Federal Student Loan Cuts Could Hurt Students at For-Profit Universities

Over the past several years increasing pressure coming from the Department of Education (DOE) has been put on for-profit colleges and universities to reduce the default rate on federally guaranteed student loans or face the possibility of having access to them cut off entirely. However, enrollment at for-profit universities such as the University of Phoenix, Kaplan University and others has skyrocketed in recent years and now a significant number of students face the possibility of being denied access to much-needed student loans.

At the heart of the issue lies the fact that default rates at these types of institutions are significantly higher than their counterparts. In fact, the average student default rate at for-profit colleges and universities stands at approximately 12 percent. In contrast, the default rate for public colleges is 6 percent and at private universities it hovers near 4 percent.

Critics of the new policies point out that for-profit universities fill a much-needed void in higher education. They provide adults who have other obligations (such as full-time employment or a family) with an opportunity to still get a degree. By cutting off student loan funding to these institutions, opponents believe that hundreds of thousands of people will be shut out of an opportunity to receive a college degree.

However, supporters of the initiative point to the fact that in addition to student loan default rates being high for these types of institutions, the cost of acquiring a degree from them is also much higher. In fact, the Government Accountability Office (GAO) recently reported that degree costs from 14 out of 15 for-profit universities were substantially higher than the national average for public and private institutions.

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