Barring a last-minute legal decision, as of July 1, the nation's for-profit colleges are going to be subject to a new Education Department rule known as gainful employment. That is: Do students end up earning enough to pay off their loans?

A trade group of career colleges is suing to stop the rule, but this is far from the only monkey on the sector's back. As recently as 2010, these schools enrolled one in nine college students. Today, some are shutting down, cutting back, tanking in the stock market, even going bankrupt. The bellwether was the giant Corinthian Colleges a year ago, but many others are in trouble as well. Even the University of Phoenix, which five years ago had 460,000 students, has seen that number fall by half.

Part of this is thanks to government crackdowns. The Consumer Financial Protection Bureau, formed in the wake of the 2008 financial crisis, is the new watchdog in town. And it has taken a particular interest in for-profits that market student loans directly to their own students, sometimes in misleading and aggressive ways.

Officials at the bureau sued Corinthian Colleges, alleging predatory lending and illegal debt collection tactics, and in the wake of the Corinthian shutdown they arranged for $480 million in private student loans to be forgiven.

Student activists have also been vocal in criticizing the industry and demanding relief from their loans.

But government enforcement and political debate are not the only reasons these colleges are having problems. Market forces should be considered, too.

In the 1990s and early 2000s, if you were a working adult who needed flexibility, in most parts of the country, your best option — or maybe your only option — for finishing your degree was probably an online program from a for-profit college. It was hard to ride public transit or turn on a TV during the day without seeing an ad for one of the schools, and they were sophisticated in online advertising as well.

Today, public institutions like Arizona State University (which is among NPR's financial supporters) and nonprofits like Southern New Hampshire University and Western Governors University have gotten into the game. They are trying to meet the needs of this same student population by offering online, go-at-your-own-pace programs.

They are enrolling tens of thousands of students. And they are partnering with employers, such as Starbucks with ASU, to defray tuition costs. Their tuition tends to be lower in any case than what the for-profits charge.

"I think the market's been educated," says Paul LeBlanc, president of Southern New Hampshire University. "People used to not be aware of the difference between for-profits and nonprofits."

Seven years ago, he began building a large online program at his regionally accredited private college. Today it enrolls 22,500 students and has partnerships with 78 employers. Recently Anthem, the health insurer, agreed to offer SNHU's College for America bachelor's program to employees for free.

About half of the company's 55,000 workers — call center employees, administrative assistants, and the like — may be eligible.

So what is the upshot here for students and prospective students?

There are still hundreds of thousands, if not millions, of current and former for-profit college students from over the past two decades who are saddled with high loan debt and degrees of potentially dubious value.

The Education Department says it's working to develop a process for providing debt relief to defrauded borrowers, including many at Corinthian. But critics say that these processes are too onerous and too slow.

At the same time, with the gainful employment rule, observers say the Department of Education is opening a can of worms. There are a lot of public and nonprofit privates out there too that may be graduating too few students and leaving them with loans that are too high.

For example, across the country the graduation rate at public community colleges is still just one in five. Nor have the new big online institutions furnished hard evidence about the life experiences or employment prospects of their graduates.

Copyright 2015 NPR. To see more, visit http://www.npr.org/.

Transcript

RENEE MONTAGNE, HOST:

Only a small percentage of the nation's college students attend for-profit schools, but those students are responsible for about half of all the student loan defaults in the U.S. Soon, those colleges will face a strict new regulation, and some education experts are using words like collapse and implosion to describe the state of the industry. We ask NPR's education blogger Anya Kamenetz to explain the new crackdown.

ANYA KAMENETZ, BYLINE: This new Department of Education rule, gainful employment, it really is meant to impose a new level of rigor on these for-profit colleges. It says that colleges that leave students unable to pay back their loans after they leave are really not going to be able to continue to get a lot of federal government student aid money, which they're so dependent on. And, you know, hand-in-hand with the Department of Ed has been a lot of action from the Consumer Financial Protection Bureau.

MONTAGNE: In a way, what's being measured here is how successful have these for-profits been in actually educating and getting jobs for things they promised their students.

KAMENETZ: That's exactly right. So, you know, there's still hundreds of thousands of current and former for-profit college students who say that their degrees are of dubious value and they're not succeeding in the job market. And so what a rule like gainful employment is meant to do is impose a little bit of accountability to say, you know, if you can't pay back your loans and your degree is not really worth a lot in the job market, then the college shouldn't be allowed to keep operating.

MONTAGNE: And you mention the Consumer Financial Protection Bureau. How did it get involved?

KAMENETZ: So the CFPB, befitting its mission, it's taken a real interest in student loans. So they sued Corinthian Colleges, which shut down last year, and they alleged that the Colleges were practicing predatory lending and illegal debt collection tactics. And they've also arranged for $480 million in private student loans from Corinthian students to be forgiven.

MONTAGNE: Also now, students are organizing to get their federal loans forgiven, even get the money back that they've paid off. Tell us about that.

KAMENETZ: Right. So one of the new factors in the current outlook for for-profit colleges is that there's a group of students organizing to say that they want their federal loans forgiven. This group called Strike Debt, out of the Occupy Wall Street movement, has signed on many, many students to say that they want the federal government to write off the loans that they've borrowed as a result of enrolling in Corinthian Colleges and alleging that these schools were fraudulent.

MONTAGNE: And Anya, is government enforcement the only reason that these colleges are having problems? I don't think so, right?

KAMENETZ: No, no. That's a very good point. I think part of this is simply market forces, too. You know, in the '90s and early 2000s, if you were a working adult who needed flexibility, a for-profit college might be your best or even your only option for an online degree. And enrollment then peaked in 2010 at two million students, almost one in nine college students. But today, they've got more and more public universities and nonprofit universities - Arizona State, Western Governors - and they're all expanding their online offerings into the tens of thousands of students, even 100,000 students, and they're marketing them nationwide.

MONTAGNE: The words collapse and implosion are pretty strong words when applied to these for-profit colleges, but how much are they true?

KAMENETZ: There is whole lot of factors that are lining up against for-profit colleges and you're seeing household names shutting down, going bankrupt. And the University of Phoenix, once the biggest name in the business, has lost half its students. So, you know, there's a lot of negative indicators on the horizon, and I think that we're going to be seeing a very different conversation going forward about the value of a degree program and how colleges should be expected to prove it.

MONTAGNE: NPR's Anya Kamanetz from NPR's Ed team, thanks very much.

KAMENETZ: Thank you, Renee. Transcript provided by NPR, Copyright NPR.

300x250 Ad

Support quality journalism, like the story above, with your gift right now.

Donate