Where More Default Than Graduate: Career Education Program Parasites

The Obama Administration is moving forward in defining what it means for career education programs to “prepare students for gainful employment in a recognized occupation.” This requirement – which applies to programs at public, nonprofit, and for-profit colleges – has long been in federal law, but, without a rule defining what it means, the Department has been powerless to enforce it.

The draft rule would measure career education programs’ outcomes in two ways. First, the debt burdens of program graduates who received federal aid would be compared to their later earnings. Second, students’ ability to repay their loans – including both graduates and noncompleters – would be measured through a program-level cohort default rate.  Programs where graduates’ earnings don’t justify typical levels of debt, and those where borrowers too frequently default on their loans, would lose eligibility for further federal grants and loans unless the programs improve.

The data released by the Department in conjunction with its proposed rule are alarming. They couldn’t make a better case for why the rule is desperately needed and must be strengthened to provide meaningful protections for students and taxpayers.

To illustrate:  Of the 4,420 programs in the dataset with complete data (meaning that both students’ debt burdens and default rates are calculated), there are 114 programs where the data show more defaulters than graduates.  In other words, students receiving federal aid to attend these programs are more likely to find themselves unable to repay their debt than they are to complete the credential they sought.  It’s also important to understand that this very much understates the problem at these programs.  That’s because, due to the way that debt burden and defaults are measured, these figures represent the defaults from one cohort year (those who entered repayment in 2009) compared to two years’ worth of completers (those who completed in either 2008 or 2009).

Here are a few facts about these 114 programs with more defaulters than graduates:

  • All 114 are at for-profit colleges, and most (82) are associate degree (AA) programs.
  • They include a sizable share of measurable programs in some fields. Seven of the 13 AA programs in ‘securities services administration/management’ have more defaulters than graduates.  Six of the 17 ‘accounting technology/technician and bookkeeping’ AA programs have more defaulters than graduates.  And the same is true for all three of the AA programs in ‘criminalistics and criminal science.’
  • Almost two dozen of them (23 of the 114) fully pass the proposed rule’s modest standards. Of the others, 14 are “in the zone” – a program limbo for those not good enough to pass and not bad enough to fail outright – and 77 fail.

The fact that 20% of the programs leaving more students in default than with credentials pass the Department’s proposed tests clearly shows that the tests aren’t strong enough. And even the 68% of programs that fail outright would remain eligible for federal funding under the proposed rule unless they failed again.

What is also crystal clear from the data is that the stakes for students are high:

  • Many of the programs are huge: 33 of the 114 programs had more than 1,000 students who entered repayment in a single year, and 6 of them had more than 5,000 borrowers who entered repayment in that year.
  • There are seven programs where the number of defaulters exceeded the number of completers by more than 1,000.  All seven are at the University of Phoenix.

These are parasitic programs, consuming resources to the detriment of students and taxpayers. Reasonable people may disagree on certain aspects of the Department’s proposal, but the need to strengthen the rule so programs like these must shape up should not be one of them.

Click here for a sortable list of the 114 programs with more defaulters in one year than graduate over two years. To read the New York Times editorial on our May blog post, click here.

- Debbie Cochrane

Posted in Data and Research, Federal and State Policy, Private Loans, Student Debt, Student loan repayment | Leave a comment

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