President Barack Obama yesterday announced a crackdown on private colleges over student debt. Over 72% of private colleges have graduates who earn less than a high school dropout would have. The new standards would take effect in 2016.
All schools, for-profit or not, that don't comply with the new standards would lose access to the federal student aid programs. But the Department of Education singled out problems at for-profit colleges —which are managed by private companies and run, in part at least, to generate money for investors or owners — in Friday’s announcement.
“Career-training programs offer millions of Americans an opportunity they desperately need to further their education and reach the middle class,” Education Secretary Arne Duncan told reporters Thursday.
“Today, too many of these programs fail to provide students with the training that they need at taxpayers’ expense and the cost to these students’ futures.”
By law, training programs can only receive Federal Student Aid if they prepare students for employment upon graduation. But in reality, many of these private colleges simply put more and more students in the debt trap while they are the ones making all the profits. The proposed rule has been submitted for public comment. The public has 60 days to comment. A similar rule was thrown out by the courts a few years ago.
In 2011, college seniors graduated with an average of almost $27,000 in debt last year.
Thanks to rising tuition and a tough job market, college seniors graduated with an average of nearly $27,000 in student loan debt last year.
Two-thirds of the class of 2011 held student loans upon graduation, and the average borrower owed $26,600, according to a report from the Institute for College Access & Success' Project on Student Debt. That's up 5% from 2010 and is the highest level of debt in the seven years the report has been published.
The increase comes at a time when unemployment has remained stubbornly high for college graduates -- it was at 8.8% for 2011. Those without a college degree are more than twice as likely to end up without jobs, however. The unemployment rate for recent high school graduates was 19.1% last year.
For 2012, that figure climbed to $29,400.
In 2012, more than 600,000 students who had entered repayment in 2010 had defaulted by 2012 according to the Institute for College Access and Success.
More than 600,000 federal student loan borrowers who entered repayment in 2010 defaulted on their loans by 2012, new federal data show. The largest share of these students – 46 percent –attended for-profit colleges, which enrolled just 13 percent of students nationally. For-profit colleges also had a much higher average default rate than other types of schools: 21.8 percent, compared to 13.0 percent at public and 8.2 percent at nonprofit colleges. Across all colleges, 14.7 percent of borrowers defaulted within three years of entering repayment.
The institute recommends these changes to the student loan process:
• Dramatically simplify the federal aid application process by using data available from the IRS when students typically apply to college.
• Align incentives by rewarding colleges that serve low-income students well with additional funding and flexibility to innovate, while scaling sanctions to reflect the degree of risk schools pose to students and taxpayers.
• Double the maximum Pell Grant to close the growing income gaps in enrollment and completion, which persist even for students with similar levels of academic preparation.
• Offer one undergraduate student loan with no fees, a low in-school interest rate, and a fixed rate in repayment that is never too much higher than the interest rate on loans being offered to current students.
• Streamline overlapping income-based loan repayment programs into one improved plan that assures borrowers of manageable payments and forgiveness after 20 years.
• Eliminate higher education tax benefits, which are badly timed and poorly targeted, and use the savings for Pell Grants and incentives for states and colleges. If tax benefits are retained, streamline them into an improved American Opportunity Tax Credit that provides more help for low- and moderate-income students.
• Create and promote tools – from early aid estimates based on tax returns to standardized award letters – that give students and families clear, concise, and timely information about aid, costs, and outcomes to inform their decisions about where to apply and how to pay for college.