For-Profit Colleges Are Driving the Student Debt Crisis By Preying on Non-Traditional Students

A University of Phoenix advertisement, via YouTube

A few weeks ago, I read a report about how people who attend for-profit colleges end up saddled with student loan debt. I posted about it on Facebook, wondering who would possibly attend a school like that. Moments later, a message from my friend Riley popped up. "Abby, I will beat you down if you tell anyone this," she wrote, "but I have an MBA from the University of Phoenix."

Riley explained that her MBA degree is now such a source of embarrassment for her that she leaves it off her résumé (she also requested that this piece identify her by first name only.) It also cost her tens of thousands of dollars, leaving her saddled with $40,000 worth of student loan debt.

According to the Center for American Progress, just 20 universities account for nearly one-fifth—or $6.6. billion—of all graduate student debt in the US. Ten of those 20 schools are for-profit schools. In the top slot is Walden University, a proprietary college in Minneapolis whose grad students have racked up a massive $756 million in debt.

Earlier this month, the Brookings Papers on Economic Activity released a report on what, precisely, is driving the massive wave of defaults on student loans. By cross-comparing federal student loan data with tax information provided by individual borrowers going back several decades, the report's authors found that the current crisis in student loan defaults is concentrated largely among "non-traditional" borrowers at for-profit colleges. These are students who turned to proprietary schools during and after the recession, and who emerged with hefty debt and poor job prospects regardless of whether they'd attained their degrees.

Andrea Stohler, who received an associate's degree in Health and Business Administration from the University of Phoenix, said the convenience of working at her own pace with a full-time job and young child at home was enough to entice her into enrolling.

"I could do everything on my own," she said. "I could work full-time and go to school full-time." When I asked Andrea about whether or not she still had student loans to pay off, she admitted she still owes $55,000. Meanwhile, she said the school had not done anything to help her with job placement after she had matriculated.

"In addition to being more numerous and in their earliest years of loan repayment after the recession, non-traditional borrowers appear to be a particularly vulnerable and high-risk population, which helps to explain their divergent outcomes," the authors of the Brookings report, economists Adam Looney and Constantine Yannelis, wrote. These non-traditional borrowers, they added, "tend to be older when they first enroll, to be from lower-income families, and to live in poorer neighborhoods. They are more likely to be first-generation borrowers."

In fact, students in this demographic made up for over one-third of all student loan defaults, according to the Brookings report. The study found that of the students who started to pay back their for-profit college federal loans in 2011 but had subsequently fallen into default by 2013, 70 percent were non-traditional borrowers.

The rise in for-profit colleges can be traced back to 2008, when the economic crisis sent droves of non-traditional students back to school in an attempt make themselves more attractive in a terrible job market. Because community colleges were suffering from depleted state tax revenues, many could not accommodate this flood of new pupils; in turn, many of them wound up enrolling in the booming propriety schools that had popped up around the country. These universities promised short courses, flexible scheduling, and an opportunity to attain marketable skills—and it was a good sell.

Both Riley and Andrea were in their early 30s when they initially decided to attend the University of Phoenix, working at jobs that didn't pay what they believed they could be making if they had more marketable degrees. "My intention was to land a job in administration for a provider of waiver services for [disabled] individuals," Riley told me.

But, as both she and Andrea soon discovered, students who actually graduate from proprietary schools were finding that their job prospects were still weak. Employers don't always take degrees from for-profit institutions seriously; some even suggest removing for-profit credentials from their résumés altogether, since they can actually make a prospective job candidate look worse. (The University of Phoenix declined to comment for this article.)

"I thought that my experiences in the field, coupled with an MBA, would give me a very strong competitive advantage since MBAs are very rare in my chosen profession, yet much needed," said Riley. "Unfortunately, it became such an embarrassment that I didn't even include it on my résumé."

Some for-profit institutions were also caught misrepresenting the likelihood that potential students would find work upon receiving their degrees. That was the case with Corinthian Colleges and its subsidiaries, which was busted by the US Department of Education this past April for falsifying graduate job placement rates to enhance enrollment, specifically when targeting minority students. In May, Corinthian shut down its remaining institutions, resulting in an incursion of students back into the low-wage job market or flat-out unemployment, this time encumbered with serious debt.

In recent months, former Corinthian College students have refused to pay back their loans because of the false pretenses under which they were led to believe a degree from the institution would prove beneficial. To an extent, this revolt has worked: The US government has been forgiving the debts of former Corinthian students en masse, albeit very slowly. On its website, the now-defunct school maintains that it did everything in its power to provide quality educational training to its students.

"I often check the internet for news of [the government] shutting down [the University of Phoenix] and fantasize about having my loans forgiven," lamented Riley. "I know that other similar institutions have been ordered to do the same. The sad part was at the time I decided to go back to school, I was struggling financially and [the school] gave me a huge chunk of money that I lived off of since I wasn't making enough with my undergrad [degree]. It was a vicious cycle."

The Brookings report estimated that, of the University of Phoenix students who left the school in 2009, 47 percent had defaulted on their loans by 2014. "I regret attending the University of Phoenix more than I regret marrying my first husband," Riley told me.

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