August 14, 2010 / 12:11 AM / 9 years ago

For-profit schools get report on loan repayments

WASHINGTON (Reuters) - For-profit schools got a report card of their own on Friday, as the Department of Education released data showing estimated student loan repayment rates, part of a drive to tighten oversight of the industry.

An Education Department spokesman said the agency would use program-level data to determine eligibility for federal aid, but the data it released was institution-level.

The main campus of the University of Phoenix, the largest for-profit institution in the United States, has an estimated loan repayment rate of 44 percent, according to the department’s calculations. That means it is close to meeting a proposed federal threshold of 45 percent repayment to be fully eligible for federal aid.

The department used the data to design a rule it proposed on July 22 that would require for-profit schools that receive federal student loans to show that former students are repaying their loans or are capable of doing so.

Under the proposed “gainful employment” rule, for-profit schools would fully qualify for federal aid in one of two ways: either more than 45 percent of former students are paying off principal on loans, or the debt burden of former students is below 8 percent of total income or below 20 percent of discretionary income.

Programs are eligible for federal loans if they prepare their students for “gainful employment in a recognized profession” under the Higher Education Act of 1965.

Education Secretary Arne Duncan said Friday that his department is beefing up anti-fraud measures by hiring more staff and conducting undercover investigations of for-profit schools’ recruiting activities.

Schools lose eligibility if repayment rates are below 35 percent or debt burden is above 12 percent of total income and 30 percent of discretionary income.

Schools in the middle would face restrictions on eligibility and would have to warn students about incurring heavy debts, the Department of Education said.

Different locations of DeVry Inc’s DeVry University averaged around 40 percent, which would place them in the restricted zone. Strayer University, Washington Post Co’s Kaplan programs and Corinthian Colleges’ Everest colleges and institutes averaged in the low twenties, placing them in the ineligible zone by that metric.

The Department of Education did not release information on debt burden as a percent of income.

Stocks of for-profit education companies, including Apollo Group, DeVry Inc and Corinthian Colleges Inc fell on Friday. The S&P education services index was down almost 5 percent.

According to industry figures, enrollment in for-profit colleges was 1.8 million students 2008, or 9 percent of enrollment at all degree and non-degree institutions that are eligible to receive federal financial aid, up from 240,000 students, or 2 percent of those institutions, in 1995.

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