Who Should Pay When Education Doesn’t Pay Off?

One of the most important investment stories of the year flew by on Aug. 16, probably with very little notice in most corners of West Virginia.

An entire group of stocks in the education sector got taken down, hard. Companies like Strayer, Apollo Group and The Washington Post suffered double-digit percentage losses in the wake of a simple government announcement.

Those three and others are the purveyors of many of the ads you see on cable for college courses and career education for adults. Strayer operates Strayer University under its own name in office space across the country (including in Teays Valley). Apollo brings you the sole college that has a named athletic venue, but no teams — University of Phoenix. And the failing newspaper of record in D.C. is responsible for Kaplan University.

This episode is a symptom of so much that is wrong with federal prods to the economy and how the fixes of self-created problems usually make the problems worse.

The problem Monday was this: The U.S. Department of Education, which monitors and manages federal student loan programs, released its study of repayment rates of loans by students at more than 8,000 private institutions eligible for those loan programs.

That release said that for-profit institutions whose attendees had federal loan repayment rates below 45 percent likely would lose eligibility to receive some or all future federal loan money from students. Note the key words … for-profit.

According to the federal data, whose formula was not released publicly, some of these colleges had repayment rates as low as 25 percent in the case of Strayer. Oddly, some of the purely vocational schools, such as the nationally advertising Universal Technical Institute, had the highest rates of repayment, along with the reputable University of Phoenix.

American Public Education, based in our Eastern Panhandle, also scored well in this black-box formula, serving primarily an audience of active military students.

There are a lot of details here you can read elsewhere if you like. Until last week, the private education sector had been one of the best performing in all of Wall Street since the start of the Great Recession.

But in a day, with a printer spitting out a report with little detail, a federal agency shaved billions of dollars of net worth off the shares prices and investments of maybe a dozen companies. That came from unelected bureaucrats, under the watchful eye of no one with no understanding or regard of consequences.

Sadly, these are the same bureaucrats who made it possible for billions of student loan dollars to be disbursed in the past willy-nilly to schools, mostly regardless of performance of students or their institutions.

If for-profit schools are doing wrong by the taxpayers, pull their money faucet. But here’s the bigger problem. This was simply an attack on alleged "for-profit" companies in the education business.

What if we held public schools to the same standard? If the feds want at least half of students to be in repayment of their loans and members of the actual labor force, they likely need to graduate from these colleges we underwrite with tax dollars and loans for tuition.

The standard for four-year schools that seems to apply is the six-year graduation rate. How many of those who start out at a school manage to complete a bachelor’s degree by the end of six calendar years. Those numbers will surprise and disappoint you.

For the span of 2002 to 2008, enjoy these numbers, taxpayers: 26 percent, 20 percent, 32 percent. Those are the six-year degree completion numbers for West Virginia State University, West Virginia University Tech and Concord University. Odds are that 70 percent or so of non-graduates are substantially less likely to be paying their loans than grads.

The bigger problems may well be that there are too many colleges with too many students ill-prepared for college and saddled with debt that will haunt them for decades. Most student debt doesn’t discharge in bankruptcy.

Balmy by comparison were the six-year grad rates at Marshall University (44 percent) and West Virginia University (56 percent).

THE STATE JOURNAL