The Growing Student Debt Crisis at Career Colleges

Is there a looming student debt crisis at our nation's for-profit colleges and trade schools? The latest data from the U.S. Department of Education's National Center for Education Statistics (NCES) certainly seems to suggest so.

According to an analysis of this data by the College Board, 60 percent of bachelor's degree recipients at for-profit colleges graduate with $30,000 or more of student loan debt. That's one-and-a-half times more than graduates at higher-cost private colleges and three times more than those at public universities and state colleges. At the same time, one in five students who earn associate degrees at proprietary schools graduate with a debt load of at least $30,000. That's four times more than associate degree recipients at community colleges. [The average annual salary of associate degree recipients is around $38,000.]

The data in question comes from the 2007-08 edition of the National Postsecondary Student Aid Study (NPSAS), a nationwide survey of college students that the NCES conducts every four years. The study provides the most comprehensive data available on how students and their families pay for college.

But even this data doesn't provide a complete picture of the burdensome amount of debt proprietary college students are taking on -- as it does not include median debt levels for the millions of low-income and working-class students who drop out each year from for-profit colleges and trade schools buried in debt but without the training they need to find jobs that will help them repay their loans. Many of the largest publicly traded for-profit school chains have an extremely spotty record of graduating students.

Overall, according to the study, 92 percent of full-time students attending proprietary institutions took out loans in 2007-08 to finance their education. In comparison, two-thirds of students at private colleges, and a little more than half of those attending four-year public colleges, borrowed student loans that year. This is not entirely surprising as for-profit colleges tend to be expensive and serve the most financially needy students.

More disturbing is the extent to which proprietary school students are being asked to rely on high-cost private student loan debt to help cover their costs. In 2007-08, 43 percent of students at for-profit colleges borrowed private student loans, compared to 28 percent at private colleges, 15 percent at public four-year colleges, and 7 percent at community colleges. As we reported in April, the proportion of private loan borrowers at proprietary institutions has skyrocketed over the last five years. In 2003-04, about 15 percent of students at these schools took out private loans.

Meanwhile, the median debt load of bachelor's degree recipients at for-profit colleges in 2007-08 was $32,653. In comparison, the median debt load of students graduating from private colleges was $22,375, and from public colleges was $17,700. A quarter of these proprietary school students left with $40,000 or more in debt, compared to 22 percent at private colleges, and 10 percent at public universities

Nearly two-thirds of bachelor's degree recipients graduated from proprietary institutions that year with private loan debt, compared with 42 percent at private colleges and 28 percent at public colleges.

The news isn't much better for students who earn associate degrees at proprietary schools. Overall, nearly all associate degree recipients at for-profit colleges graduated with student loan debt in 2007-08, and 60 percent had private loans. The median debt load for these graduates was $18,783. In comparison, only 38 percent of associate degree recipients at community colleges graduated with debt, and only 15 percent had private loans. The median debt load for those students was $7,125.

In looking at this data, we think that it is critically important to understand the population of students that for-profit colleges and trade schools serve. According to the Career College Association, 43 percent of proprietary school students are members of minority groups and almost half are the first in their families to attend college. Of those who are of traditional college age, more than 50 percent come from families with an annual income of less than $40,000.

Research shows that each of these factors correlate with a student's likelihood of defaulting on their student loans. And in fact, the Department of Education estimates that about 40 percent of federal student loans going to for-profit students ultimately end up in default. That's compared to about 12 percent for college students overall. [Unfortunately, there is no comparable data available on private loans.]

For-profit college lobbyists and leaders like to talk about the role they play in helping low-income and working-class students achieve their dreams. But by loading up financially needy students with unmanageable levels of debt, including high-interest private loans, they are actually destroying the dreams of many of their students.

The time has come for policymakers to take notice -- before this looming crisis becomes full blown.