Loan rules choke for-profits' growth

The University of Phoenix collected more than $1 billion in federal Pell Grants in 2009-10, an all-time record.  For-profit enrollment has nearly tripled to 1.8 million since 2000. But it will be harder for students to use federal loans to attend high-cost for-profits with high student default rates, notes The Hechinger Report.

U.S. Secretary of Education Arne Duncan stepped in on Friday, proposing new regulations that would penalize schools for leaving students with unmanageable debt loads. Training programs at for-profit schools would be judged on whether former students are repaying the principal on federal loans, as well as whether their debt-to-earnings ratios exceed set limits.

Duncan estimates 5 percent of for-profit programs — “the bottom of the barrel” — would lose loan eligibility, affecting 8 percent of students.  Some 55   percent of schools would have to warn students about high debt-to-earnings ratios and limit enrollment growth. 

For-profit companies’ stock prices went up, suggesting that the rules are milder than the industry feared.

When  only 35 percent of a school’s graduates pay back their loans, it seems entirely reasonable to cut off the spigot. But for-profit  colleges enroll a disproportionate number of minority, low-income and first-generation college students. This is the group that does very poorly in public-sector colleges.  If these students had to take loans for the cost of their classes, instead of being subsidized by the taxpayers, they’d have a huge default rate too. And there is no hope of increasing the number of Americans with college training, one of President Obama’s goals, without trying to educate these high-risk students.

 Llimiting enrollment growth at 55 percent of for-profits and denying loans to 8 percent of students is bound to send more would-be students to community colleges, which already are overwhelmed by rising demand, I write on Community College Spotlight (and as a Hechinger sidebar).  Many students go to for-profits, despite the high costs, because they can’t get the courses they need at a low-cost community college.  Where will they go now? Perhaps to the higher-quality, lower-cost for-profits. I suspect the community colleges will lack the capital and the agility to expand quickly.

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