Education

Scrutinize All Colleges, Not Just For-Profits

(Pixabay)
Trump looks to undo an Obama-era regulation.

Congress and the Trump administration want to push standards for colleges and universities in a new direction. The administration is currently rewriting two Obama-era regulations that held for-profit colleges to stricter standards regarding student achievement than their public and private nonprofit cousins. While the final rules are not set in stone, the Trump administration will probably be warmer to the idea of treating colleges equally, regardless of sector.

That is the right approach. Bad student outcomes are a problem no matter where they occur.

The Obama administration argued that tougher standards at for-profit colleges were justified because for-profits “are far more likely than public or non-profit institutions to have poor repayment outcomes, and pose the greatest risk to students and taxpayers.” This claim is true as far as it goes: 28 percent of students at for-profit colleges attend a school with a very low loan-repayment rate (below 25 percent). The same is true for just 5 percent of students at public colleges.

 

But this reasoning has a serious flaw. While for-profit colleges are more likely to have very low repayment rates, most students who attend colleges with low repayment rates go to public schools. Both can be true because just 9 percent of undergraduates attend for-profit schools, while 74 percent attend public schools. The public sector is just so large that it accounts for a majority of the enrollment in both good and bad colleges.

Add in private nonprofits, and nearly two-thirds of students at schools with very low repayment rates do not attend for-profits. The figure is even higher, about 87 percent, for schools with repayment rates between 25 and 50 percent.

Accountability rules that exempt public and private nonprofit colleges thus fail to protect a majority of the students who are at risk. Such rules also create a perverse incentive for for-profit schools to escape scrutiny by converting to nonprofit status, as many are now trying to do.

The Department of Education and Congress have a great opportunity to correct flaws in the Obama administration’s approach to accountability.

In rethinking higher-education regulations, the Department of Education and Congress have a great opportunity to correct flaws in the Obama administration’s approach to accountability. The Obama administration’s “gainful employment” rule punished degree programs at for-profit colleges where graduates have a high ratio of student debt to earnings, but ignored such programs at public and private nonprofit colleges. Another rule required for-profit institutions with repayment rates below 50 percent to warn students of this fact, but included no such protection for students at public or private nonprofit schools.

As the Trump administration designs new regulations and Congress mulls reforms to the Higher Education Act, policymakers should remember that poor student outcomes are not unique to for-profit colleges. Colleges that leave students with earnings too low to repay their debts should not escape scrutiny by virtue of their public ownership or nonprofit tax status. If higher-education reformers truly believe in protecting students and taxpayers, equal accountability rules for all sectors are a must.

— Jason Delisle is a resident fellow, and Preston Cooper is a research analyst, at the American Enterprise Institute.

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