Behind the Obama Administration’s effort to cut off federal aid to non-elite colleges that have profit motives.
The U.S. Department of Education recently conducted a Notice of Proposed Rulemaking (NPRM) that suggests the Dept of Ed will severely restrict access to various federal loan and grant programs to students attending career colleges. Unlike state-owned public institutions and private, not-for-profit colleges, career colleges operate on a for-profit basis.
There are approximately 1,000 career colleges such as the University of Phoenix, Strayer University, DeVry Institute and Westwood College that offer Associate, Bachelor or Master’s degrees. About 1.2 million students were enrolled in these colleges in 2007-08, according to Dept of Ed statistics. Another 1,800 for-profit post-secondary schools offer certificate, continuing professional education or occupation-specific education such as golf academies and culinary, technical and cosmetology schools.
In contrast, there are more than 3,300 public institutions and private, not-for-profit colleges that offer Associate or higher degrees. In 2007-08, about 17 million students were enrolled in these schools.
Career colleges have grown dramatically in the past several years. They primarily market themselves as providing degree and certificate programs that meet local market employment shortfalls and cater to the hectic schedules of a student body that is already in the workforce. Career colleges also provide opportunities to students who are denied admission to public universities and private colleges.
The typical career college student is already employed, 25 years of age or older, minority, female, single and often with dependent children, has lower income, cannot rely on family resources to finance college, and comes from a family without a college degree.
Because of these demographics, career colleges tend to have a much higher percentage of students who rely on federal student financial aid that is doled out under Title IV of the Higher Education Act of 1965 (federally insured loans, Pell Grants, etc.) than do students at public universities and private colleges.
This federal funding totaled $105 billion during the 2008-09 school year. About $24 billion of that amount went to students who attended career colleges.
According to Senator Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions, which has jurisdiction, federal student aid will balloon over the next decade. The U.S. will spend as much as $350 billion just on Pell Grants over the next 10 years. In 2009, $24 billion was spent on Pell Grants; in 2011, the U.S. will hand-out $30.6 billion.
The Dept of Ed has several criticisms of career colleges. The department alleges students attending career colleges default on federally backed student loans at a significantly higher rate than do students at public universities and private colleges. Career colleges dispute this allegation and respond with two points.
First, the demographic of the typical career college student is more prone to defaulting on loans, in general, and this accounts for a slightly higher student loan default rate. This demographic claim is borne out by the high loan default rate of students attending historically black colleges and universities.
Second, career colleges accuse the Dept of Ed of using different accounting techniques when analyzing student loan repayments by career college students. Older students already in the workforce are more likely to consolidate student loans into consumer debt refinance plans. The Dept of Ed, career colleges assert, improperly identify student loans in such situations as “in default” when they are, in fact, being repaid on time or are in approved interest-only payment programs.
The Obama Administration’s first attack on higher education financing occurred when the government conducted a takeover of private student loans. Observers allege the proposed rule change underscores the anti-corporate bias of the Obama Administration.
The Dept of Ed also complains that career colleges create “labor oversupplies” by graduating too many qualified workers for a specific profession causing unemployment and depressing salaries. Of note, the Ed Dept is silent on the thousands of lawyers graduated each year by law schools.
Occupation-specific training programs, argues the Dept of Ed, “that lacked a general education component made graduates of for-profit institutions less versatile and limited their opportunities for employment outside their field.” Career colleges dispute this.
Speaking on background, one career college official stated that graduating students who cannot get employed will cause students to attend school elsewhere. “We are marketplace-driven. We have a strong incentive to ensure our graduates get jobs. And they do,” he said.
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