Is There A For-Profit Education Bubble?
ROBERT SIEGEL, host:
Is the sequel to the subprime mortgage crisis a subprime education crisis? The shares of several companies that own for-profit colleges and universities slid yesterday when the Department of Education reported on student loans and who is not repaying them. The nonpayment rates for people who attended some for-profits are so high they could jeopardize access to future loans for students at those for-profits.
Joining us is Jonathan Kaufman, who's education editor at Bloomberg News. Thank you very much for joining us.
Mr. JONATHAN KAUFMAN (Education Editor, Bloomberg News): Thank you.
SIEGEL: And first, according to the Department of Education, what is a tolerable rate of nonpayment of student loans for a college, and where are the for-profits in that - in regard to that rate?
Mr. KAUFMAN: Well, the tolerance is actually pretty high. The Education Department has said that if only 45 percent of your graduates are repaying their loans, that's okay. But what we found out on Friday is that for-profit colleges overall only have a 36 percent repayment rate, and some campuses, the rate is as low as nine or 10 percent.
SIEGEL: Some of the for-profits we're talking about include Kaplan University, which is owned by The Washington Post Company; the University of Phoenix; Strayer University. Strayer Education claims that the way they tally up their numbers, they come up with a repayment rate of 55 percent, and the Department of Education figures it's only 25 percent. Do you understand disparities that large?
Mr. KAUFMAN: Well, I think everyone is trying to understand that better. I think in the end, the government is going to make the call because it's the government's money, it's taxpayer money. But the investigations we've been able to do up to now suggest that those numbers are correct. But they're clearly in dispute.
SIEGEL: You say it's taxpayer money. Who's on the hook for those unpaid loans?
Mr. KAUFMAN: Well, essentially, taxpayers in the U.S. government. This money, it's the student's obligation to pay it back, and that's why the government is so concerned because what they're seeing is that the amount of money that for-profit colleges have gotten has soared.
In 2000, it was about $4 billion total in student aid going to for-profit colleges. Now, it's about $26, $27 billion. And they're concerned that if these repayment rates are so low, in the end, the government will be stuck with the bill.
SIEGEL: Anyone who's watched any commercial television in the past few years knows that these are institutions that advertise very, very heavily.
Mr. KAUFMAN: They are. And in a sense, I think one way to understand this is that for-profit colleges really are a business. So if you respond to one of those ads on the Internet or call the 800 number, you will get people calling you. They're really selling their product. They're not so much in a business, as we think of, as a college admissions counselor trying to tell you why you should go to a certain school.
SIEGEL: The comparison to housing is getting irresistible here. Higher education, like homeownership, is commonly seen as a measure of economic and social progress. People are getting a hard sell the way they might from a mortgage broker. They're getting in over their heads in debt to pay a premium for education, and then they can't repay it. Do you buy the comparison?
Mr. KAUFMAN: Well, I think that certainly the government is worried about that, and investigations that we've done suggested that's true, too. Because there are two things to remember here: One is by going to a for-profit college, you're paying a tremendous premium to take a course there, and you're borrowing more money to pay the bill.
Now, for-profit colleges will say that's because they're more convenient. They have better technology. But still, their prices are much higher. The second thing is, is that there's a huge debate about how valuable for-profit college degrees are. Very often, students will sign up for degrees at these for-profit colleges. They graduate and they discover that the degrees aren't worth very much. And that's where the money issue becomes the problem because not only are students upset about that, but then if they can't get a job, they can't pay back the loans, and the taxpayer is stuck with the bill.
SIEGEL: Jonathan Kaufman, thank you very much for talking with us.
Mr. KAUFMAN: Thank you.
SIEGEL: Jonathan Kaufman is education editor of Bloomberg News. He spoke to us from the Bloomberg bureau in Boston.
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