The Tricky Issue of Bad Debt and For-Profit Colleges

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.

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.

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.

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12 responses to “The Tricky Issue of Bad Debt and For-Profit Colleges”

  1. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Jim, you have written a good article here.

    For starters I would say that the rot starts at the bottom, public education in K through 12. It compounds exponentially when the Federal Government creates the lie that most all students who pass through this horrible k though 12 public education experience are entitled to go to college. And then hand out have billions of dollars like crack cocaine to these unprepared kids to ensure that they get caught in a fraudulent trap.

    Like so much else our federal government today does, it has here created a massive problem and now its seeks unfairly to solve it by putting only the for profits institutions out of business with fixing the originating cause at starts in the public first grade. This is nothing more than yet another cynical power play by a deeply corrupt federal government that also goes about destroying family, church and sexuality.

  2. LarrytheG Avatar

    I’d like to hear from Steve Haner .. as to what Virginia is doing and why.

    ” In total, the Department of Education recognizes 37 accrediting agencies that act as gatekeepers to the federal student loan system. Those agencies review colleges based on a variety of issues, including academic quality, personnel, instructional resources and many others. Using that information, the agencies approve or deny schools access to federal financial aid benefits.”

    I don’t think this problem started with Obama – either – the problem has been festering for years and includes Veterans benefits.

    But this is once again – damned if you do and damned if you don’t for the critics.

    It’s certainly legitimate for the govt to require standards and metrics for any institution that benefits from Federal dollars.

    And yes – I’d also use the same progress for public and private institutions – whether for-profit or not…

    And yes – I’d agree that loans should be vetted and restricted according to specified criteria that applies to everyone – not just those demographics that Jim seems to think needs more special attention.

    Finally – I’d not allow loans for anything other than tuition – period.

    If you want a residential on campus experience – that’s not something that taxpayers should be paying for .

  3. You say, “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.” Gee, that sounds familiar! Anyone heard of “Trump University”?

  4. LarrytheG Avatar

    and this is the way the “free market” works – with or without govt loans – with no regulation – it’s up to the for-profit “college” to determine what is a good value for the money and if left totally to the free market – without any govt involvement – what would happen?

    1. It’s not a “free market” when the federal government indiscriminately hands out hundreds of billions of dollars of loans, usurping the traditional role of lenders in judging credit risk.

      1. LarrytheG Avatar

        but it don’t matter whether the Feds are funding it or not in terms of what level of transparency and accountability is provided.

        it’s whatever the free market decides to provide or not – right?

        at least with the Feds there is SOME level of transparency – AND accountability – the removal of the funds for low performance and failure.

  5. Steve Haner Avatar
    Steve Haner

    I had not seen that website – fascinating. With all the focus on the US News and Forbes rankings, they are fluff and this chart has some real meat. Let’s see, ten years out of W&M in 1986 I was making $28,000. Need to run the inflation calculator on that….

    Note that the 10-year salary figure is only for students receiving direct federal aid. At places like UVA and W&M and Tech, that’s just a slice of the students. At the for-profits, it is a far larger portion of their customers if not most of them. The data on those charts shows terrible ROI for federal investments in most for-profits, good ROI for the four-year public institutions and great ROI for the community colleges due to their lower cost going in. Did you list the state’s private four years, Jim? I didn’t seem to see them…

    The graduation rate is more nuanced, as many students in the career-based programs don’t really need a degree to move up, just the training. Not all the community college students are seeking actual degrees.

    SCHEV is right to prepare for future problems as more of these for-profit institutions fail or get the ax, by creating some opportunities for transition to new accreditation or transfer. Just locking the doors suddenly ala ITT is terrible. But I think the shake out is only starting. And if people look at those figures, why would they continue to pay that much money for a program if the same was available at a community college? That’s where the feds (and the state) need to focus the resources.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Good observations.

      I think we are going to find the whole system is rotten to the core. And that this includes many more second and third tier colleges, for profit and not for profit alike, than anyone has been willing to focus on seriously up until now. And first tier colleges too are in trouble if only because their grading is so inflated. And that this also particularly includes many smaller heretofore respectable private institutions that, like their students, got caught in the trap of far too easy money, and did not know how to walk away from it, given a variety of reasons.

      These reasons included, for example, the failure to honestly grade students, indeed the fear of faculty to honestly grade students, and if teachers cannot honestly grade students, how can schools ask students to leave. And if schools did ask them to leave after those schools had geared up to serve these students or earlier students had been well educated by public high schools in bygone eras, and so had already hired faculty, and built dorms and classrooms, etc., how do such schools now back off unqualified students without going broke. And here the pool of qualified students got smaller after the baby boomers ran out, and the quality of secondary education in America fell off a cliff. But the Federal government started insisting that all kids had a right to a college education.

      So at base I fault the federal government for pushing all this money out the door with a blind eye to students graduating from high school with declining qualifications for college, or no good education at all, (like they did with Fanny Mae subprime loans bound to default), and while the US K-12 public education system kept pushing more and more kids our onto the streets with hardly any education at all, much less one that was sufficient for them to pursuit successfully any college education worthy of the name.

      So this is not just a for profit education problem. It goes across the board with public and private institutions. That is for example why folks with even with the best of intentions, like for example the Graham family (former Washington Post owners) got caught in the trap. And in such cases the bottom feeders rush in to loot and pillage, for profit, and non profit alike.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        Sadly, what this really means is the we cannot to solve the base problem – offering solid secondary (K-12 grade) educations – until we rebuild American families, and real time American communities in this country. Only then will most all American kids get the cultural and emotional and social skill sets that they need to succeed in good and demanding secondary schools that educate students, instead of pretending to educate students.

        Then, once armed with that support that can only be given at home and in their communities, more and more of these new American kids will successfully get a solid high school education. One that allows them to take full advantage of a college education or, alternatively, allows them to get education in whole varieties of skill sets that will earn them good working and paying jobs that the American economy needs and allows those working younger people to build families that are critical if we are to maintain healthy communities for most all people as happens in Germany, for example.

  6. LarrytheG Avatar

    Interesting reading from US Dept of Ed:

    What College Accreditation Changes Mean for Students

    “For millions of Americans, federal student loans and grants open the doors to a college education. That critical federal aid must be used at a school that is (among other things) given the seal of approval by an “accrediting agency” or “accreditor” recognized by the U.S. Department of Education. It’s one of the safeguards in the system. Accreditation is an important signal to students, families, and the Department about whether a school offers a quality education. Accreditors have a responsibility under federal law to make sure colleges earn that seal.

    But what happens when the Department stops recognizing an accrediting agency?”

  7. LarrytheG Avatar

    Jim did do an excellent job on this and especially so with the graphics which well highlight relevant data.

    Note the “source” – College Scorecard. That’s the big big, nasty, corrupt and incompetent government….

    note that the “source” does NOT say ” National Association of For Profit and public/private colleges dedicated to providing parents and students information upon which to make informed decisions”.

    Consider the College Scorecard to be the required “Nutrition Label” for Higher Ed.

    Then I’d add one more metric – which specifies how much College loan money is available – for each school – based on that school’s other metrics… the better the metrics – the higher the loan money available – the lower the metrics – the less loan money available.

    Finally – Jim says: ” It’s not a “free market” when the federal government indiscriminately hands out hundreds of billions of dollars of loans, usurping the traditional role of lenders in judging credit risk.”

    and I agree – so I’d ask if the same problem would occur if we use government dollars for voucher k-12 schools? How would we assure that the same thing would not happen?

  8. “I’d ask if the same problem would occur if we use government dollars for voucher k-12 schools? How would we assure that the same thing would not happen?”

    That’s a very reasonable point to make. Human nature being what it is, there would be a lot of fly-by-night schools arising to take advantage of voucher money. That’s why I’ve said that voucher-funded schools should be subject tot he same SOL testing as public schools and should be held to the same accountability standards as public schools.

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