Tutors 21 | - Freelance Writer
May 31, 2024 | #1
Problem Identification
This paper will concern the intersection between business and government and the rise of the for-profit education sector. While education for elementary and secondary students is generally thought of as a right in the United States, the general consensus regarding higher education is something different. Americans aiming for a college degree are on their own to a certain extent, but are also eligible through a variety of government-backed loans and grants, especially at the federal level. How and where these loans and grants can be used, however, opens up an interesting area for consideration.
Federal funding follows the students in the United States, so where grants and loans are spent is determined by the type of school a student chooses to attend. Generally, the school is either a state school and therefore non-profit and run by the state, or a private school, most of which are non-profit though operated by private entities. But there is a third class of school: private for-profit schools. It is this type of school, involving for-profit education that will be examined in this paper.
Brief Topic Description
Public funds, in the form of grants and loans, can be spent by American students to pay for college educations at for-profit colleges and universities. This is a situation with which many Americans are unfamiliar, but it is nevertheless the case, and has been for decades. This situation sets up an area of intersection between business and government that opens up a host of public policy questions.
More specifically, this paper will look at the shift that has occurred over the course of the past few years. During the presidential administration of Barack Obama, the U.S.
Department of Education began a concerted effort to rein in the flow of money to for-profit colleges, while at the same time increasing funding and shoring up the infrastructure in place for the nation's community colleges. But with the advent of the Trump administration, the official policy of the federal government has done a complete about-face with respect to federal funding and for-profit education, and Trump even went so far as to appoint Betsy DeVos, a fervent proponent of for-profit education, as the Secretary of Education.
Research Questions
The research questions this paper will try to answer will be in regard to this shift in education priorities with the change in administration. The Obama administration's crackdown on the for-profit industry was for several reasons, but one of the crucial ones was in consideration of student loan repayment rates at for-profit colleges, which were significantly worse than for comparable repayment rates for students of public and non-profit private colleges.
So one of the first questions to address will be:
1. Whether student loans repayment rates have perceptibly shifted over the past several years, how they have fluctuated, and what these fluctuations may mean in relation to the diametrically-opposite policies of the changing administrations?
Moreover, this paper will seek to determine whether the Trump's administrations change towards the for-profit education industry has been beneficial for this industry:
2. Have for-profit education companies seen a rise in profits given the favorable change in terms of regulatory emphasis?
Finally, this paper will also consider another area related to these questions:
3. What, if any, unintentional consequences have resulted in response to policies aimed at the for-profit education sector?
Hypotheses
This paper will lay down two hypotheses that the above-mentioned research questions will attempt to answer. The first hypothesis will be regarding student loan repayment rates. This hypothesis will state that student loan repayment rates at for-profit colleges will have seen a small drop during the Obama years, but no discernible change so far during the Trump administration from the previous trend.
The second hypothesis will focus on profits and the for-profit college industry. This hypothesis will hold that the for-profit sector is currently in the midst of a boom, thanks to the deregulatory policies of Education Secretary Betsy DeVos.
Detailed Topic Description
For-profit colleges, also known as proprietary institutions, contain some of the largest and smallest colleges and universities by enrollment in the United States (Deming, Golding, Katz, 2013). Although enrollments are high in these big institutions such as The University of Phoenix, the median enrollment rate in all for-profit institutions that were eligible to accept federal funding under Title IV of the Higher Education Funding Act (HEA) was just 172 students (Deming, Golding, Katz, 2013).
The HEA was passed in and signed into US State Law at Texas State University on November 8th, 1965. The law was designed to assist students by providing educational resources to colleges and universities along with financial assistance for students who were wishing to attend or attending post-secondary and higher education. The Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) was authorized under HEA in 1998. Also in 1998, another amendment to the HEA was the Aid Elimination Provision that prevents individuals with drug charges from getting federal financial assistance.
In 2003, a large portion of the HEA was set to expire, which caused a large uprising in support groups across the nation. Among groups included: the American Indian Higher Education Consortium, the Hispanic Association of Colleges and Universities, and the National Association for Equal Opportunity in Higher Education. Even though these groups collectively voiced many recommendations for the Higher Education Act, in 2008 the actual HEA was not reauthorized, but instead many sections of the act were renewed. Currently the HEA addresses: Title I: Provides funding for extension and continuing education programs, Title II: Allocates money to enhance library collections, Title III: Provisions for strengthening developing institutions, Title IV: Provides student assistance through scholarships, low-interest loans, and work-study programs, Title V: Provisions for improving the quality of teaching and Title VI: Provisions for improving undergraduate instruction (U.S. Department of Education). The HEA provides students with grants, subsidized student loans and unsubsidized student loans.
The federal government has expanded the funding of student aid under Title IV tremendously to increase access to postsecondary education. From 2000-01 to 2010-11, real federal expenditures on the Pell Grant program more than tripled from $10 billion to $35 billion (in 2010 dollars) and real Stafford Loan volumes more than doubled from $37 billion to $86 billion. In contrast, from 2000 to 2010, state tax appropriations for higher education increased by only about 5 percent in real terms, with zero real growth since 2007. (Deming, Golding, Katz, 2013) Therefore it is possible to conclude that the large recent increase in federal higher education spending has coincided with a tightening of state budgets.
While society experienced zero to no growth in state funding for public institutions, for-profit colleges have grown rapidly to meet demand and have taken advantage of expanded federal student aid. For-profit colleges and universities have increased their share of the total fall enrollment in Title IV-eligible institutions from about 4% in 2000 to almost 11% in 2009. (Deming, Golding, Katz, 2013).
For-profit colleges experienced a substantial and lucrative boom during the recession, but this boom period coincided with the beginning of the Obama administration, which quickly brought about a major effort to scrutinize various industry practices at these schools, involving "allegations of predatory sales techniques and poor outcomes that left thousands of students drowning in debt, while the schools raked in billions from federal student loans and grants" (Stratford). The Obama administration attempted to bring this perceived bad actor to heel for these alleged transgressions, but also with respect to the high student loan default rate, since this was perceived as having a harmful effect on the pool of money available to students at other more traditional types of colleges and universities. Obama, for instance, as a candidate and as president, repeatedly called for and implemented policies that would strengthen community colleges across the country, hoping to stop the trend toward more money flowing to for-profits colleges.
And this avalanche of allegations and bad news, combined with the regulatory burdens of the Obama administration, had a visible and obvious impact on the sector as a whole. This could be seen from the fall from grace of the biggest and most reputable of the for-profit sector, the University of Phoenix and its parent company, the Apollo Group. For this company was so big and successful that it was publicly traded as well as listed on the S&P 500 (Apollo 33, 58). But in 2012, after being hammered by lawsuits as well as an increasing regulatory burden under President Obama's Education Department, Apollo stock dropped precipitously in 2012, hitting an 11-year low, and earning itself a rating that year of the worst-performing stock on the the S&P 500 for that year (Hechinger)--a dismal performance that translated into the cutting of more than 800 jobs and the closure of 115 University of Phoenix campuses in a desperate attempt to recoup roughly $300 million (Apollo).
But that trend gave the appearance of changing, given the composition and disposition of the incoming administration and its education secretary. For instance, for-profit colleges hired Newt Gingrich, a Trump booster, as a lobbyist to help them win a major shift in policy from the Department of Education (Stratford). Moreover, DeVos openly worked to reverse Obama-era rules that would have prevented the worst of the for-profits from getting federal funds, whether loans or grants through its students (Stratford).
DeVos also appointed a former dean of DeVry University--one of the schools accused of fraud that paid $100 million to settle such claims--to oversee departmental efforts to police for-profit schools, while at the same time shutting off the mechanism that allowed students at for-profits to submit claims of fraud against these schools (Stratford). So this looks like bonanza time for the for-profit sector. But is that actually the case?
Regarding student loan repayment versus defaults, the trend identified by recent studies is one of increasing default, especially for students of for-profit schools and even more so among black students who attend such schools (Scott-Clayton 1). But whether or not such trends can be measured; any recent policy changes is impossible to glean from the data accumulated and presented so far, given the longitudinal aspect of such studies, and data being derived from cohorts who graduated years if not decades ago (Scott-Clayton). Yet the trend is unmistakable as well as disturbing: using data from the Department of Education current as of October 2017, the Brookings study found that, of two college-graduate cohorts, one taken from the graduating year 1996 and the other from the year 2004, a full 23 percent of the 1996 cohorts defaulted on their loans versus 43 percent of the 2004 cohort-or close to that of double the rate of the earlier cohort (Scott-Clayton 2). Yet despite this shocking disparity, for-profit schools continue to receive funding from the federal government, when other options exist for the flow of this funding, namely to more traditional-type schools such as public and non-profit private colleges and universities. Yet still, the reason such funding was ever allowed to go to these schools in the first place was because they serve "nontraditional" students-older students, or students lacking academic qualifications (Simon). Students attending such schools are "more likely to be first-generation, low-income students" (Simon). In other words, these schools tend to service underserved populations. Yet at the same time, the clear trend appears to show these students being locked into a financial situation that is beyond what their education prepares them to deal with after graduation.
Detailed Outcome Description
Ultimately the trend is toward higher and higher rates of loan default, and the identifiable trend, again, is among students at for-profit colleges and for black students (Scott-Clayton). Nevertheless, given the shocking rise in these default numbers, the Trump administration has begun to implement a major rollback of the Obama administration's regulatory efforts regarding the for-profit sector. This appears to be setting up a situation is which student loan repayment rates are likely to worsen, given the identified trend regarding the for-profit sector.
Regarding profits for such businesses, the outcome would appear to be highly favorable. The Trump administration is in this area is as bent on deregulation as it is in other sectors, and so the trend would appear to support increasing profits, for such schools and for the sector as a whole.
Yet so far this does not seem to be the case, despite fears to the contrary on the part of for-profit critics (Simon). For despite the focus on relieving the sector of its Obama-era regulatory burdens, the for-profit sector has still been unable to shake off the reputational and legal damage that occurred over the past decade (Simon). Some of the worst actors of this sector failed to survive, and Corinthian Colleges was a major example of a school engaged in fraudulent practices that was punished with its dissolution, and another, smaller school that could also be pointed to as of a shady nature being Trump University, which never admitted to the charges of fraud leveled against it but instead settled out of court with aggrieved students (Simon).
Analysis
With respect to the first two hypotheses, the data available does not yet allow any definite conclusions to be drawn. It is simply too soon to say whether the student loan default rate will increase as a result of Trump administration policy changes. Nevertheless, it is reasonable to assume that this trend will, in fact, get worse, given the data that is available regarding the worsening of this trend. It has been argued on the libertarian right, namely by the Cato Institute, that student loan default rates are increasing across the board, and the conclusion they draw from this is not that for-profit schools are the problems, but that schools in general are creating the problem in that they are graduating students who are unequipped to have the earning potential necessary to pay off the loans they have incurred (Simon). Analysts for the libertarian American Enterprise Institute also contend that for-profit colleges make up a small fraction (roughly nine percent) of the overall student population, and that these sheer numbers conceal the fact that public schools and non-profit private schools also have high rates of student loan default (Delisle and Cooper).
Yet what these analysts fail to address is the nature of for-profit model. After all, these school operate in order to generate a profit. That sounds like a tautology, but it is necessary to make clear the motive behind the operation of these schools. While libertarians may counter that this does not matter if they are able to use that profit motive to deliver a better "product" to "consumers." Yet the recent history of the for-profit sectors shows such abuse that reforms were clearly required.
Also, the for-profit sector currently operates under restrictions regarding federal funding, or the so-called 90-10 rule, which requires that for-profit schools get no more than 90 percent of their funding from the federal government (Delisle and Cooper). The Obama administration attempted but failed to change this ratio in order to be more restrictive with respect to for-profit schools. That administration did succeed, however, in implementing "gainful employment" rules, regarding the outcomes for graduates of for-profits with respect to paying jobs and loans repayment rates (Delisle and Cooper). Libertarian critics, however, are correct to point out that similar stringent standards are not applied to nonprofit schools, whether public or private, and that these schools also generate loan defaulters, in fact the overwhelming majority of such loan defaults (Delisle and Cooper).
While the question, though, of shifts in loan defaults for the for-profit sector cannot be judged regarding relatively recent policy shifts, regarding the hypothesis of profits coming to the sector in the Trump era, this would appear to be an area of indisputable growth. And yet that cannot be clearly said to be the case, as in fact in some cases, quite the opposite appears to be true, as the sector "has struggled with years of severe declines in revenue and enrollments" (Fain).
So this second hypothesis also has been shot down by the data currently available.
Which leaves us with a final question to answer: Have there been unintended consequences to the regulatory practices of the Department of Education?
The answer, in a word, would seem to be yes. And that unintended consequence has led several for-profit schools (with more in the offing) of attempting to convert from for-profit status to non-profit (Fain). While critics dismiss these efforts as bald-faced attempts to do an end-run around federal regulations, the fact cannot be disputed that this shift is currently underway and obvious enough to constitute a major trend (Fain). Example abound: Bridgepoint Education is currently trying to merge the University of the Rockies with Ashford University, and then shift the merged entity from the for-profit to the non-profit sector (Fain). Grand Canyon University has also been trying to do this, as well as Kaplan University (which was acquired by Purdue University and seeks to rebrand it as a non-profit) (Fain). This was clearly not the apparent intention of the Department of Education under either Obama or Trump, and yet this is the direction that many of these schools are moving in.
Lastly, we must consider the societal impact of the changes to HEA and its impact on for-profit schools. The small amount of evidence that is available on the subject suggest that the economic returns to students who attend for-profit colleges are lower than those for public and nonprofit colleges. Moreover, default rates on student loans for for-profit colleges and universities greatly exceed those of other institutions. For-profit colleges have had strong financial incentives to innovate in ways that increase enrollments, however, the rapid growth of the sector may have decreased the program quality that the students are experiencing (Deming, Golding, Katz). All of these factors point in one direction: a large negative impact directly on individuals who are seeking convenient higher education; a population that is already at a disadvantage to their peers.
It is greatly urged that federal regulations of the for-profit sector should have goals that are centered on design incentives for improved quality, while still preserving access for students from disadvantaged and nontraditional backgrounds (Deming, Golding, Katz). Education and the nature of education, how it is funded, and how funding is advanced in the years to come will directly impact the future leaders of our society. If default rates continue on an increasing trend due to lack of knowledge and the highly aggressive recruiting techniques used by for-profit colleges and universities, audits will continue to demonstrate evidence of borderline fraudulence (Deming, Golding, Katz). Advancements in the HEA movement and regulations of for-profit schools should be made and advocated by society to support the future of our citizens.
Conclusion
For-profit college and universities are probably not the smartest solution to our nation's higher education problems and seems to be having a negative impact on society as evidenced by increasing default trends. It stands to reason that schools with a profit motive trying to cram warm bodies into classrooms will be more likely to run up higher student loan default rates. Yet critics of these schools often fail to realize the similar problem that also exists at public and nonprofit private schools. The answer has been regulation tailored to punish the for-profits and basically to push them out of the federal funding trough. This appears to be happening, though not in the manner that was intended.
Moreover, these for-profit educations companies do not appear to be racking up record profits, despite the deregulatory glee of the Trump administration.
Instead, something stranger is taking place. For-profits schools, while lobbying the Trump administration for breaks favorable to their sector, also at the same time are racing each other to the exit, and trying to convert themselves to non-profit status.
This is one of the unintended consequences that libertarians are always warning about with respect to government intervention, but at this point it is too soon to say what exactly this trend means. It could turn out that, though this is the type of unexpected outcome predicted by libertarians, it may actually be more in keeping with the ideological interests of the government regulators who pushed these companies in the non-profit direction. For if the Obama-era regulatory burdens goad these companies to reform as more respectable and educational beneficial institutions, then their original intent will have been achieved, though not in a way they would have expected.
It still remains to be seen, though, whether there will be positives outcomes from this shift, or even whether government regulators will allow it (so far Grand Canyon University has been unsuccessful in obtaining approval) (Fain). If these companies merely make this shift to escape regulation, then the Obama-era regulations will have done more harm than good. At this point, however, it is simply impossible to tell how the for-profit sector will fare in the long run, and what this will mean for student loan repayment.
References
Apollo Group. (2013.) Apollo Group 2013 Form 10-k.
Deming, David, Goldin, Claudia, and Katz, Lawerence (2013). "For-profit colleges."
DeLisle, Jason and Cooper, Preston. (20 March 2018.) "Scrutinize All Colleges, Not Just Non-Profits." National Review.
Fain, Paul. (13 March 2018.) "Ashford Seeks to Become a Non-Profit." Inside Higher Ed.
Hechinger, John. Oct 17, 2012. "Apollo Group Falls Most in Two Years on Sales Forecast." Bloomberg News.
Scott-Clayton, Judith. "The looming student loan default crisis is worse than we thought." Evidence Speaks Reports, 2(34).The Brookings Institute. Web.
Simon, Caroline. (19 March 2018.) "For-Profit Colleges' Teachable Moment: 'Terrible Outcomes Are Very Profitable." Forbes.
Stratford, Michael. (31 August 2017.) "Trump and DeVos fuel a for-profit college comeback." Politico.
Strauss, Valerie. (11 December 2017.) "For-profit colleges may be headed for a new boom cycle--thanks to the Trump administration." The Washington Post. Web.
This paper will concern the intersection between business and government and the rise of the for-profit education sector. While education for elementary and secondary students is generally thought of as a right in the United States, the general consensus regarding higher education is something different. Americans aiming for a college degree are on their own to a certain extent, but are also eligible through a variety of government-backed loans and grants, especially at the federal level. How and where these loans and grants can be used, however, opens up an interesting area for consideration.
Federal funding follows the students in the United States, so where grants and loans are spent is determined by the type of school a student chooses to attend. Generally, the school is either a state school and therefore non-profit and run by the state, or a private school, most of which are non-profit though operated by private entities. But there is a third class of school: private for-profit schools. It is this type of school, involving for-profit education that will be examined in this paper.Brief Topic Description
Public funds, in the form of grants and loans, can be spent by American students to pay for college educations at for-profit colleges and universities. This is a situation with which many Americans are unfamiliar, but it is nevertheless the case, and has been for decades. This situation sets up an area of intersection between business and government that opens up a host of public policy questions.
More specifically, this paper will look at the shift that has occurred over the course of the past few years. During the presidential administration of Barack Obama, the U.S.
Department of Education began a concerted effort to rein in the flow of money to for-profit colleges, while at the same time increasing funding and shoring up the infrastructure in place for the nation's community colleges. But with the advent of the Trump administration, the official policy of the federal government has done a complete about-face with respect to federal funding and for-profit education, and Trump even went so far as to appoint Betsy DeVos, a fervent proponent of for-profit education, as the Secretary of Education.
Research Questions
The research questions this paper will try to answer will be in regard to this shift in education priorities with the change in administration. The Obama administration's crackdown on the for-profit industry was for several reasons, but one of the crucial ones was in consideration of student loan repayment rates at for-profit colleges, which were significantly worse than for comparable repayment rates for students of public and non-profit private colleges.
So one of the first questions to address will be:
1. Whether student loans repayment rates have perceptibly shifted over the past several years, how they have fluctuated, and what these fluctuations may mean in relation to the diametrically-opposite policies of the changing administrations?
Moreover, this paper will seek to determine whether the Trump's administrations change towards the for-profit education industry has been beneficial for this industry:
2. Have for-profit education companies seen a rise in profits given the favorable change in terms of regulatory emphasis?
Finally, this paper will also consider another area related to these questions:
3. What, if any, unintentional consequences have resulted in response to policies aimed at the for-profit education sector?
Hypotheses
This paper will lay down two hypotheses that the above-mentioned research questions will attempt to answer. The first hypothesis will be regarding student loan repayment rates. This hypothesis will state that student loan repayment rates at for-profit colleges will have seen a small drop during the Obama years, but no discernible change so far during the Trump administration from the previous trend.
The second hypothesis will focus on profits and the for-profit college industry. This hypothesis will hold that the for-profit sector is currently in the midst of a boom, thanks to the deregulatory policies of Education Secretary Betsy DeVos.
Detailed Topic Description
For-profit colleges, also known as proprietary institutions, contain some of the largest and smallest colleges and universities by enrollment in the United States (Deming, Golding, Katz, 2013). Although enrollments are high in these big institutions such as The University of Phoenix, the median enrollment rate in all for-profit institutions that were eligible to accept federal funding under Title IV of the Higher Education Funding Act (HEA) was just 172 students (Deming, Golding, Katz, 2013).
The HEA was passed in and signed into US State Law at Texas State University on November 8th, 1965. The law was designed to assist students by providing educational resources to colleges and universities along with financial assistance for students who were wishing to attend or attending post-secondary and higher education. The Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) was authorized under HEA in 1998. Also in 1998, another amendment to the HEA was the Aid Elimination Provision that prevents individuals with drug charges from getting federal financial assistance.
In 2003, a large portion of the HEA was set to expire, which caused a large uprising in support groups across the nation. Among groups included: the American Indian Higher Education Consortium, the Hispanic Association of Colleges and Universities, and the National Association for Equal Opportunity in Higher Education. Even though these groups collectively voiced many recommendations for the Higher Education Act, in 2008 the actual HEA was not reauthorized, but instead many sections of the act were renewed. Currently the HEA addresses: Title I: Provides funding for extension and continuing education programs, Title II: Allocates money to enhance library collections, Title III: Provisions for strengthening developing institutions, Title IV: Provides student assistance through scholarships, low-interest loans, and work-study programs, Title V: Provisions for improving the quality of teaching and Title VI: Provisions for improving undergraduate instruction (U.S. Department of Education). The HEA provides students with grants, subsidized student loans and unsubsidized student loans.
The federal government has expanded the funding of student aid under Title IV tremendously to increase access to postsecondary education. From 2000-01 to 2010-11, real federal expenditures on the Pell Grant program more than tripled from $10 billion to $35 billion (in 2010 dollars) and real Stafford Loan volumes more than doubled from $37 billion to $86 billion. In contrast, from 2000 to 2010, state tax appropriations for higher education increased by only about 5 percent in real terms, with zero real growth since 2007. (Deming, Golding, Katz, 2013) Therefore it is possible to conclude that the large recent increase in federal higher education spending has coincided with a tightening of state budgets.
While society experienced zero to no growth in state funding for public institutions, for-profit colleges have grown rapidly to meet demand and have taken advantage of expanded federal student aid. For-profit colleges and universities have increased their share of the total fall enrollment in Title IV-eligible institutions from about 4% in 2000 to almost 11% in 2009. (Deming, Golding, Katz, 2013).
For-profit colleges experienced a substantial and lucrative boom during the recession, but this boom period coincided with the beginning of the Obama administration, which quickly brought about a major effort to scrutinize various industry practices at these schools, involving "allegations of predatory sales techniques and poor outcomes that left thousands of students drowning in debt, while the schools raked in billions from federal student loans and grants" (Stratford). The Obama administration attempted to bring this perceived bad actor to heel for these alleged transgressions, but also with respect to the high student loan default rate, since this was perceived as having a harmful effect on the pool of money available to students at other more traditional types of colleges and universities. Obama, for instance, as a candidate and as president, repeatedly called for and implemented policies that would strengthen community colleges across the country, hoping to stop the trend toward more money flowing to for-profits colleges.
And this avalanche of allegations and bad news, combined with the regulatory burdens of the Obama administration, had a visible and obvious impact on the sector as a whole. This could be seen from the fall from grace of the biggest and most reputable of the for-profit sector, the University of Phoenix and its parent company, the Apollo Group. For this company was so big and successful that it was publicly traded as well as listed on the S&P 500 (Apollo 33, 58). But in 2012, after being hammered by lawsuits as well as an increasing regulatory burden under President Obama's Education Department, Apollo stock dropped precipitously in 2012, hitting an 11-year low, and earning itself a rating that year of the worst-performing stock on the the S&P 500 for that year (Hechinger)--a dismal performance that translated into the cutting of more than 800 jobs and the closure of 115 University of Phoenix campuses in a desperate attempt to recoup roughly $300 million (Apollo).
But that trend gave the appearance of changing, given the composition and disposition of the incoming administration and its education secretary. For instance, for-profit colleges hired Newt Gingrich, a Trump booster, as a lobbyist to help them win a major shift in policy from the Department of Education (Stratford). Moreover, DeVos openly worked to reverse Obama-era rules that would have prevented the worst of the for-profits from getting federal funds, whether loans or grants through its students (Stratford).
DeVos also appointed a former dean of DeVry University--one of the schools accused of fraud that paid $100 million to settle such claims--to oversee departmental efforts to police for-profit schools, while at the same time shutting off the mechanism that allowed students at for-profits to submit claims of fraud against these schools (Stratford). So this looks like bonanza time for the for-profit sector. But is that actually the case?
Regarding student loan repayment versus defaults, the trend identified by recent studies is one of increasing default, especially for students of for-profit schools and even more so among black students who attend such schools (Scott-Clayton 1). But whether or not such trends can be measured; any recent policy changes is impossible to glean from the data accumulated and presented so far, given the longitudinal aspect of such studies, and data being derived from cohorts who graduated years if not decades ago (Scott-Clayton). Yet the trend is unmistakable as well as disturbing: using data from the Department of Education current as of October 2017, the Brookings study found that, of two college-graduate cohorts, one taken from the graduating year 1996 and the other from the year 2004, a full 23 percent of the 1996 cohorts defaulted on their loans versus 43 percent of the 2004 cohort-or close to that of double the rate of the earlier cohort (Scott-Clayton 2). Yet despite this shocking disparity, for-profit schools continue to receive funding from the federal government, when other options exist for the flow of this funding, namely to more traditional-type schools such as public and non-profit private colleges and universities. Yet still, the reason such funding was ever allowed to go to these schools in the first place was because they serve "nontraditional" students-older students, or students lacking academic qualifications (Simon). Students attending such schools are "more likely to be first-generation, low-income students" (Simon). In other words, these schools tend to service underserved populations. Yet at the same time, the clear trend appears to show these students being locked into a financial situation that is beyond what their education prepares them to deal with after graduation.
Detailed Outcome Description
Ultimately the trend is toward higher and higher rates of loan default, and the identifiable trend, again, is among students at for-profit colleges and for black students (Scott-Clayton). Nevertheless, given the shocking rise in these default numbers, the Trump administration has begun to implement a major rollback of the Obama administration's regulatory efforts regarding the for-profit sector. This appears to be setting up a situation is which student loan repayment rates are likely to worsen, given the identified trend regarding the for-profit sector.
Regarding profits for such businesses, the outcome would appear to be highly favorable. The Trump administration is in this area is as bent on deregulation as it is in other sectors, and so the trend would appear to support increasing profits, for such schools and for the sector as a whole.
Yet so far this does not seem to be the case, despite fears to the contrary on the part of for-profit critics (Simon). For despite the focus on relieving the sector of its Obama-era regulatory burdens, the for-profit sector has still been unable to shake off the reputational and legal damage that occurred over the past decade (Simon). Some of the worst actors of this sector failed to survive, and Corinthian Colleges was a major example of a school engaged in fraudulent practices that was punished with its dissolution, and another, smaller school that could also be pointed to as of a shady nature being Trump University, which never admitted to the charges of fraud leveled against it but instead settled out of court with aggrieved students (Simon).
Analysis
With respect to the first two hypotheses, the data available does not yet allow any definite conclusions to be drawn. It is simply too soon to say whether the student loan default rate will increase as a result of Trump administration policy changes. Nevertheless, it is reasonable to assume that this trend will, in fact, get worse, given the data that is available regarding the worsening of this trend. It has been argued on the libertarian right, namely by the Cato Institute, that student loan default rates are increasing across the board, and the conclusion they draw from this is not that for-profit schools are the problems, but that schools in general are creating the problem in that they are graduating students who are unequipped to have the earning potential necessary to pay off the loans they have incurred (Simon). Analysts for the libertarian American Enterprise Institute also contend that for-profit colleges make up a small fraction (roughly nine percent) of the overall student population, and that these sheer numbers conceal the fact that public schools and non-profit private schools also have high rates of student loan default (Delisle and Cooper).
Yet what these analysts fail to address is the nature of for-profit model. After all, these school operate in order to generate a profit. That sounds like a tautology, but it is necessary to make clear the motive behind the operation of these schools. While libertarians may counter that this does not matter if they are able to use that profit motive to deliver a better "product" to "consumers." Yet the recent history of the for-profit sectors shows such abuse that reforms were clearly required.
Also, the for-profit sector currently operates under restrictions regarding federal funding, or the so-called 90-10 rule, which requires that for-profit schools get no more than 90 percent of their funding from the federal government (Delisle and Cooper). The Obama administration attempted but failed to change this ratio in order to be more restrictive with respect to for-profit schools. That administration did succeed, however, in implementing "gainful employment" rules, regarding the outcomes for graduates of for-profits with respect to paying jobs and loans repayment rates (Delisle and Cooper). Libertarian critics, however, are correct to point out that similar stringent standards are not applied to nonprofit schools, whether public or private, and that these schools also generate loan defaulters, in fact the overwhelming majority of such loan defaults (Delisle and Cooper).
While the question, though, of shifts in loan defaults for the for-profit sector cannot be judged regarding relatively recent policy shifts, regarding the hypothesis of profits coming to the sector in the Trump era, this would appear to be an area of indisputable growth. And yet that cannot be clearly said to be the case, as in fact in some cases, quite the opposite appears to be true, as the sector "has struggled with years of severe declines in revenue and enrollments" (Fain).
So this second hypothesis also has been shot down by the data currently available.
Which leaves us with a final question to answer: Have there been unintended consequences to the regulatory practices of the Department of Education?
The answer, in a word, would seem to be yes. And that unintended consequence has led several for-profit schools (with more in the offing) of attempting to convert from for-profit status to non-profit (Fain). While critics dismiss these efforts as bald-faced attempts to do an end-run around federal regulations, the fact cannot be disputed that this shift is currently underway and obvious enough to constitute a major trend (Fain). Example abound: Bridgepoint Education is currently trying to merge the University of the Rockies with Ashford University, and then shift the merged entity from the for-profit to the non-profit sector (Fain). Grand Canyon University has also been trying to do this, as well as Kaplan University (which was acquired by Purdue University and seeks to rebrand it as a non-profit) (Fain). This was clearly not the apparent intention of the Department of Education under either Obama or Trump, and yet this is the direction that many of these schools are moving in.
Lastly, we must consider the societal impact of the changes to HEA and its impact on for-profit schools. The small amount of evidence that is available on the subject suggest that the economic returns to students who attend for-profit colleges are lower than those for public and nonprofit colleges. Moreover, default rates on student loans for for-profit colleges and universities greatly exceed those of other institutions. For-profit colleges have had strong financial incentives to innovate in ways that increase enrollments, however, the rapid growth of the sector may have decreased the program quality that the students are experiencing (Deming, Golding, Katz). All of these factors point in one direction: a large negative impact directly on individuals who are seeking convenient higher education; a population that is already at a disadvantage to their peers.
It is greatly urged that federal regulations of the for-profit sector should have goals that are centered on design incentives for improved quality, while still preserving access for students from disadvantaged and nontraditional backgrounds (Deming, Golding, Katz). Education and the nature of education, how it is funded, and how funding is advanced in the years to come will directly impact the future leaders of our society. If default rates continue on an increasing trend due to lack of knowledge and the highly aggressive recruiting techniques used by for-profit colleges and universities, audits will continue to demonstrate evidence of borderline fraudulence (Deming, Golding, Katz). Advancements in the HEA movement and regulations of for-profit schools should be made and advocated by society to support the future of our citizens.
Conclusion
For-profit college and universities are probably not the smartest solution to our nation's higher education problems and seems to be having a negative impact on society as evidenced by increasing default trends. It stands to reason that schools with a profit motive trying to cram warm bodies into classrooms will be more likely to run up higher student loan default rates. Yet critics of these schools often fail to realize the similar problem that also exists at public and nonprofit private schools. The answer has been regulation tailored to punish the for-profits and basically to push them out of the federal funding trough. This appears to be happening, though not in the manner that was intended.
Moreover, these for-profit educations companies do not appear to be racking up record profits, despite the deregulatory glee of the Trump administration.
Instead, something stranger is taking place. For-profits schools, while lobbying the Trump administration for breaks favorable to their sector, also at the same time are racing each other to the exit, and trying to convert themselves to non-profit status.
This is one of the unintended consequences that libertarians are always warning about with respect to government intervention, but at this point it is too soon to say what exactly this trend means. It could turn out that, though this is the type of unexpected outcome predicted by libertarians, it may actually be more in keeping with the ideological interests of the government regulators who pushed these companies in the non-profit direction. For if the Obama-era regulatory burdens goad these companies to reform as more respectable and educational beneficial institutions, then their original intent will have been achieved, though not in a way they would have expected.
It still remains to be seen, though, whether there will be positives outcomes from this shift, or even whether government regulators will allow it (so far Grand Canyon University has been unsuccessful in obtaining approval) (Fain). If these companies merely make this shift to escape regulation, then the Obama-era regulations will have done more harm than good. At this point, however, it is simply impossible to tell how the for-profit sector will fare in the long run, and what this will mean for student loan repayment.
References
Apollo Group. (2013.) Apollo Group 2013 Form 10-k.
Deming, David, Goldin, Claudia, and Katz, Lawerence (2013). "For-profit colleges."
DeLisle, Jason and Cooper, Preston. (20 March 2018.) "Scrutinize All Colleges, Not Just Non-Profits." National Review.
Fain, Paul. (13 March 2018.) "Ashford Seeks to Become a Non-Profit." Inside Higher Ed.
Hechinger, John. Oct 17, 2012. "Apollo Group Falls Most in Two Years on Sales Forecast." Bloomberg News.
Scott-Clayton, Judith. "The looming student loan default crisis is worse than we thought." Evidence Speaks Reports, 2(34).The Brookings Institute. Web.
Simon, Caroline. (19 March 2018.) "For-Profit Colleges' Teachable Moment: 'Terrible Outcomes Are Very Profitable." Forbes.
Stratford, Michael. (31 August 2017.) "Trump and DeVos fuel a for-profit college comeback." Politico.
Strauss, Valerie. (11 December 2017.) "For-profit colleges may be headed for a new boom cycle--thanks to the Trump administration." The Washington Post. Web.