Obama Administration’s Good Intentions Go Astray When it Comes to Federal Student Loans

Belkis Abreu, a young mother of three, was determined to set a good example for her kids by getting a college education. With one associate’s degree in hand, she earned another at the College of Westchester, a proprietary college. From there, she transferred credits to Fordham University and received a bachelor’s degree in business administration in 2009. She used the College of Westchester’s job placement office to help find her current job and checks in there often. No longer is she simply working the front desk of a local hotel – now she’s managing the entire property.

She is a living example of President Obama’s goal to better our economy by better educating our workforce.

And yet, students like Abreu are at risk of losing access to the programs that make their success possible, and she is on the verge of being seen as a deadbeat in the eyes of the Obama administration. To pay for her degrees, Abreu took out $30,000 of student loans. As federal loan rules allowed – in fact, encouraged – Abreu deferred payment on the loans until she was fully on her feet and financially stable. Most consider this kind of student loan flexible, thoughtful policy, and for good reason – by making an "investment" in Abreu’s education, she will get a better job, repay the loans, and, over time, contribute more to society as a taxpayer. Indeed, Abreu will begin making payments next month, according to plan.

So why the deadbeat status?

New rules proposed by the Obama administration would essentially count Abreu in default. The rules require that graduates of these programs repay principal, as well as interest, in the years immediately following graduation. With the good intention of assuring that study at proprietary colleges, institutions run by private owners or investors, leads to gainful employment and that taxpayer-provided student loans are repaid, these so-called "gainful employment" rules seem sensible.

But in an effort to fix one problem, these new rules create a far bigger one. The rules’ unintended but very unfortunate consequence will be to deny millions of nontraditional students like Abreu access to a higher education and better job opportunities. Under new regulations, if students in proprietary college programs do not meet the new loan-repayment requirements, the schools will no longer be able to offer the Pell Grants that make college affordable and accessible. Ironically, it is students of proprietary colleges who need this financial assistance most. Proprietary colleges make strides to welcome students who are economically disadvantaged and therefore rely on student aid to attend school.

Without large savings or parental support, proprietary college students like Abreu typically need more loans than other students. The default rate on these loans is no higher than that of similar student groups at other colleges.

This is where the Obama administration’s good intentions go astray. Default rates have everything to do with the type of student, not the type of school. By depending on complex formulas and bad data that count student loan deferments as defaults, the new rules punish good students more than bad schools.  Responding to mounting student demand, proprietary colleges – which in New York include Monroe College, the School of Visual Arts and LIM College – are the fastest-growing sector of higher education. By rethinking traditional higher education to meet the needs of nontraditional students, the sector has grown significantly in the past five years.

According to the New York State Education Department, associate’s degrees have increased 23%, bachelor’s degrees by 67% and master’s degrees by 57%. With courses offered both on campus and online and small class sizes, students busy with family or work can find the flexibility and support they need.

By the traditional measure of success – graduation rates – New York’s proprietary colleges are successful, as they have the highest associate’s degree graduation rate among all other higher education sectors in the state.

These colleges also are playing a vital role in educating low-income and minority-group students, giving them access to a college degree and the opportunity of a better life. Not only do New York’s proprietary colleges enroll twice as many African-American and Hispanic students as the state’s public and independent colleges and universities, but they graduate them at a higher rate. In 2006, 26% of black and Hispanic students enrolled at proprietary colleges earned an associate’s degree within three years, more than at independent colleges (22%), SUNY (15%) and CUNY (9%), according to the state Education Department.

Where there are bad practices – for example, predatory recruiting and degree misrepresentation – the U.S. Education Department should act. But it should avoid a double standard that applies to proprietary colleges but not to community and traditional colleges. The Obama administration should set aside the proposed rules and instead get back to promoting policies that get more people like Abreu into the classroom and then the workforce. The fact is, students entering today’s workforce are entering the economy during the worst possible time since the Great Depression – and that applies to graduates of all kinds of colleges. Requiring a different set of rules for students at proprietary colleges could have disastrous effects, placing higher education out of reach of those very students whom the President has targeted as most in need.


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