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

Last updated 03/20/2024 by

Students who attend for-profit colleges — nearly one-tenth of all those enrolled in higher education in 2015, according to the National Center for Educational Studies — are twice as likely to end up mired in student debt than those who applied for loans at public or nonprofit institutions, says a recent study by the Brookings Institution. If you include students at for-profit and not-for-profit colleges who didn’t borrow money, the discrepancy is even greater. For-profit college students default on loans at four times the rate of their fellows.

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Debt risks for students at for-profit schools

In August 2015, Sen. Tom Harkin (D., Iowa) released findings from an investigation on for-profit higher education by the Senate Committee on Health, Education, Labor, and Pensions. The Senate’s data corroborates the fact that students attending for-profit schools face much greater financial risks.
The Senate report reports that a whopping 96% of students at for-profit institutions borrowed money in 2009. By comparison, only 13% of community college students borrowed money. At public four-year colleges, only 48% of students borrowed money. And at private colleges, the figure was 57%.
The law center, which advocates for low-income consumers, focuses on the fate of students who failed to repay student loans. Unfortunately for these borrowers, the programs designed to help them cope with debt were largely ineffectual.
In 2009, its report says, 15% of students who had left for-profit institutions defaulted on their loans. At private nonprofit schools, on the other hand, only 4.6% defaulted.
According to Deanne Loonin, staff attorney at the Education Department, these concerning statistics only understate the long-term risks. Estimates suggest that lifetime default rates are as much as four times as high, she says.
Why are students who attend for-profit schools so much likelier to default?

Educational failures drive debt

Self-supporting students at for-profit schools face higher loads of debt. The Senate report says that these students leave for-profit schools owing a median of $32,700. Private nonprofit college students owed $24,600 — more than $8000 less. At public colleges, students owed a median of $20,000 — more than $12,000 less.
But this differing magnitude of debt may not be the most important factor in default risk, says the law center. Educational failures may deserve much of the blame.
Education Department data shows that 58% of students who started college in 2004 completed their degrees. But at four-year, for-profit schools, only 28% of students graduated.
At any institution, those who drop out face a tougher road, the law center reports. The average college graduate had a 3.7 percent default rate, less than a quarter of the default rate of students who dropped out from similar schools.
The law center also ran a detailed analysis on a group of 40 former students facing default. Aside from economic difficulties, the most commonly cited reason for failure was unemployment in their chosen field.
The center reports that students shortchanged by poorly run schools face “draconian collection policies” with little recourse.

Inadequate programs fail student debtors

The programs that are supposed to help borrowers address defaults don’t meet the needs of low-income borrowers whose schooling failed to provide them a route to a better career, the law center says.
Only three limited circumstances allowed a loan to be discharged: a closed school, a false certification, or unpaid refunds.
“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.
Do you need a loan to pay for college, but you’re not sure who to trust? SuperMoney can help you find the best route to a debt-free future. Struggling with seemingly endless student debt? Click here to learn about how refinancing could help you.

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