For-profit colleges are a rip-off that leave students without jobs

Money-filled Mason jar labeled

I admit it. I majored in English. You can laugh and make "You want fries with that?" jokes now.

As it turns out, however, I'm in better shape than many because I didn't attend a for-profit college.

New research shows these places can be a debt trap, saddling people with huge student loans they can't hope to repay because they can't find a job after graduation.

While students -- and, indeed, taxpayers -- might not profit, these colleges certainly do.

This mouthful-of-a-study with a catchy hook -- "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?" -- was published by the National Bureau of Economic Research.

In it, three Harvard University researchers found that for-profit colleges -- a group that includes the huge online University of Phoenix and a host of smaller degree and certificate programs -- educate about four times as many minority, low-income, disadvantaged and older students than do their peer nonprofit schools.

That sounds great, right? Keep reading.

The study compares students' experiences at for-profit colleges against those of similar backgrounds who attend community colleges or other public or private nonprofit schools. That's an apples-to-apples comparison, for those who don't speak the social research lingo.

Students at for-profit institutions account for 47% of all student loan defaults, research found.

One-quarter of students at for-profit colleges default on their loans within three years. Just 8.7% of students at nonprofit schools default in the first three years.

Why? Compared with their peers, for-profit grads are less likely to have jobs.

Six years after entering college, for-profit grads are more likely to be unemployed and more likely to be unemployed for periods longer than three months. When they do find jobs, they make $1,800 to $2,000 a year less, on average, than peers educated at nonprofit colleges.

The size of student debt is another factor.

For-profit colleges charge nearly double the tuition that students pay at an average public, in-state undergraduate school: $13,000 to $16,000 a year, compared with an average of just $8,000 at State U. That means bigger monthly bills.

Federally backed student loans have fairly flexible repayment terms. Borrowers can often suspend payments if they're unemployed, consolidate loans to get a better rate, get repayment help by volunteering for AmeriCorps or the Peace Corps or pay back the loan over a longer period of time by making smaller monthly payments.

In other words, they're relatively easy to repay.

Defaulting on student loans is not a sign that your economic life is going well.

So students don't get much economic benefit, on average, from the federal student loans they take out to pay tuition at for-profit schools. But these schools certainly do.

By enrolling more students who are eligible for loans and charging them higher tuition, for-profit schools make sure they'll get a disproportionately large slice of the financial-aid pie.

In the 2008-09 school year, for-profit schools enrolled about 12% of all higher-education students. But they accounted for 26% of federal student loan disbursements and 24% of Pell grant disbursements.

Students who do manage to pay back their loans are still being ripped off. Just remember those tuition and unemployment statistics.

These are particularly damning when we consider that most of these schools bill themselves as vocational institutions that offer quick on-ramps to interesting jobs.

When students default on these loans, the schools take the money and the government pays the bill. Taxpayers subsidize for-profit colleges and their high-tuition terms and low-employment results.

Last March, the U.S. Department of Education finalized its "gainful employment" rule, which will strip federal financial aid dollars from for-profit schools that saddle students with more debt than they can realistically repay.

To qualify for federal financial aid, a program must meet one of three requirements: at least 35% of former students are repaying their loans, graduates have estimated annual loan payments that don't exceed 30% of their discretionary income and estimated annual loan payments don’t exceed 12% of a graduate's total earnings.

The new rule goes into effect in July, but it stipulates that programs won't lose eligibility unless they fail all three measures within four years. At the earliest, a program could lose federal student aid eligibility in 2015.

Until then, you may want to think carefully about how you spend your education dollars.

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