Daniel Bennett over at the Center for College Affordability and Productivity has an item concerning this post from Monday about how for-profit colleges, or market-funded institutions (more on that in a second), make up a disproportionate share of borrowers and students who default. While he agrees with my suggestion that for-profits should publicly take on their default rate problems, he also falls into similar rhetoric used by the sector itself to justify its poor showing on the cohort measurement:

However, Miller doesn’t mention the most important cause of this–the market-funded sector (aka for-profit) enrolls a disproportionate share of disadvantaged (low-income and minority) students, as the below table that I developed for an article in Career College Central illustrates.

So what are the implications of this evidence? Many of these disadvantaged students come from less affluent families in which financial responsibility is likely not stressed from one generation to the next. They also are much less likely to have parents or peers who have direct knowledge of or experience with the college process, making it harder to navigate the complex world of applying to and funding higher ed. Such students are not likely to fully comprehend the consequences of failing to complete school or not paying their bills. These factors make disadvantaged students more susceptible to dropping out and defaulting on their loans.

I’ll get to the substance in a second, but let’s talk semantics first. Bennett refers to for-profit schools as the “market-funded sector.” It’s a clever turn of phrase, much like how colleges refer to grants given to incredibly wealthy students as “merit aid.” But it’s also quite misleading.

The fact of the matter is the for-profit sector is only viable insofar as it can get access to federal student aid. Take the biggest of these schools, the University of Phoenix, which is owned by the Apollo Group. According to its latest Securities and Exchange Commission filing, 86 percent of Apollo’s revenue comes from federally guaranteed student loans or Pell Grants, up from 82 percent a year ago. This is typical in the for-profit sector, where the amount of federal dollars they take in is steadily growing.

The usage of federal aid dollars by the for-profit sector has even led to a federal regulation known as the 90/10 rule. This regulation states that for-profit colleges and universities can derive no more than 90 percent of their revenue from federal student aid.  These schools’ inability to stay under this threshold is the reason why they have spent large amounts of cash in successful lobbying efforts to gut this rule.

Now, I understand how Benett arrives at his market-funded term. Unlike public institutions, these schools do not receive direct state appropriations to finance operations. Nor, unlike not-for-profit schools, are they exempt from state and federal taxes. But that does not mean that they are not just as reliant on the federal government for their continued existence. Were Congress to pass a law tomorrow saying “no for-profit institution can access the federal student aid programs,” the sector would be largely bankrupt by the end of the workday. In that respect, for-profits are no more market-funded than your average community college.

But I digress.

I always find it interesting when for-profit institutions argue that their default rates are largely the product of demographic factors. For-profit colleges sell themselves as opening up new doors for students who want to launch a career in any number of fields. Presumably, providing this opportunity should lead to financial betterment and thus justify the expense of paying for the education that makes it possible to obtain that new job. At the same time, these schools then turn around and claim that their students come from low-income backgrounds so in large numbers they will not be able to achieve these dreams and will instead drop out and likely default. So which is it? Either the school can provide this opportunity, or it simply cannot. If it’s somewhere in the middle then maybe they would be better off marketing themselves as kind of a higher education lottery—spend $30,000 at a chance to make it big or lose it all.

The more interesting question, though, is why for-profit schools enroll so many low-income students in the first place. Discussions saying that these schools cannot be blamed for their default rates due to student demographics suggest that it’s almost some accidental occurrence. But surely the fact that Phoenix, for example, spends over $100 million a year on advertising, is the biggest purchaser of online ads, and has a stadium named after itself, plays some role in determining who these schools attract.

So let’s follow the logic: for-profit schools spend millions of dollars in aggressively marketing themselves, especially to lower-income students; these efforts pay off and lower-income students enroll; but when these students leave school and default on their debt, this is solely a result of demographic factors that the school cannot control. That’s a ridiculous line of argumentation. Either take responsibility for the students you enroll or don’t go out of your way to market and enroll them.

Fortunately, as Kevin pointed out on Monday, not all for-profit institutions are playing such twisted logic games. Arthur Benjamin, the chief executive of ATI Career Training Center cited the lack of the lack of loan-counseling for students beyond a certain time frame as the reason for his school’s large default rate. That kind of approach, rather than a refusal to take responsibility for the logical outcomes of recruitment and advertising tactics, seems like a better approach to dealing with defaults.