A top administration official told Congress Tuesday that for-profit colleges still have a vital role to play in American education, despite the high default rate on student loans at the schools.
But the schools address a need for many low-income and minority students who are unable to take a more traditionally path, said Martha Kanter, the third ranking official at the Education Department.
Students at for-profit colleges—approximately 10 percent of all American college students—make up almost half of all students defaulting on loans, according to the Education Department.
In the wake of the criticism on how it’s policing for-profit programs, the Education Department rolled out new rules last week designed to crack down on the educational institutions unless the schooling leads to “gainful employment” in a recognized occupation. The rules mandate that 35 percent of former students from the schools are paying back their loans, among other things, for an institution to remain open.
For-profit colleges have come under fire for deceptive marketing practices that can often mask the cost of loans many students take out to attend the schools.
More than 90 percent of students at for-profit colleges borrow money to pay for their degrees, said Sen. Tom Harkin, D-Iowa, at the Senate Health, Education, Labor and Pensions Committee Tuesday. That’s compared to 48 percent of students at four-year public universities and 13 percent of students at community colleges.
Even when students attending for-profit colleges can’t pay back their loans, the schools can still profit from payments made under federally subsidized programs, critics assert.
“While the school knows these loans are a terrible investment, the student has no idea that they are more likely to wind up with ruined credit than a college degree and a good job,” said Harkin, chairman of the committee and a vocal opponent of for-profit schools
Tuesday’s hearing was the fifth that Harkin has called on the issue
While they believe for-profit colleges fill a void, experts in the education field said the schools need to do a better job of informing prospective students.
Too often the schools target low-income and minority students knowing they are the ones who will receive the most federal loan money, and because they lack the knowledge about investing judiciously in their education, said Sandy Baum, an analyst and consultant for the non-profit foundation Independent Higher Education.
“We risk a very well conceived and effective program, the student loan program,” Baum said, “if we don’t do better at monitoring at how students are using these loans, and how institutions are allocating these loans.”
The government, Baum said, should be allocating funds with caution, and not just arbitrarily, like they do now with for-profit college subsidies.
A former student at one of the schools, Eric Schmitt, did not agree. A graduate of the for-profit college Kaplan University, which is owned by The Washington Post Company, Schmitt testified before the committee about his own regrettable experience.
Schmitt, at 27, had a family and was working as a customer service representative making low wages, so he decided to go back to school in the hope of brightening his financial future, but the program was very different than advertised. Nevertheless, Schmitt finished the program, even though he was straddling a pile of debt, because he remained convinced that it would enable him to make a career change.
With $45,000 in student loan debt, almost double the national average for a student upon graduation, Schmitt returned to his former field of custom services.
Currently unemployed, and already defaulting on the loans from his associate’s degree, Schmitt said he doesn’t know how he’ll manage after the deferment time runs out on his bachelor degree loans.
“I feel that returning to school to get my degree has put me further away from my goal than before I started my education,” Schmitt said. “I realize it’s probably too late for me.”
*Correction: This article incorrectly referenced Schmitt’s pursuing a law degree. The article has been corrected.