Power Marketplace’s public service journalism 💙 Give Now

For-profit schools see a rise in student loan default

Raghu Manavalan Sep 18, 2015

For-profit schools see a rise in student loan default

Raghu Manavalan Sep 18, 2015

This week, the Brookings Institution published a report that analyzed where the $1.1 trillion in student loan debt was coming from with help from the U.S. Treasury.

The research finds that most of the increase in default is because of an upsurge in the number of borrowers attending for-profit schools and, to a lesser-extent, community colleges and other non-selective institutions whose students had historically composed only a small share of student borrowing. By 2011, however, borrowers at for-profit and 2-year institutions represented almost half of student-loan borrowers leaving school and starting to repay loans, and accounted for 70 percent of student loan defaults. In 2000, only 1 of the top 25 schools whose students owed the most federal debt was a for-profit institution, whereas in 2014, 13 were. Borrowers from those 13 schools owed about $109 billion — almost 10 percent of all federal student loans.

Janet Meyer, 52, was one such student who attended two for-profit colleges, Capella University and Walden University. She told us she now has about $250,000 in student loan debt. 

“My son has emailed celebrities such as Ellen DeGeneres, asking them to help me finish my PhD. At this point, I’ve accepted it as something I’m going to have to live with for the rest of my life.”

David Wessel, director of the Hutchins Center on Fiscal & Monetary Policy, says for-profit and community colleges were a large portion of the student debt currently owed. 

“If we have a student loan crisis, it’s really concentrated not in people who went to the University of Southern California, or even expensive schools like Yale and Harvard, it’s concentrated among people who went to for-profit schools and community colleges. That’s where the problem is.”

Wessel also notes that the study marked the first time student loans were able to be analyzed so comprehensively.

“What’s incredible about this study is that it’s not like the other ones, where it’s based on a survey where people are asked to remember things. And it’s not based on credit reports. It’s hard data from the government’s treasure chest of numbers: numbers on what people have borrowed, to go to college, what colleges they’ve gone to, and importantly how much money they owe from their tax records.”

While community and nonprofit colleges make up a large portion of outstanding student loans, Wessel notes that it’s hard to say whether it’s because for-profit schools are a cause of student loans or because lower-income students were attending the schools in higher proportions.

“Some of it is from the schools. Unfortunately some of the for-profit schools were better at enrolling students and taking their money than graduating students and getting them jobs afterwards. But of course, the community colleges and for-profits were better at getting people who’d come from low-income neighborhoods, who had gone to lousy high schools, whose parents haven’t gone to college and so forth. It’s a little hard to tease out what’s the cause and what’s the effect.”

We reached out to the schools mentioned in the story. A Capella Unviersity spokesman said that “not all for-profits are the same,” and noted that their median debt is approximately $34,000, below the national average for all institutions.

A spokesman from UTI told us that “88 percent of our graduates found jobs in the field they trained for at UTI. Many UTI graduates tell us they feel they are on the path to a rewarding career and long-term security and success.”

On the Brookings study in general, the University of Phoenix spokesman said, “Researchers failed to acknowledge our students’ ‘significantly improving rate of default’ due in part to University of Phoenix support systems and services designed for working adult students.” 

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.  

This is NOT a paywall. 

Marketplace is community-funded public service journalism. Give in any amount that works for you – what matters is that you give today.