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For-Profit Schools Have High Loan Default Rates

May 13, 2011

By Sabrina Barekzai
Capital News Service

RICHMOND — It is very much a part of the American dream: graduating from college. But that dream can turn into a nightmare for students who are drowning in debt and default on their loans.

Student loan default rates are especially high among people who attend proprietary colleges and universities, which operate as for-profit businesses. Federal officials have criticized some proprietary schools, saying they are more interested in collecting tuition dollars than in teaching students marketable skills.

“While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not,” U.S. Secretary of Education Arne Duncan said recently.

“Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole.”

Duncan made his remarks last fall in releasing the department’s latest data on student loan default rates. The data showed that about 12 percent of the students from for-profit schools defaulted on their loans in 2008-09. That means they missed loan payments and couldn’t repay what they owed.

In contrast, the national default rate was 6 percent for public colleges and universities and 4 percent for private schools.

Statistics for Virginia schools reflect the national trend: The seven colleges with the highest student loan default rates in Virginia are all proprietary schools.

The Chesapeake campus of the Aviation Institute of Maintenance, which awards associate degrees, had a default rate of about 23 percent – the highest in the state. The default rate was about 21 percent at Everest College in Newport News; 17 percent at Centura College in Virginia Beach; and 14 percent at Stratford University, which awards bachelor’s and master’s degrees, in Falls Church.

By comparison, the default rate was about 10 percent for J. Sargeant Reynolds Community College in the Richmond area; 2 percent for Virginia Commonwealth University and George Mason University; and below 1 percent for Virginia Tech.

Officials at proprietary schools say there’s a logical explanation why their default rates may be high. Such schools tend to serve students with complicated lives or other challenges that often prevent them from enrolling in public or private colleges.

For example, students who attend for-profit colleges are more likely to have full-time jobs and families. Those responsibilities can interfere with the students’ studies – and down the road, that can lead to higher student loan default rates, according to proprietary school officials.

Whatever the reasons, one thing is true: There’s been a rise in proprietary schools in the Richmond area and across Virginia.

Some people refer to such schools as “commercial colleges” because they run a lot of advertisements on television. These schools, such as DeVry University (with a default rate of 10.2 percent) and the University of Phoenix (12.9 percent), usually target working adults and parents in their commercials.

The lure of online classes allows busy working adults to earn their degree on their own time. Many students find that especially appealing.

Tandra Berkins has been attending a for-profit school in Richmond for two semesters; she is studying medical coding.

“I chose a for-profit school because other schools didn’t work for me. For financial reasons, I had to keep my day job, and I’m taking classes at night to keep going,” Berkins said.

The Richmond area has about a dozen for-profit college campuses.

One of the newest, South University, is in Glen Allen, in the Short Pump area. The university, which offers bachelor’s and graduate degrees, is based in Savannah, Ga. Its student loan default rate was 7.9 percent, according to the U.S. Department of Education.

South University’s website boasts a simple user-friendly design akin to those of non-profit universities. It includes a tab with help for tuition and financial aid.

Another popular proprietary school is Kaplan University, which is owned by The Washington Post and offers classes exclusively online. Kaplan’s student loan default rate was 17.2 percent.

James Mason is a professor of writing and English for Kaplan University and resides in Richmond. He said the non-traditional nature of online courses is a good fit for many students.

“It seems counter-intuitive that greater educational intimacy could be fostered in an online environment, but that has been my experience. One has to keep in mind that at Kaplan, we have live seminars where students can actually hear the instructor and ask questions,” Mason said.

Linda Woodley, director of private and out-of-state postsecondary education at the State Council of Higher Education for Virginia, noted that many for-profit colleges seek to prepare students for specific careers. She prefers to call such schools “career-technical institutions.”

Some of those institutions may have higher student loan default rates than traditional schools, but the main point is that students are furthering their education, Woodley said.

SCHEV is the state agency that sets higher education policies and oversees colleges and universities in Virginia. According to the council’s website, 142 private and out-of-state degree-granting institutions are certified to operate in Virginia.

They include out-of-state public schools, such as Central Michigan University and the University of North Carolina; non-accredited schools, such as the American College of Commerce & Technology and iGlobal University; and proprietary institutions such as the Richmond School of Health and Technology (with a student loan default rate of about 15 percent) and Miller-Motte Technical College (with a default rate of almost 19 percent).

The career-technical institutions “provide an option for students who may not be accepted in a traditional college, or who want/need vocational training completion sooner than four or five years it takes to complete an undergraduate degree,” she said.

“Every student is not interested in a liberal arts education, and that’s OK. What’s important is that all students obtain some type of education beyond high school that prepares them to be productive citizens. This can be accomplished by a traditional college or a career-technical institution.”


On the Web

To look up the student loan default rates for specific schools, visit www.ed.gov/offices/OSFAP/defaultmanagement/cdr.html


Here are more statistics about student loan default rates.