Identifying for-profit schools that provide little return on investment just got easier.
For the first time, the Department of Education is publishing data that compares student debt to actual earnings after graduation for thousands of career-training and certificate programs offered by for-profit and nonprofit private and public colleges.
The data shows that a significant number of for-profit schools fail to prepare students for careers that enable them to repay their student loans.
The data, to be published annually, is required by the gainful employment rule, which went into effect in July 2015. Under the rule, schools risk losing federal financial-aid funding if a typical graduate's student debt exceeds 20 percent of their discretionary income or 8 percent of total earnings.
Losing financial aid for career-training programs can effectively shut down the school.
While for-profit schools offer 66 percent of the 29,000 programs subject to the gainful employment rule, 98 percent of the 800 that failed were from for-profit schools.
"Far too many students are graduating with degrees of little or no value," said Department of Education Secretary John B. King Jr. on a call with reporters. King said the data sheds light on which career training programs are most likely to prepare students for repaying their student loan debt and which programs might leave them worse off than before.
Schools with programs that fail have 30 days to inform students that they are at risk of losing financial aid. While that could affect the more than 350,000 students in these programs, nothing will happen immediately because a school must fail to meet acceptable standards at least two years in a row. The Department of Education created a new disclosure template, which will be released later this month, that schools must use to provide the information to prospective students.
While King declined to speculate on whether the gainful employment rule would be enforced by the incoming Trump administration, it's an issue likely to come up Wednesday at the confirmation hearing for Betsy DeVos, the Trump nominee to head the Department of Education. Ahead of the hearing, Sen. Elizabeth Warren sent DeVos a 16-page letter with questions Warren wants to raise, including DeVos's stance on enforcing the gainful employment rule.
Some Say Rules Don't Go Far Enough
Consumer advocates say this is an important first step to cutting off schools that load up graduates with too much debt relative to their eventual income. But advocates want more accountability.
"These are very modest rules," said Suzanne Martindale, a staff attorney at Consumer Reports who specializes in student debt issues. "They fall well short of providing the level of robust oversight we need over this industry."
Dozens of for-profit schools have been targets of federal and state investigations as well as student lawsuits.
In December, DeVry University paid $100 million to settle a lawsuit brought by the Federal Trade Commission for allegedly making misleading claims. The FTC cited DeVry's contention that 90 percent of its graduates seeking employment landed jobs in their field within six months of graduation. The FTC also said DeVry falsely claimed its graduates had, on average, incomes 15 percent higher than those from other colleges and universities.
In September, ITT Technical Institutes, one of the largest for-profit colleges in the U.S., shut down after the Department of Education shut off financial aid funding for new students.
ITT was the target of numerous lawsuits and investigations, with accusations that included ITT misled students about job placement prospects and lied about student loan default rates.
Corinthian Colleges shut down in 2015 amid allegations that it falsified graduation rates and job placement data.
How to Evaluate a For-Profit School
If you're considering a for-profit school, take these steps to help ensure it provides good value:
Check the school's track record. Most for-profit schools charge higher tuition than comparable programs at community colleges and public universities. That means their students can carry significantly more debt. In addition to debt-to-earnings rates being published on career-training programs, the Education Department's College Scorecard website allows you to check graduation rates, average cost, average student debt and salaries of graduates of all private, public and for-profit schools that receive federal financial aid.
You should comparison shop before you enroll and consider less expensive programs at community colleges and public schools. In the Education Department's analysis, no community colleges failed to meet the debt-to-earnings standards. Under Secretary of Education Ted Mitchell, also on the call with reporters, said that the data shows the "exceptional value" that community colleges provide. You can use the College Scorecard to search for schools by zipcode.
Research complaints. A simple Google search of the school name and "complaint" or "lawsuit" can show if a school is being investigated for deceptive marketing practices or reveal other problems. You can check for formal complaints with your local Better Business Bureau and through the Consumer Financial Protection Bureau's Paying for College site.
Beware a hard sell. School recruiters often pressure students into enrolling. If that happens, you should go elsewhere. "If they're making lofty promises and trying to get you to sign up quickly without reviewing financial aid and debt information, it could be a warning sign that the school cares more about getting your money than giving you an education," said Martindale.
