The Tricky Issue of Bad Debt and For-Profit Colleges

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Source: College Scoreboard

by James A. Bacon

State higher education officials are scrambling to deal with the fallout if a federal agency votes to terminate the Accrediting Council for Independent Colleges and Schools (ACICS), an accrediting agency for for-profit colleges. ACICS-accredited institutions, which include Stratford University and the Bon Secours and Sentara nursing schools, among others, enroll 9,000 students in Virginia.

A loss of accreditation would drop a guillotine blade on most of these institutions, whose students overwhelmingly depend upon federal grants and loans to pay their tuition. In a separate regulatory action, the recent shuttering of ITT Technical Institute stranded thousands of students around the country.  ITT had five locations in Virginia.

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Source: College Scoreboard

In a meeting yesterday, the State Council of Higher Education for Virginia (SCHEV) approved a contingency plan that would give an 18-month grace period to ACICS-accredited colleges, reports the Richmond Times-Dispatch. The measure is designed to let the colleges time to find new accreditation.

The Obama administration has cracked down on for-profit colleges, many of which report low graduation rates and low earnings upon graduation, while saddling students with high debts. For-profit institutions have contributed disproportionately to the mounting problem of borrowers unable to repay their student loans.

Bacon’s bottom line: The Obama administration is right to address the problem…. which it helped create in the first place by declaring a goal of helping every American who wanted to attend college to do so. The U.S. Department of Education undertook a massive expansion of federal grants and loans. Some of the “colleges” responding to the new opportunity, I suspect, were founded by quick-buck artists to capture student aid dollars with little regard to the quality of education they were providing. Indisputably, many educational institutions have shamefully low graduation rates and offer poor job prospects even when students do graduate. But in moving to correct the abuses, the administration is moving ham-handedly.

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Source: College Scoreboard

For-profit colleges are a mixed bag. Some do a commendable job. For instance, the Advanced Technology Institute in Virginia Beach, which has 717 undergraduates, has a graduation rate of 70%, and an average salary of $38,000 ten years after attending. That is comparable to, say, Longwood University, with a graduation rate of 65% and $39,600 average salary, according to the U.S. Department of Education College Scorecard.

ECPI University, also in Virginia Beach, has graduation and earnings metrics roughly comparable to Virginia State University, while American National University in Salem shows results similar to those of Mountain Empire Community College in far Southwest Virginia.

At the bottom of the heap, there are ten for-profits that can’t even report complete information to the College Scorecard. Among those that do report graduation rates, Stratford University in Fairfax and the University of Phoenix in Henrico matriculate only 12% of their students. But any comparison gets tricky. The graduation rate for John Tyler and J Sargeant Reynolds community colleges in the Richmond region is only 13%. Are the for-profits really any worse? It’s impossible to say from a superficial review of the data.

The fact is, some for-profit colleges provide an educational option geared to people working full time, and programs that provide specific job-related skills such as criminal justice, dental assistance, auto mechanics, message therapy, HVACs, and the like. Moreover, career colleges cater disproportionately to blacks and Hispanics. Shutting down legitimate for-profit colleges destroys a potential avenue of upward mobility for minorities.

From a high-altitude perspective, however, helicoptering easy money to students has led to a misallocation of hundreds of billions of dollars — encouraging millions of students to pursue educational programs that either they were academically unprepared for or, for reasons of personal circumstance, were unable to complete. The result has been the rise of an indebted class, whose obligations many politicians now want to transfer to the taxpayer.

As a nation, we need to bring the student-debt bubble under control. The question is, what is the best way to accomplish that goal? Do we target the worst-performing for-profit institutions, even while some community colleges show comparable graduation and earnings metrics? Or do we focus on the individuals taking out the loans, recognizing that some have academic backgrounds and life circumstances putting them at higher risk of failure and eventual default? In the old days, lenders evaluated applicants on the odds of getting their money repaid. The federal government appears to be unwilling to take that step. Instead, it sets no standards of credit-worthiness, lends money to anyone, and puts for-profit colleges out of business when the results get ugly.