"You've got a bunch of graduate programs that by and large look OK. You've got some bachelor's programs that look OK. Where you see the high failure rate is the associates' and certificate programs," says Ben Miller, senior policy analyst in the education policy program at the New America Foundation, referring to for-profit education.
The graduates who are hampered by the worst post-graduation earnings are those who attain credentials not required by law or by industry standards — a certificate in massage therapy, for example. Students fare best when they complete programs for required credentials, such as a nursing degree. The catch is that those higher-level degrees associated with greater income also weigh down students with more debt.
Here's one example from the Education Department's data: In San Antonio, Texas, holders of licensed practical-nurse certificates from for-profit Kaplan College can expect to earn $36,730 and owe $1,759 in student-loan payments per year, on average. Holders of the same credential from St. Phillips College, a public two-year institution, can expect to earn $42,760 and owe $382 per year.
Despite typically higher costs and levels of student debt, for-profit education institutions make up a fast-growing sector that serves 13 percent of college students, most of whom are seeking a certificate or associate's degree. They range from small outfits like the Flint Institute of Barbering in Michigan to massive publicly traded companies like the University of Phoenix.
In the student population they serve and the programs they offer, for-profits most resemble community colleges. Sixty-three percent of students attending for-profit institutions have low enough incomes to qualify for federal Pell grants, according to the Congressional Budget Office. The sector also enrolls disproportionate numbers of African-American and Hispanic students.
But for-profits charge tuition like private not-for-profits, while offering less institutional financial aid. Low-income students who might pay nothing out-of-pocket at a public institution, thanks to grant aid, pay about $8,000 in tuition at a for-profit school, according to a 2011 report from The College Board. Students take out loans to make up the difference. According to the Education Department, for-profit students account for about 31 percent of all student loans and nearly half of all loan defaults.
Legislation dating to the 1960s compels the Education Department to make sure that federal financial-aid dollars only flow to career programs that result in "gainful employment." The standard — which has never been defined — applies to almost all programs offered by for-profit institutions and to certain associate's degrees and certifications at public and private not-for-profit institutions.
The Obama administration has been particularly alarmed by the high student-debt and loan-default rates associated with for-profit colleges. It wants to define "gainful employment" using two measures: the share of a graduate's income that goes to student loan payments, and the rate at which graduates default on their federal loans.