Shortzilla's  Instablog

A recent study by the Center For Analysis of PostSecondary Education and Employment (or CAPSEE) found that students at for-profit education schools have a much higher chance of defaulting on loans, have a lower chance of gaining employment after graduation and earn less than counterparts at non-profit or public education schools.

The news is really no surprise, as many for-profit educators have come under heavy scrutiny in past years based on many of the facts laid out in the study. Stocks such as Capella (CPLA), Apollo Group (APOL), Strayer (STRA), Corinthian (COCO) and Devry (DV) are all down significantly from highs reached back in early 2010.

Most of the decline was triggered by a study in August 2010 by the Government Accountability office which sampled recruiting practices at several for-profit schools. Their findings raised alarms throughout the industry:

"Out of the fifteen sampled, all were found to have engaged in deceptive practices, improperly promising unrealistically high pay for graduating students, and four engaged in outright fraud, per a GAO report released at a hearing of the Health, Education, Labor and Pensions Committee held on August 4, 2010."

Some important notes from the CAPSEE report:

• Federal Grants and Loans received under Title IV of the Higher Education Act accounted for 73.7% of the revenues of Title IV-eligible private for profit higher education institutions in 2008-09
• Under current regulations, for profit schools can derive no more than 90% of revenues from Title IV aid in order to keep eligibility
• 30% of for profits receive more than 80% of revenues from Title IV aid in 08-09
• For profit students face higher tuition than comparable students at other institutions
• For-profit colleges serve a larger fraction of students who are women, minority, older (25+), independent, disadvantaged students
• For profit students accumulate larger debt burdens and have a significantly higher chance of defaulting on their loans
• For profit students have poorer employment outcomes five years after finishing the program, and are less likely to be satisfied with course of study than students at non-profit schools
• Even when controlling data to adjust for the difference in demographics, academic preparation, etc, for-profit students have significantly higher default rates

The data is alarming for sure, and is reason why the US Department of Education (2011b) is taking action with "Gainful Employment" regulations. The plan requires many for-profit programs and certificate programs to pass at least one of the following metrics:

1) 35% of former students are repaying loans
2) annual loan payments are not greater than 30% of graduate's discretionary income and 3) annual loan payments do not exceed 12% of a typical graduate's earnings.

And there is a much closer watch now on Title IV eligibility. According to CAPSEE, currently an institution loses eligibility if its two year cohort default rate exceeds 25% for three consecutive years or is 40% in one year. The US Dept of Education is moving to a three year cohort default rate in 2012.

It would be remiss of me to not mention that the CAPSEE is housed and led by the Community College Research Center, which certainly has an interest of some sorts in bashing the online colleges. Although in the paper, they do note that "certificate seekers starting at for-profits are almost 9% points mroe likely to gain a certificate than community college students".