Capital Education needed- to reform For-Profit Colleges

For-Profit Colleges are owned by the equity holders, who one assumes are capitalists favoring no governmental intervention. Logic then dictates that these Colleges come up with their own financing mechanisms for supporting students who cannot afford to pay the high tuition (American Public University hooking up with Wal-Mart, as an example).

But the following story reveals that the for-profit Colleges want the government to provide federal aid to students, which the management then puts in its pocket and distributes some to the shareholders. These colleges should either be not-for-profit and take government money, or use the capital markets to raise money to support students. Why should the public take on the risk of student loan defaults when the money (at least a part of it) is going directly to management and to shareholders? Shift the risk to the public, then shift the ownership to the public too.

Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight - NYTimes.com: "Any day now, the federal Department of Education will formally propose new regulations that would cut off federal aid to for-profit colleges whose graduates cannot earn enough to repay their student loans.

The regulations, known as the “gainful employment” rules, are an effort to rein in the high debt loads students take on when they enroll in for-profit colleges that offer certificates or degrees in fields like nursing or culinary arts. Students at for-profit colleges are much more likely than others to default on their loans.

Under the regulations, a draft of which came out in February, for-profit colleges would not be eligible to receive federal student aid if their graduates’ debt load was too high to be repaid, over 10 years, with 8 percent of their starting salary.

The Career College Association, which represents 1,450 for-profit colleges, is lobbying fiercely against the regulations, which it argues are wrong-headed, unnecessary and likely to restrict needy students’ access to vocational training and higher education. With so many community colleges overcrowded, the for-profit colleges say, their programs represent the nation’s best hope for training much-needed health care workers and technicians.

The association criticizes almost every element of the regulations: the 8 percent debt limit, the 10-year repayment period and the underlying idea that high debt loads lead to loan default.

“Shouldn’t the Department of Education have to present some facts and figures showing that there’s really a problem with students who have debt-income ratios above 8 percent?” said Harris Miller, president of the association. “They haven’t shown any evidence. And our own research shows that students with high debt-income ratios actually default less than students with low debt-income ratios."... "