SOURCE: Center for Responsible Lending


October 15, 2014 14:45 ET

For-Profit Colleges Leave African-American and Latino Students With Poor Educational Outcomes, Unmanageable Debt

New Research Shows Disproportionate Impacts

WASHINGTON, DC--(Marketwired - October 15, 2014) - For-profit college attendees are more likely to incur unmanageable student loan debt and be unable to graduate than their peers attending other schools, according to new research released today by the Center for Responsible Lending. African-American and Latino students in particular have a high risk of experiencing these poor outcomes at for-profit colleges, which have a long record of engaging in deceptive practices to pressure students to enroll.

"Our research shows the urgent need for the Department of Education to issue a strong Gainful Employment rule regulating for-profit colleges," said Leslie Parrish, deputy research director at CRL. "Students of color, who are often the first in their families to go to college, enroll in for-profit colleges at higher rates than other students. But many for-profit colleges create risky debt and produce poor educational outcomes, despite the hard work and money that these students are willing to invest in their educations."

"Colleges should not take advantage of students' determination to improve their lives through higher education," said Pete Smith, a researcher at CRL who co-authored the paper. "The higher education finance system should help fulfill these students' ambitions to use college to increase their earning potential and the wealth of their families and neighborhoods. But our research demonstrates that, at especially for-profit colleges, the opposite happens. For-profit college debt does not appear to be helping to close the wealth gap and may, in fact, exacerbate it. These findings echo the racially disparate impact of lending policy we have found in other consumer credit areas, including mortgages and payday loans."

Because of the disproportionate share of African Americans and Latinos in the for-profit college sector, the problems in this sector have a disproportionate impact on communities of color. Over one-quarter (28%) of African-American students enrolled in a four-year institution attend a for-profit college, compared to just 10% of white students. Latino students also are more likely to attend a for-profit institution than a public or private non-profit school relative to whites.

Students who attend for-profit colleges are more likely to need to borrow for their education, and tend to borrow more than their peers at public or private nonprofit schools. African Americans and Latinos attending four-year for-profit colleges are 1.5 and 3 times more likely to rely on loans, respectively, than their peers at other schools. They are also more likely to be pulled more deeply into debt at a for-profit school than other types of college. A disparity in borrowing exists even when comparing African Americans and Latinos of similar incomes.

This financial investment does not appear to pay off for many students at for-profit college where graduation rates are low, default rates are high, and most face poor employment outcomes. According to the research, African Americans and Latinos attending for-profit colleges are far less likely to graduate than students of color at other schools. Nearly 80% of African-American and two-thirds of Latino students at four-year, for-profit colleges are unable to complete their programs.

Overall, the for-profit sector generates nearly half of all defaults while enrolling only about 12% of all students. Default rate data are not reported by race or ethnicity. However, because one of the predictors of delinquency and default is whether the student is able to complete his or her program, it is likely that African Americans and Latinos attending for-profit colleges are more likely to experience distress in paying back their loans than those who borrowed to attend other schools.

"The disparate impact of for-profit college debt on students of color is cause for serious concern," said Maura Dundon, senior policy counsel at CRL. "For-profit colleges make the topsy-turvy claim that, because they are the only option for students of color, they should not be accountable for bad outcomes. This effectively blames students of color and sticks them with all the financial risk, instead of making an honest attempt to help them achieve their dreams."

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