Man Blows Whistle on For-Profit College.

I normally do not like educational articles that appear on Yahoo's website. However, this one -- although it appeared on Yahoo's website -- is from ABC news: Man Blows Whistle on For-Profit College.

 

I have a sneaking suspicion that some of our more prestigious colleges and universities do this very same thing. Buyer beware.

 

The allegation is that EDMC's marketing materials "deceived prospective students by falsely inflating job placement statistics at its many campuses around the country." You can see why a "career school" like EDMC might be motivated to do this -- most of the their students probably enroll with the expectation that the EDMC training will help them land a good career. So EDMC wants to market itself that way.

In most cases, though, this isn't an issue at "more prestigious colleges and universities". Prestigious universities don't claim to be "career schools", and don't market themselves using job placement statistics. Stanford doesn't claim that their BA program in history will place students into a job as a professional historian, for example.

One exception is professional schools, like law or business schools. Job placement does count in those cases; for example, US News & World report factors it into their law school rankings. And some law schools -- mostly less selective and prestigious ones -- have been sued by students who claim that their job placement stats are misleading.

 

It's not quite the same thing. It's true that several well-known schools, including GWU, have been caught misreporting undergraduate stats to US News. But they were exaggerating the quality of their admitted students (test scores, GPAs, class rank) -- not job placement stats. They have no motivation to misreport job placement stats, because US News doesn't use those in the undergraduate rankings.

I am in no way excusing the use of misleading stats. But in the case of GWU, at least their misreporting *benefited* their students -- it made their school look more selective and prestigious, thereby raising their US News rank and enhancing the value of their degrees. In the case of EDMC, their misreporting *hurt* their students, because it encouraged them to pay good money for training with little career value.

 

So the end justifies the means … (Machiavellian)? h:

 

As my post also states: "I am in no way excusing the use of misleading stats."

I am just pointing out that GWU's use of misleading stats was different from that of EDMC.

 

e.g., “…at least their misreporting *benefited* their students -- it made their school look more selective and prestigious, thereby raising their US News rank and enhancing the value of their degrees.

Again h:

 

If a school lies to prospective students about job placement stats -- which is what EDMC is accused of doing -- then lawsuits can follow, and significant amounts of money can be involved. In 2010, for example:

The primary allegation against GWU, for comparison, is that they told US News that 78% of entering freshmen in Fall 2011 were in the top 10% of their high school classes, when the true number was only 58%.

Obviously GWU's misrepresentation was wrong. But don't expect anyone to win $40,000,000 in damages over this issue.

 

duplicate post, delete

 

Very good point. One important distinction: "more prestigious colleges and universities" (presumably non-profit) do not report ANY job placement rates to the feds. My local state university has no obligation whatsoever to place graduates into jobs. Sure, individual departments and professors may recommend graduates to their contacts and facilitate employment, but college and university "career centers" by and large, provide resume and interview help and do not place graduates into jobs.

A number of (not for-profit) law schools have gotten in serious trouble over falsifying employment statistics of graduates. While the falsification may be similar in nature, the law schools did not engage in job placement. They "just" lied about how many of their graduates were employed and how much money they were making.

If EDMC is, in fact, guilty of falsifying job placement statistics, then it deserves whatever punishment it receives.

 

I'm not sure that any universities, of any kind, are required to report job placement rates to the government.

However -- the government does report the student loan default rates for all universities.
And that may be a pretty good measure of educational value received vs. cost paid.

Schools that falsify job placement stats, whether for-profit or non-profit, can be sued by students.
The students will claim that they relied on the false statistics when making a decision to take out tens of thousands of dollars of non-dischargeable student loan debt.

 

Non-profits are not required (as they do not provide this service), for-profits are required.

Really? People make decisions to stop paying theie home, car, credit card or education loans for a variety or reasons, many of which (health, family, pregnancy, job change, choosing to spending money on a higher priority) have absolutely nothing to do with the value of their education. It is strange to judge an educational institution based on what its graduates decide to do with their money three years after they graduate (when the school has absolutely no control over their actions). What other industry is judged this way?

Are Harvard's and Tulane's Medical School default rates of 24% and University of Chicago's Medical School default rate of 22% good measures of their educational value?

I could not agree more. If schools deliberately falsify their stats, then they deserve to be sued.

 

Anybody who borrows money in any other industry gets judged based on the perceived repayment risk. Good credit risks get loans on better terms than bad credit risks. That's how it works in capitalism.

But with government-guaranteed student loans, a student can borrow as much money as they like to study any subject that they like at any school that they like -- with no consideration as to the possible risk of default. What other lending scenario works this way?

And if it turns out that an unusually high percentage of a school's graduates are in default on thousands of dollars in non-dischargeable debt, well, that's not a good sign. Just my opinion.

Medical schools are a special case, because MD graduates can discharge their school loans through service contracts, not just through direct repayment. In such cases, the graduates may be technically in default, because they are not making payments on their loans -- but it's understood that their debt will be forgiven if they complete the necessary service.

Ever see the 90s sitcom "Northern Exposure", where the young Jewish MD from New York City is stuck in a small town in Alaska? The whole premise of the series was that he is forced to practice in a remote corner of Alaska in order to discharge his med school loans.

 

The CAN do it because loopholes in the reporting language allow it to be done. During the time I considered opening a trade school, I interviewed private trade school owners who "taught" me how they count placement. EVEN IF a student says they are self-employed or planning to open a business in the future, that is counted. Seriously, it's such a snake pit, I find the entire reporting process a total waste of time and resources. People lie to comply.

 

You are absolutely right. No other lending scenario works like this. The government determines the student's worthiness to receive a loan; the government determines the amount of money that the student can borrow; the government forbids a school's financial aid department to counsel the student not to take every penny in loans, just because they qualify for it; the government issues the money to the student. However, if the student (for whatever reason) decides, three years after graduation, to stop making payments in the loan, the government punishes the school. So true--no other lending scenario works this way.

No, it isn't. However, the assumption that a loan default is caused because a student did not receive a proper education is a flawed assumption. Could it have played a factor? Certainly. However, the government recognizes no other factors (including its own culpability for having loaned money to a poor risk).

True, but the logic that states that defaults are caused by inferior education would, in order to be consistent, have to include Harvard, Tulane and University of Chicago, not just Kaplan, Phoenix & company. Since we know that the med schools at Harvard, Tulane & Chicago do not provide sustandard education, then judging school quality by default rates is specious.

 

No, in this scenario the government punishes the student.

The student gets saddled with tens of thousands of dollars in non-dischargeable debt. If he can't make enough money to pay it off faster than the interest accumulates, he will spend the rest of his life -- literally -- as a debt slave, since the government won't allow the option of bankruptcy. In this case, his credit will be ruined for the rest of his working life -- he will never qualify for a mortgage, or a car loan, or a credit card. Then, at the end of his working life, his social security will be garnished.

The school, on the other hand, gets guaranteed payment, regardless of what the student does.

I agree that a high default rate is not necessarily a reflection on the school. There could be lots of possible explanations for a high default rate:

- Perhaps the school is substandard.
- Or perhaps the school is good, but it attracts substandard students.
- Or perhaps the school and the students are both good, but there is no market for the training that the school provides.
- Or perhaps the school and the students are both good, and there is a market for the training, but the cost of the school is too high relative to the salaries that trained graduates can get.

But it doesn't matter. If there is a high default rate, for any of these reasons, then lending practices should be reconsidered. I am judging credit risk -- not school quality -- by default rate. And rational lenders don't lend money to bad credit risks, whatever the reason.

Simple question:
A student is considering borrowing tens of thousands of dollars in non-dischargeable student loans to attend a particular school.
Is the school's default rate one of the relevant factors that should be considered in making that decision? Yes or no?

I say "Yes". Do you agree?

As noted above, I am not judging school quality by default rates -- I am judging credit risk by default rate. In this particular and exceptional case, I will admit that default rate is not a good measure of credit risk, because many MDs will discharge their loans by non-financial means (i.e. service commitments). So I don't necessarily believe that Harvard MDs are bad credit risks, even if the numbers say that they are not making their loan payments. It's OK to default on loans, if those loans are going to be forgiven in exchange for service.

But this is an exception -- obviously the vast majority of student loans can only be discharged though repayment. The average student does not have the option of providing professional service in exchange for loan forgiveness. And in those cases, default rate is an excellent indicator of credit risk.

 

I really appreciate your thought-provoking dialogue