New Data Shows the Damage Many Two-Year For-Profit Colleges are Causing Their Students

[Correction: We have updated this post to reflect the fact that the data in the Institute on Higher Education Policy report on the delinquency and default rates by institutional type only takes into account the experiences of those who borrowed to attend college, not all students. We apologize for any confusion we may have caused.]

Pity students who attend two-year for-profit colleges. According to a new report released this week by the Institute for Higher Education Policy (IHEP), the majority of students who enroll in these expensive schools and take out federal loans are likely to become delinquent and/or default on their debt, whether they graduate or not.

This is just one of dozens of findings in the report, Delinquency: The Untold Story of Student Loan Borrowing, which will be the subject of an event here on Thursday at the New America Foundation. In the study, IHEP used data provided by five of the nation’s largest guaranty agencies to see how 1.8 million borrowers, who entered repaying on their federal loans in the 2005 fiscal year, managed their debt.

Overall, the report found that 41 percent of these borrowers have either become delinquent (26 percent) or defaulted (15 percent) on their federal loans during the past five years. As the study points out, delinquent borrowers face consequences for their repayment problems, although these repercussions are not nearly as severe as those faced by borrowers who go into default. Among other things, these borrowers may see their credit scores drop — which could make it more difficult for them to gain access to other forms of consumer debt, such as mortgages or car loans.

Just what happens to these delinquent borrowers is not entirely clear from the study. The report tells us that the vast majority of these borrowers temporarily avoid default by putting their loans into forbearance or deferment. However, because the data only follows these borrowers for five years, IHEP can not definitively say whether these individuals will get back on track or default.

One of the report’s key (if not surprising) findings is that borrowers who drop out of their programs are far more likely to have trouble repaying their loans than those who graduate. The study found that more than half (55 percent) of all borrowers who left school without a credential became delinquent or defaulted on their loans within five years. In comparison, only about a third of borrowers who successfully completed their programs experienced repayment problems.

According to the report, this holds true for federal student loan borrowers across all college types:

• At private non-profit colleges, 38 percent who dropped out experienced repayment problems (with 11 percent defaulting), while only 18 percent who graduated did so (with just 5 percent defaulting).

• At public 4 year colleges, 45 percent who dropped out had trouble repaying their loans (with 15 percent defaulting), while only 19 percent who graduated did so (with just 4 percent defaulting).

• At public 2 year colleges, 66 percent who dropped out ran into trouble (with 27 percent defaulting), while 42 percent who graduated did so (with 15 percent defaulting).

• At four-year for-profit colleges, 64 percent who dropped out experienced repayment problems (with 30 percent defaulting), while 35 percent who graduated did so (with 14 percent defaulting).

• At two-year for-profit colleges, a whopping 76 percent who dropped out had trouble repaying their loans (with 50 percent defaulting), while 57 percent of those who graduated did so (with 30 percent defaulting).

As this data indicates, students who take out loans and successfully complete their programs of study at most schools are more likely than not to remain in good standing on their loans. But that is not true at two-year for-profit colleges, where nearly six out of every ten students who graduate with federal student loan debt face significant repayment problems.

While this data is not nearly complete, it certainly provides further proof that a large number of these two-year proprietary schools are leaving the low-income and working-class students they serve worse off than before they enrolled — loaded down with unmanageable levels of debt and without the training they have been promised.

At Higher Ed Watch, we are sure that for-profit higher education lobbyists and their champions on Capitol Hill and Wall Street (as well as at some supposed government watchdog groups) will try to spin this data away, as they are so richly rewarded for doing. They will continue to do their best to distract and confuse policymakers by spinning tales about alleged ties between the Education Department, Senator Harkin, and short sellers.

But as this report shows, the Obama administration and Senator Harkin have never needed short sellers to tell them there is a scandal here. The data speaks for itself.