Like a lot of moms who’ve been out of the workforce for a while, I’ve considered going back to school. But where? And for what? The ads on the subway are tempting, particularly for the University of Phoenix, with their photos of cheerful young people doing exciting things at computers. I’m a sucker for school. I loved college, and if I could, I’d be an eternal student. What to study doesn’t seem to matter so much.
But where I study might be critical for our long-term financial health. The University of Phoenix is a for-profit school, and for-profit schools are a morass of debt and unemployment, according to a new report from the Brookings Institution. The authors, Adam Looney of the U.S. Treasury Department and Constantine Yannelis of Stanford University, collected data that indicate that over the last 15 or so years, the proportion of student loans taken out to attend for-profit colleges has ballooned.
Gillian B. White, reporting for the The Atlantic, writes about this increase in for-profit student loan debt: “In 2000, there was only one for-profit institution among the 25 colleges and universities where students held the most student-loan debt. In 2014, there were 13, and University of Phoenix topped the list. The amount of debt owed by those attending for-profit colleges has grown from $39 billion in 2000 to $229 billion in 2014—which is more attributable to increases in the rate of borrowing at those schools than to increases in enrollment.”
Yikes. And students at for-profit and community colleges are much more likely to default on their loans than their counterparts at four-year colleges. According to White, “Of students who started repaying their federal student loans in 2011, only 8 percent of students who went to four-year schools defaulted within two years. For those who attended non-traditional colleges, the default rate was almost three times as high.”
There are several reasons for this. For one, for-profit colleges may not be accurate about whether credits can transfer to and from other institutions or not, meaning students have to take, and pay for, additional courses. For another, the schools don’t necessarily allow students to take time off, so pausing for a semester or a year to work isn’t always an option. Further, for-profit college students are less likely to actually graduate. White notes that “ percent of those who attend four-year public or private universities complete their degrees, whereas only 49 percent of students at for-profit schools do.”
Finally, the kicker: If a for-profit college inflates its job-placement statistics, grads may find that landing well-paying employment is harder than they thought it would be, making it pretty tough to pay back those loans. Libby Nelson, writing for Vox, reports: “Unemployment rates for students who borrowed to attend for-profit colleges reached as high as 21 percent; for community college students, it was 17 percent. Even when they found work, they earned very little. Students who attended for-profit colleges earned just under $21,000 per year.”
If the for-profit school folds before a student actually receives his or her degree, well, too bad. The student now has a pile of debt and no diploma.
The good news is this: College enrollment tends to rise during tough economic times, according to Nelson. As the economy improves, defaults are likely to drop.
As for me, I’ll probably scratch my school itch with just a few classes here and there. But for my kids, who’ll be looking at colleges sooner than I care to think about, the takeaway is clear: Aim for the four-year schools. Don’t be tempted by a for-profit college.