Scapegoating For-Profit Colleges, Obama tees up another private industry for punishment.

Posted: August 27, 2010 in Commentary
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President Obama says he wants the U.S. to have the world’s highest percentage of college graduates by 2020, yet his Administration is slapping new regulations on for-profit colleges that would make reaching that goal more difficult.

Last month, the Department of Education proposed new “gainful employment” rules that would cut off federal student aid to for-profit institutions, such as DeVry and the University of Phoenix, if a certain percentage of their students default on loans or don’t earn enough after graduation to repay them.

“Some proprietary schools have profited and prospered, and this is a disservice to students and to taxpayers,” said Education Secretary Arne Duncan in justifying the new rules. The politically operative words in that sentence are “profited and prospered,” not students and taxpayers.

The Chronicle of Higher Education reports that since 1995 nearly 40% of students at for-profit career colleges have defaulted on federal loans. An Education Department study found that fewer than 36% of for-profit college students repaid their federal loans, versus 54% at public universities. Under the government’s proposal, programs at for-profit schools would face federal aid restrictions if one of two thresholds isn’t met: At least 45% of former students must be paying down the principal on loans, or the debt payments of graduates must not exceed 8% of their annual income.

Operators of for-profit colleges—which tend to teach specific job skills as opposed to offering a liberal arts education—say that singling them out for new restrictions is unfair, and they have a point. It’s true that students at these so-called career colleges are more likely to take out larger loans than their nonprofit peers, and that this can contribute to higher default rates. But their tuition is also more expensive, in part because these schools don’t receive state aid and have to pay taxes.

Students at for-profit schools are also more likely to be low-income, racial minorities, single parents, high school dropouts with GEDs, or first-generation college students without parents who can help pay the tuition bill. Studies that control for this “at-risk” student demographic have found that loan default rates at career colleges are comparable to those found at community colleges and historically black schools; neither of the latter would be subject to the new rules.

“Even with this more challenging student population,” concludes a study released in March by the Parthenon Group, a consulting firm, “the private sector generates superior education outcomes as evidenced by a 65% graduation rate (compared to only a 44% graduation rate at community colleges).”

We’d prefer no taxpayer loan subsidies for any colleges, profit or nonprofit, but the Obama Administration’s policy has heretofore been to increase subsidies so that college education becomes a de facto entitlement. At least for-profits repay those subsidies with income tax payments.

The Apollo Group, the parent company of the University of Phoenix, paid $445 million in income taxes last year. “That’s $445 million in income taxes more than every nonprofit college in America combined,” reports Forbes magazine. “The notion that it’s mainly the for-profits that are a giant drain on taxpayer resources is ludicrous.”

If the concern is that career colleges are duping customers into taking on too much debt, then simpler application forms and greater transparency could be required with respect to costs, the amount being borrowed, future monthly payments and likely earnings in a given occupation. By contrast, Mr. Duncan’s proposals are more likely to result in fewer good programs, not more student protections. For-profit schools are obviously filling a need, given that enrollment has tripled to around 1.8 million in the past decade, a rate that far outpaces nonprofit rivals.

It’s hard not to conclude that the real driving political force here is hostility to private education companies. This is consistent with the Administration’s decision to bar private companies from delivering student loans, its near-takeover of the health-care industry, and its denunciations of high business pay and profits. By punishing for-profit colleges, the Administration will push more students into their nonprofit competitors, which satisfies its preference for equality of outcomes and more government control.

No wonder the U.S. economy isn’t creating jobs when anyone who makes money and creates more jobs immediately becomes a political target.

Wall Street Journal –

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