A number of posts today have discussed how for-profit institutions fare poorly when viewed through a three-year cohort default rate calculation. But here’s a chart that should hopefully underscore the extent of the problem that default performance of for-profit institutions represents.
What this chart shows is that for-profit institutions enroll about 7 percent of the students, according to the enrollment figures provided along with the cohort default rate numbers. At the same time, 24.6 percent of the borrowers from the 2007 cohort attended a for-profit college of university. Yet despite having only a quarter of all borrowers in repayment, for-profit institutions enrolled 44.2 percent of those students that defaulted. In short, for-profits enroll a disproportionate share of borrowers and also account for a disproportionate share of students who default.
Public institutions, meanwhile, represent the opposite story. They enroll nearly three-quarters of all students at schools that offer federal student loans, but account for 51.9 percent of borrowers and 42.8 percent of defaulters. To complete the story, private not-for-profits have a disproportionate share of borrowers, but also fewer defaulters.
Here are the same graphs broken down further within the for-profit types of institutions.
By contrast, here is the same graph for public and not-for-profit institutions. (Sectors that made up less than half a percentage point are excluded.)
As these two charts show, the disproportionate number of student loan defaults at for-profit institutions is not the product of any given type of school (i.e. four-year, two-year, less-than two-year). Rather, in each institution type, for-profit schools enroll substantially more borrowers and defaulters than their share of enrollment would suggest.
The only other sector to produce a disproportionate number of defaulters relative to its share of borrowers is public two-years, which enroll 14.7 percent of borrowers and 13.5 percent of defaulters. But that gap, at 5.5 percentage points is still smaller than any of the ones at for-profit schools. At proprietary schools, the gap between borrowers and defaulters is 7.3 percentage points at four-year institutions, 6.7 percentage points at two-year schools, and 5.7 percentage points at those that are less than two years in length.
Some of these numbers can be explained. For-profits cost more to attend so it makes sense that they would enroll a larger share of borrowers than a public institution that has lower tuition. Likewise, it is possible that the default rate difference could be more a product of the fact that rates are lower than expected at other types of four-year institutions, which drives up for-profits’ share since it is a zero-sum game. But rather continuing to claim that defaults are not their fault, as many visible for-profit leaders frequently state, it would be nice to see that sector become a leader in taking proactive measures to get their rates lower—an outcome that would have substantial benefits for students and the taxpayers that subsidize their loans.