The inability of for-profit institution graduates to pay-off student loans could mean the end of federal financial aid for dozens of colleges, according to new data released from the U.S. Department of Education on June 27.
The government report found that at 193 programs and 93 schools, students failed to reach any of three measures under a new "gainful employment" rule. New regulations announced by the Obama administration last year aim to make sure that students in career training programs at for-profit, nonprofit and public institutions are employed and able to pay-off their loans when they graduate.
Despite the criticism, only 7 percent of schools evaluated failed to meet any of the government's benchmarks. Proponents of for-profit institutions say the government is unfairly targeting them over just a few poorly-run programs.
The report singles out more than 40 programs operated by Corinthian Colleges, one of the nation's largest higher education companies, chef training at Le Cordon Bleu College of Culinary Arts in Austin, Texas; and the medical assistant program at Sanford-Brown College in McLean, Va.
"Career colleges have a responsibility to prepare people for jobs at a price they can afford," Education Secretary Arne Duncan said. "Schools that cannot meet these very reasonable standards are on notice: invest in your students' success, or taxpayers can no longer invest in you."
In order for former students to be considered "gainfully employed," the program they participated in must meet one of three metrics: The estimated annual loan payments for a typical graduate cannot exceed 30 percent of his or her discretionary income or 12 percent of total earnings; and at least 35 percent of graduates must be repaying their loans.
"These aren't the strictest standards to live up to," said Stephen Burd, a senior policy analyst at the New America Foundation, a public policy institute. The data raises serious questions about the quality of training that students receive at institutions that didn't meet any of the benchmarks, an alamringly high number, Burd said: "If we're seeing they're failing all three metrics and we're not taking any action related to that, it's putting students in harm's way."
Grand Canyon University, in Phoenix, Ariz., is a private, for-profit Christian liberal arts institution geared towards low-income students from urban and rural areas. Bill Jenkins, head of communication and public affairs at GCU, told World On Campus he believes most for-profit schools are well-equipped to offer quality education in more economically friendly ways but sees the need for accountability.
"For-profit institutions attain negative connotations because there are bad actors out there," he said. "But being a for-profit school has enabled us to do things that we couldn't as a nonprofit. We're an investment-led model and therefore we are able to offer a well-based education to the state of Arizona, without taxpayer involvement."
Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, which represents for-profits, said the government's regulation doesn't accurately measure the services provided by career colleges and could result in thousands of students losing access to postsecondary education.
"America will face a demand for eight to 23 million workers with postsecondary education over the next decade, but this regulation seeks to impose a series of faulty numerical measures that ignore the economic reality of inner-city and rural areas", he said.
Some schools have not received rates for all of their programs, and some have reported that student and loan files are incorrect, he said. Schools have also claimed the Department of Education does not have the right data on the amount of federal debt for students or schools.
Only 12 percent of students in higher education attend a for-profit institution, yet they carry 46 percent of all student loan debt. While students who attend community colleges usually do not have to borrow money to enroll, the median federal student loan debt for a student earning an associate's degree at a for-profit school was $14,000.
Eighty percent of the revenue from one-quarter of for-profit schools consists of federal student aid, the Department of Education said in announcing the finalized rule last year.
Many non-traditional, adult students attend for-profit schools because of their flexible schedules, but critics say they have weaker student outcomes and that quality varies widely. Only 28 percent of students who enrolled in a bachelor's degree program at private, for-profit institutions in the fall of 2004 graduated within six years. The six-year graduation rate for a student at a private, nonprofit institution, was double-65 percent. At public institutions, the graduation rate was 56 percent.
The report released Wednesday covers 3,695 programs in 1,335 schools over a two-year period. Of those, 35 percent met all three measurements, 31 percent met two, 29 percent met one, and 5 percent did not meet any of the three metrics.
The report is for informational purposes only and is designed to give the schools involved an opportunity to review and improve their student outcomes. Government regulators will begin enforcing the new rules this fall. However, schools will need to fail three out of four years in order to lose access to federal student aid.
The Associated Press Contributed to this report.