Students at for-profit colleges are more likely to be stuck in debt, study finds

Students who attend for-profit colleges — nearly one-tenth of all those enrolled in higher education in 2009, according to a new U.S. Senate committee report — are more likely to wind up mired in debt than their counterparts who attend public or nonprofit institutions, says a study by the National Consumer Law Center. But wherever they were schooled, it says, students who fail to capitalize on their training are often stuck with no way out of debt.

The consumer group’s study was made public Monday, the same day Sen. Tom Harkin (D., Iowa) released findings from a two-year examination of the for-profit higher-education industry by the Senate Committee on Health, Education, Labor and Pensions. Both reports suggest that students attending for-profit schools face an extra measure of financial risk.

The Senate report, citing Education Department data, said that 96 percent of students enrolled at for-profit institutions borrowed for school in 2009 — compared with 13 percent at community colleges, 48 percent at public four-year colleges, and 57 percent at private colleges.

The law center, which advocates for low-income consumers, focused on what happens to students who fail to repay student loans, and the shortcomings of programs designed to help distressed borrowers cope.

In 2009, its report said, 15 percent of students who had left for-profit institutions within the previous two years were considered in default of their federal student loans, compared with 4.6 percent of students who had left private nonprofit schools.

Those numbers understate the long-term risks for many borrowers, said Deanne Loonin, staff attorney at the law center’s Boston office and author of its report. Estimates suggest that lifetime default rates are as much as four times as high, she said.

Why are students who attend for-profit schools more likely to default?

Loonin said studies focusing on factors such as demographics may be inadequate to explain all the differences.

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Self-supporting students at for-profit schools face higher debt loads. The Senate report said such students leave for-profit schools owing a median of $32,700, compared with $24,600 after schooling at private, nonprofit colleges and $20,000 after schooling at public colleges.

But the law center said studies differ on whether the magnitude of debt is a major factor in default risk, and said educational failures probably deserve much of the blame.

Education Department data showed that 58 percent of students who started college in 2004 completed a bachelor’s degree within six years, the law center said. Students at four-year, for-profit schools had a 28 percent graduation rate, less than half as high.

In any setting, those who drop out face a tougher road, the law center’s report said, citing data from a 2012 study that showed stark differences in default rates between borrowers who graduated from traditional colleges and others who took federal loans.

College graduates had a 3.7 percent default rate, the study said, less than a fourth the rate for those who dropped out of similar schools. But borrowers who graduated with a certificate from a for-profit, less-than-four-year school had a 19.2 percent default rate. And borrowers who dropped out of such schools had nearly a 30 percent default rate.

Loonin said the law center did a detailed analysis of about 40 former students facing default to examine why they struggled to repay loans. Aside from economic difficulties, the most commonly cited reason for failure was lack of employment in the field for which the person studied.

The center said students shortchanged by poorly run schools, like other student borrowers with low incomes, face “draconian collection policies” with little recourse.

The main programs for addressing defaults don’t meet the needs of low-income borrowers who mistakenly expected schooling to provide a route to a better career, the law center said.

Only three limited circumstances allow a loan to be discharged, it said: a closed school, a false certification, or unpaid refunds.

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“A school may routinely pay admissions officers commissions in violation of incentive compensation rules, fail to provide educational materials or qualified teachers, and admit unqualified students on a regular basis. None of these violations is a ground for cancellation. Instead, borrowers are stuck with a degree they cannot use,” the law center said.