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Student Loan Reform and For-Profit Colleges

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Mention the word “college” in a roomful of young people, and most of them will conjure mental images of students wearing backpacks or carrying laptops across a busy quad, but that’s not always the case: the rising popularity of online colleges means that increasing numbers of students are earning degrees without ever setting foot on an actual college campus.

Supporters of online colleges feel that the programs provide access to educational opportunities that people didn’t have as recently as ten years ago, but over the past few weeks online colleges have been in the news for reasons other than their many advantages.

Although most state schools and community colleges have started offering courses online, the vast majority of online degree programs are offered by for-profit schools: educational institutions run by private, profit-seeking companies or organizations. These post-secondary institutions operate as businesses, receiving fees from each student they enroll.

Studies show that student enrollment at for-profit colleges increased 225% between 1998 and 2008. Enrollment in all types of post-secondary schools, including for-profit colleges, grew by 31% over the same period.

For-Profit College Students Defaulting on Loans

For-profit schools have recently fallen under government scrutiny due to their alleged tactics of aggressively recruiting low-income students that wind up never graduating and defaulting on government-backed student loans. The Detroit Free Press reported that even though fewer than 10% of college students attend for-profit colleges, these schools account for 44% of all defaults on federal student loans.

Steven Eisman, a portfolio manager of FrontPoint Financial Services Fund, told members of the Senate Health, Education, Labor and Pensions Committee this past Thursday, “We’ve just loaded one generation of Americans with mortgage debt that they can’t afford to pay back. Are we going to load up a new generation (with) student loan debt that they can’t afford to pay back?"

As a June 15, 2010 USA Today piece explained that the U.S. Department of Education and the Obama administration are proposing new rules designed to protect college students and taxpayers from abusive or fraudulent practices, including aggressive recruitment tactics and allowing ineligible students to enroll and receive aid.

A Senate committee working on the issue found that more than 98% of students at four for-profit schools are enrolled online, and Robert Shireman, the chief architect of the Education Department’s strategy, has compared for-profit institutions to the Wall Street firms whose behavior led to the financial meltdown for the vast and quickly increasing sums of federal student aid money they are drawing down.

Democratic Senator Tom Harkin of Iowa, who launched a series of hearings as chairman of the Health, Education, Labor and Pensions Committee, has been quoted as saying, “We don’t know what risk we are taking by investing an increasing share of our federal financial-aid dollars in this sector. We have a responsibility to ensure students are being well educated and that schools are using taxpayer dollars responsibly.”

What do For-Profit College Students Think About All This?

Hundreds of students already have shared their stories of being aggressively recruited and misled about the career and salary potential offered by for-profit schools with Senator Harkin’s office. Students have testified that they racked up thousands and thousands of dollars in federal student loan debt only to find out that their degree programs were not accredited, and they were unable to find jobs upon completion as promised by the school.

Other witnesses even described their schools as knowingly receiving loan or grant payments for students no longer enrolled, encouraging prospective students to buy illegitimate high school diplomas, and manipulating data to appear to be meeting federal requirements to qualify for student aid.

A Huffington Post piece explains that even though for-profit schools are the fastest growing sector of higher education, there’s been little organizing by the students themselves. When a voice is heard, it’s usually a dissatisfied former student or graduate describing dubious recruitment practices, staggering debt or training that left them ill-prepared to pay it off. That’s where the Career College Association, a lobbying group for for-profit schools, comes in. Students such as Dawn Connor, a 33-year-old from Eau Claire, Wisconsin, are speaking at news conferences as examples of satisfied for-profit college students.

What May Change?

The Education Department wants to “close loopholes” and make information about for-profit colleges clearer to consumers. For example, under one new rule, for-profit colleges would have to provide prospective students with graduation and job-placement rates for various programs.

A further development of a rule known as “gainful employment” is still in the works. It is relatively controversial because it could potentially hold for-profit schools accountable for whether their graduates earn average salaries high enough to enable them to pay off their debts.

Students wishing to attend for-profit colleges – whether in person or online – can use their common sense and good judgment when making decisions, just as you should do with any other college:

  • Find out how long has the program existed, and how many students are currently enrolled
  • Ask about student retention rates, which can be a clue as to the quality of an online program
  • Research for yourself whether or not the school has been in any sort of legitimate trouble that has been reported in the news
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Melissa Rhone+

Melissa Rhone earned her Bachelor of Music in Education from the University of Tampa. She resides in the Tampa Bay area and enjoys writing about college, pop culture, and epilepsy awareness.


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