Editorial: Students, taxpayers both deserve protection
Colleges with higher loan default rates than graduation rates should not be eligible for federal lending programs, but they are.
Sometime this month, the U.S. Department of Education will release tighter rules, but officials may first want to study an analysis of for-profit career colleges that shows the crackdown doesn’t go far enough.
Typically, such colleges offer practical course work that’s designed to lead to employment in specific fields, such as cosmetology, web design and criminal justice. But too often they produce shattered dreams, and a lifetime of debt.
The feds released data in March, along with proposed rules aimed at high loan-default colleges. The numbers show that for-profit colleges are a terrible bargain for students and taxpayers. Students at such institutions comprise 13 percent of all college students, but they account for nearly half of all loan defaults.
These schools are expensive, so they encourage applicants to apply for federal student loans. But most two-year graduates of these schools leave with debt, which averages more than $23,000, while most community college students do not.
The saddest cases are the students saddled with debt with nothing to show for it. A total of 114 education programs produce more loan defaults than diplomas, and they’re all at for-profit institutions. Most offer two-year degrees.
To address this, the Education Department released draft rules in March for public comment. Students at institutions that don’t meet the new guidelines would not be ineligible for student loans. To qualify, annual loan payments for typical graduates cannot “exceed 20 percent of their discretionary earnings or 8 percent of their total earnings and the default rate for former students does not exceed 30 percent.” Plus, the colleges must publish public information on costs, student debt and whether graduates gain jobs in their chosen fields.
Those are overdue changes, but an analysis by the Institute for College Access and Success shows that about 20 percent of the targeted institutions could meet the new requirements and still produce more loan defaults than diplomas. And 68 percent of the programs that fell short would remain eligible for government loans as long as they didn’t fail again.
A crackdown would help, but for students and taxpayers the equation too often results in a lose-lose outcome. Meanwhile, for-profit colleges would be paid and could continue to draw more students with the lure of publicly funded loan programs. Beyond loans, for-profit colleges also take an inordinately large slice of direct government aid, such as Pell grants and GI Bill dollars. Low-income students and veterans need better protections.
With the high price of college tuition, more students have come to rely on loans. To reflect this reality, the government should ensure that lending programs be avenues to opportunity, not roads to financial ruin.
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