Source: Doug Webber, FiveThirtyEight, April 6, 2017
… In recent years, the public debate over student debt has often focused on the roles of the students who are borrowing the money and the government policies that encourage that borrowing. But there is also another key element of the equation: the colleges themselves. Colleges and universities benefit from the federal student debt system, which lets far more students afford tuition than otherwise could. But they shoulder none of the financial risk that comes with that debt; they get paid just as much regardless of whether students pay off their loans on time. In the most extreme examples, these misaligned incentives have led to outright fraud and other bad behavior by some schools. Corinthian Colleges, one of the biggest players in for-profit higher education, shut down in 2015 amid allegations it had misled students and the government about its students’ graduation rates and employment prospects. Another big, for-profit college, ITT Technical Institute, closed its doors last year after similar allegations. The real issue, though, isn’t outright fraud — it’s that colleges are partially insulated from basic market forces, and they behave accordingly. They have financial incentives to enroll as many students as possible, and little incentive — or at least, little direct financial incentive — to ensure that those students will graduate on time and find jobs that pay well enough to repay their loans. The issue is particularly acute at less selective institutions including, but not limited to, for-profit colleges. …
For-Profit Schools: Trump Delays Enforcing New Rules, Lifting Shares
Source: Josh Mitchell and Gunjan Banerji, Wall Street Journal, March 12, 2017
It isn’t exactly 2006 again, but for-profit colleges are riding high on Wall Street. Stocks in the industry, some left for dead five months ago, have climbed rapidly since November as investors cheer President Donald Trump’s talk of easing regulations. Last week, for-profit schools got an inkling he might deliver on the promise when the Education Department announced it would delay enforcing rules drafted under the Obama administration. Those rules, known as “gainful employment,” threatened to shut down hundreds of for-profit campuses in the next two years due to high debt levels among former students. …
For-profit colleges may lose access to federal student aid
Source: Kimberlee Payton-Jones, American School and University, March 18, 2014
In response to what appears to be a growing national concern, the Obama Administration announced new steps to force career and for-profit colleges to better prepare students for the work force or risk access to federal student aid, according to a press release from the Department of Education.
“The proposed regulations address growing concerns about unaffordable levels of loan debt for students enrolled in these programs by targeting the lowest-performing programs, while shining a light on best practices and giving all programs an opportunity to improve,” Department of Education Secretary Arne Duncan said in the press release.
The regulations seem to be directed at for-profit colleges, which have a higher rate of student loan default than do public institutions. “Students at for-profit colleges represent only about 13 percent of the total higher education population, but about 31 percent of all student loans and nearly half of all loan defaults,” the release said. “In the most recent data, about 22 percent of student borrowers at for-profit colleges defaulted on their loans within three years, compared to 13 percent of borrowers at public colleges.”