. Because the repayment risk is transferred to the federal government, the college (be it for-profit or non-profit) has no skin in the game. If a college student is unprepared for college, defaults after dropping out, or fails to find a job, the institution suffers no ill consequence. Why would we expect any other result?