California still has lax licensing and review of for-profit colleges to ensure that students get real training, and not just a large debt. But the governor and Legislature have done something important to ensure that state financial aid dollars don't go to for-profits that depend heavily on federal student borrowing.
California's Cal Grant awards for the 2012-13 school year the largest source of state aid to college students were announced Tuesday. That came on the heels of a scathing report by the U.S. Senate Health, Education, Labor and Pensions Committee, after a two-year investigation of the for-profit college industry. That report vindicates California's new rules.
The dependence by for-profits on federal funding is huge, according to the Senate committee report, accounting for $32 billion of $130 billion (25 percent) in federal student loans and grants though the for-profits have only 10 percent of total college student enrollment.
The for-profits, which are high- tuition schools, also have the highest share of students with debt nationally, 96 percent of for-profit college students take out loans, compared with 13 percent at community colleges, 48 percent at four-year public colleges and universities, and 57 percent at four-year private nonprofit colleges and universities.
Unfortunately, for-profits have, by far, the highest student loan default rates more than one in five students default within three years.
That's because too many students get little high-quality training or do not graduate so they end up with no job and a large debt to repay.
California clearly is justified in saying that to be eligible for Cal Grants, colleges with more than 40 percent of their students borrowing federal student loans have to meet certain standards:
More than 30 percent of students have to finish their certificate or degree within a reasonable period such as a two-year associate degree within three years or a six-month certificate within nine months; and,
At least 84.5 percent of federal student loan borrowers have to be successfully repaying their loans within three years of completing their certificates or degrees.
Under the new rule, most for-profits operating in California no longer are eligible to participate in Cal Grants. That should provide a big incentive to make changes.
In contrast, students attending all 10 University of California campuses still qualify for Cal Grants, as do students at all 23 California State University campuses and all 112 California community college campuses (where tuition and fees are low enough that few students take out federal student loans).
Most private nonprofit four-year and two-year universities and colleges such as Stanford and USC also continue to qualify.
But of 170 for-profit schools that previously participated in the state financial aid program, 137 (80 percent) no longer are eligible to receive Cal Grant money including the University of Phoenix, ITT Technical Institute, Kaplan College, Heald College and others.
University of Phoenix had a 21 percent student loan default rate within three years and a graduation rate of 18 percent.
California's new rules should help students make comparisons among schools. But our public colleges and universities will have to figure out new options to reach working adults, who often get caught in the for-profit debt trap.
The federal government needs to act, too. In the absence of "significant reforms," the report concluded, the for-profits "will continue to turn out hundreds of thousands of students with debt but no degree."
In 2013, Congress has to reauthorize the Higher Education Act. Now is the time to prepare for that. Public dollars, whether federal or state, should not go to colleges where students amass large debt, but have little prospect of graduating or finding a job.