by Candi Sparks
On June 15, the Department of Education responded to complaints from consumer advocacy groups by proposing regulations which would force for-profit schools (like DeVry) to change their policies, or lose student funding. The regulations are aimed at getting for-profit schools to accurately report two statistics to student candidates, namely, the school’s graduation rates and post graduation job placement rates, before accepting a student‘s enrollment. In addition, a school could lose student funding if more than 45% of graduating students fail to pay off the principal on their federal school loans.
A group of more than 1,400 (or 95%) of for-profit schools known as the Career College Association, challenged the government’s position. Jonathan Guryan, an economist at Northwestern University said on behalf of the Association that the regulation would have unintended consequences that disproportionately affect poor, black and Hispanic students, who attend for-profits at higher rates. Schools may be tempted to turn away students with high debt, he said. “I’m concerned it would create an incentive for schools to discriminate.”
The for-profit schools rely on higher tuition to cover operating costs and turn a profit. Accordingly, students of for-profit schools typically incur higher student debt. Their students receive about 24 percent of Stafford federal loans to attend for-profit schools.
Defaults on federal student loans put taxpayers on the hook for 97 to 100 percent of the losses, depending on whether the default is on a direct or guaranteed loan. Hypothetically if a student defaulted on a $30,000 loan without making a single payment, taxpayers would be responsible for $29,100 to all of it. Although statistics show that many borrowers pay down a portion of their loan before defaulting, the government collects the remainder.
According to the Department of Education, these regulations have been put into place to protect the low-income and minority students who are often targeted by for-profit schools and either drop out, default on loans and/or cannot find jobs in their area of study at the for-profit school. Defaulting on a loan would harm a student’s ability to find housing, employment and gain further access to credit. Many students turn to 2-year programs at community college to avoid the high cost of the for-profit school while continuing their education. The cost of a for-proft may not ultimately be worth the price of admission.
The final rules will be published by November 1, 2010 before they take effect next July.
Candi Sparks is the author of the “Can I Have Some Money?” books series.