Ronnie Franklin borrowed to pay his tuition at a for-profit college that advertised its success in preparing graduates for better jobs. The decision still haunts him. Despite graduating from RETS Technical Center in Boston in 2000, he found himself so strapped for money that he and his two sons lived in a homeless shelter last year. Frustrated that his degree didn't lead to work in electronics, Franklin—now a $12-an-hour housepainter—decided to go to a community college this year. He can't qualify for a federal grant that would pay the cost because he has defaulted on $20,000 of his earlier U.S. student loans.
Students seeking to move up in life by getting a degree from a for-profit college are being trapped in a growing underclass of education debtors. Under U.S. law, their loan obligations can rarely be discharged in bankruptcy, making them more onerous than credit-card debt or subprime mortgages. Defaults can subject students to government confiscation of salaries, tax refunds, and Social Security payments—and disqualify them for aid to get more marketable degrees.
Students at for-profit colleges carry the biggest loans in U.S. higher education. Bachelor's degree recipients at for-profits have median debt of $31,190 compared with $17,040 at private, nonprofit institutions and $7,960 at public colleges, according to Washington-based nonprofit Education Trust.
While currently enrolling one in eight U.S. students, for-profit colleges account for almost one in two federal-loan defaults. The Obama Administration wants to curb rising default rates and the threat of student destitution by cutting off federal funds to for-profit college programs whose students have the worst loan-repayment rates and lowest incomes relative to debt, which suggests their degrees aren't translating into higher salaries. That's if a degree is earned: The graduation rate for first-time, full-time candidates for four-year degrees at for-profit colleges is 22 percent, compared with 55 percent at state colleges.
For-profit colleges have higher student-loan default rates and dropout rates because they serve lower-income students, minorities, immigrants, and working adults, says Harris Miller, president of the Association of Private Sector Colleges and Universities, a trade group.
Don Harris, president of RETS at the time Franklin attended, says 80 percent of RETS graduates succeeded in finding jobs related to their fields within 60 days of graduating. Washington Post's (WPO) Kaplan Higher Education bought RETS in 2002. About 20 percent of students at the school, now called Kaplan Career Institute, default in the first two years they're required to make payments—more than three times the rate at public colleges. That figure reflects the low-income backgrounds of Kaplan students, spokeswoman Melissa Mack says. "Most Americans are willing to take some risk with a student loan, knowing the payoff for them individually can be quite significant," Miller says.
The degree didn't pay off for Franklin. "I got an outstanding student loan, I got no job, and I'm further and further in debt," he says. "It's basically crippling me from doing a lot of things to improve my living condition."
The bottom line: Students at for-profit colleges graduate with higher debt loads and loan default rates than those who attend conventional schools.
John Hechinger is a reporter for Bloomberg News.