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Since late last year, for-profit colleges—schools like the University of Phoenix and Devry University—have been ferociously lobbying against a new Education Department regulation (known as “gainful employment”) that would cut higher education programs off from federal dollars if too many of their students can’t find good jobs and default on their students loans. The regulation is scheduled to take effect on July 1.

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Subprime schools

Many for-profit colleges make up to 90 percent of their revenue from the government through various avenues of aid used by their students, including federal student loans, as I reported earlier this year. They have profit margins as high as 30 percent and their CEOs make millions annually—almost all of which comes courtesy of American taxpayers.

But the schools also produce a disproportionate amount of student loan defaults. Currently, 11 percent of higher education students attend for-profit colleges in the United States; those students receive 26 percent of federal student aid and account for 44 percent of student loan defaults. Nearly a quarter of students who attend for-profit colleges default within three years of graduating, if they graduate at all.
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In other words, at the same time that the Education Management Corp. was trying to convince the federal government to continue allowing students to spend their federal aid in its schools, it was offloading its own loan program because fully half of the loans it made would never be repaid. It’s hard not to conclude that the company believes taxpayers should be shouldering the cost of the for-profit industry’s habit of producing unemployable graduates. (Multiple calls to the Education Management Corp. office by In These Times were unanswered, and a message left on the company’s voicemail was unreturned.)