For-Profit College Reform

Earlier this month, ITT Tech, a for-profit college based in Indiana, chose to shut its doors to more than 35,000 students after new federal financial aid regulations revoked federally backed aid for the students. Since 2015, the Obama administration has sought to protect vulnerable students from predatory for-profit colleges targeting out-of-work, poor, or elderly students. ITT Tech is the latest casualty in a series of shutdowns that has left students scrambling to substitute their credits.

For-profit colleges operate more like a business with a fiduciary responsibility to shareholders rather than a university with a responsibility to students. These institutions generally focus education on trade skills or degrees in immediately practical fields, such as nursing or tech. Students operate with flexible schedules, as many are full- or part-time workers or have families. Veterans also take advantage of the immediate educational opportunities after leaving military service. On average, two years at a for-profit institution costs more than four years at a community college, according to the Department of Education (DoE). 80% of students at for-profit colleges must borrow to earn their degree whereas less than half of students must borrow at public institutions. Graduation rates also differ significantly from public institutions. Only 27% of students complete their degree in six years at for-profit schools. That rate is above 60% for all other colleges.

Following the widely publicized failure of Everest College (closed in 2015), the Department of Education is reviewing the accreditation of for-profit colleges. In a 2015 press release, the DoE outlined the criteria for maintaining federal financial aid. For-profit institutions must provide “gainful employment in a recognized occupation” upon completion of the program. Gainful employment is defined as a position in which student loan payments do not exceed 20% of discretionary annual income or 8% of total annual earnings. Recent issues with for-profit colleges focus on the institutions misleading or lying to students about employment opportunities or job placement after graduation. Students do not realize this until they have already amassed a considerable amount of debt, typically leading vulnerable students to default on payments.

The newly established review process for financial aid has been in the works for a number of years. In 2014, the Department of Education attempted to establish similar regulations that would inevitably close hundreds of campuses and leave thousands of students out of school. A set of for-profit colleges sued the department over these regulations and won. The DoE then revised the new regulations before implementing them.

Losing federally funded financial aid is a death sentence for for-profit colleges. Up to 80% of revenue for some institutions came from federally funded financial aid.  With a responsibility to shareholders first, a school like ITT Tech could not operate with such a drastic cut in revenue and had to close its doors, leaving students scrambling for classes at other, less convenient institutions. The Department of Education assures students that federal loans taken out to study at ITT Tech will be forgiven. This, however, is not the foremost concern for most students. Many students must revise life and career goals now that they are forced to delay their degree. Students also fear that their credits from ITT Tech will not transfer to an accredited institution, only delaying their career success further.

The Department of Education regulations for federally funded financial aid force for-profit institutions to operate with more transparency about degree and career opportunities. The regulation of for-profit colleges extends the Obama administration’s legacy of corporation reform to protect consumers. These steps, however, do not address student debt issues at higher levels of education. The Association of Private Sector Colleges asserts that if the same rules were applied to well-known not-for-profit colleges, many prestigious ones would not pass the test.

Crippling student debt and little economic opportunity have extended beyond students at technical or for-profit colleges. Unable to repay large sums of debt for an inapplicable degree, more than 40% of all student borrowers are no longer making payments on loans.

The Obama administration has taken steps to address the rising cost of education, but many students are left with little to show after earning their degrees. The higher education system must adjust to meet the growing needs of students and a developing workforce. For-profit colleges gouging students for tuition, or private not-for-profit universities charging unheard-of amounts for degrees that do not guarantee gainful employment, will not survive in a competitive education system.