The for profit education sector, where I work, grew out of two historic circumstances. First, the public sector’s inability to expand beyond their traditional demographics and technologies. (This might be finally changing, if this Western Governors University Indiana is successful.) And second, the existence of government insured– and easily available– student loans.
The public universities left a gaping hole in the market, and the student loan system made it profitable. I wouldn’t want the private system to take over the entire system (we are only a small part of the market) but if the for profits aren’t careful, they will kill the goose that laid their golden egg. (See “Many For-Profits Are ‘Managing’ Defaults to Mask Problems, Analysis Indicates“.)
Regulations shape corporate behavior, so it’s not surprising that schools are creating policies that make the data (on two year default rates) look good. They’ll do the same when the policy shifts to three year default rates. Schools won’t remain profitable, though, if their main story– that an education is worth the investment–begins to seem like a weak sales pitch.
Part of the default rate has to be related to the fact that our students are less affluent, although that is not the only explanation. The rates will improve as the economy improves, too, but that is not going to eliminate all defaults either. In the long run, the rate will only decline if all schools– for profit or otherwise– are tightly regulated, and if we rely less on loans and more on grants.
