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The new regulations for for-profit schools

Marketplace Staff Jun 10, 2011

The new regulations for for-profit schools

Marketplace Staff Jun 10, 2011

Steve Chiotakis: There’s a good chance you’ve seen a commercial or two from a pricey vocational school promising you a better future. Tuition at those schools is expensive — and there’s a disproportionate number of students who attend those schools and later default on their loans

So a few weeks ago, the Obama administration announced new rules aimed at for-profit colleges.

Carmen Wong Ulrich is a personal finance journalist and author of “The Real Cost of Living.” Hi Carmen.

Carmen Wong Ulrich: Hello Steve, thanks for having me.

Chiotakis: I want to talk about President Obama’s proposal of pulling back financial aid for students at for-profit colleges. What’s going on with that?

Ulrich: Ugh. This is a big one. This is a battle that’s been going on for a couple years actually. And we saw a new stat that gives you an idea of just how big and influential the business of for-profit colleges is. Up from 2000, 11 years ago, enrollment is up over 400 percent.

Chiotakis: Wow.

Ulrich: And we’re just in an economy where everyone’s getting the message that you need to retrain yourself, you need to get a new degree, you need to get a different degree in order to be wanted in the job market.

Chiotakis: Well and an easy degree or an easier degree, right? You can do this from home!

Ulrich: Yes. But the thing is with the for-profit colleges is not enrollment, but it’s graduation. And then actually being able to use the degree to get work. And that’s what’s being questioned and that’s why the Obama Administration is looking at this because there’s a 12 percent default rate on student loans in general.

But almost half of the defaults are for-profit schools and what they’re finding is is that folks are getting these degrees, they’re taking out huge private loans and federal loans, and ending up not being able to get work to pay those loans. And a lot of folks have testified that — and this reminds me very much of bad mortgages, these student loans are kind of pushed on them. They don’t feel like they’re getting all the information, they don’t really understand how it works, they’re being told it’s “good debt.” So they’re taking on a lot more than they can chew and it’s bad news.

Chiotakis: Is there a collusion going on there, do you think Carmen?

Ulrich: Well, here’s what I think: I think that this is a mix of the market, what the economy and the job market are telling folks… What for-profit schools are exactly that. And their stock prices, when this regulation came through, if you can imagine, their stocks shot up. And you can say, “Why? My goodness, regulation. Why would they?” Because the regulation is so much softer than was initially proposed several years ago. So what they’re looking at here is these for-profit schools must have at least 35 percent of their borrowers must not default. So that means the majority of your borrowers can default.

Chiotakis: Yeah, 65 percent.

Ulrich: Right, over three years. So it’s kind of a soft regulation. Unfortunately, the school’s costs, for-profit schools, cost a lot. They cost much more than your local public or community schools. So that’s why so much debt is being taken out.

Chiotakis: What I don’t want this to be is some sort of for-profit bash fest.

Ulrich: No.

Chiotakis: So, because obviously there are some success stories and some folks who relish in their education from some of these schools. Do you have any of those stories?

Ulrich: Sure. I mean, absolutely. If you look at half or more of folks who take out those loans do find and repay those loans. So there’s no doubt the appetite is there for a reason. And for a lot of folks, the convenience, the accessibility of for-profit schools really make sense for them, especially if you know exactly what you need to go into that line of work or to change your line of work. And if you’re really determined to take out only what you need and you’re determined to make use of that degree. That’s how it makes sense.

Chiotakis: I know the unemployment rate is pretty high anyway. But for recent grads, it’s even higher, right? I think it’s like double the unemployment rate.

Ulrich: It’s double, yeah.

Chiotakis: Is a degree, Carmen, still worthwhile?

Ulrich: Absolutely. Without a doubt. Looking at the unemployment rate of recent college grads, it’s one stat. And yes, it’s kind of a dire stat, it’s around 24 percent unemployment. But looking historically and down the line, you still will make so much more money than someone with just a high school degree. And also, if you look at the jobs, where not only is there highest pay for graduates, such as engineering, but if you look at where the job growth is — in the health care industry, especially — you need college degrees to participate in that work force. And as we decline as a country in terms of manufacturing, and we go to intellectual capital, that’s just going to be more and more necessary.

Chiotakis: Carmen Wong Ulrich is a personal finance journalist and author of “The Real Cost of Living.” Carmen, great conversation. Thank you.

Ulrich: Thanks Steve.

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