46 Percent Of Federal Loans Paid To For-Profit Institutions Will Go Into Default

Nearly Half Of Federal Loans Paid To For-Profit Colleges In Default

A whopping 46.3 percent of federal loans distributed to students at for-profit colleges in 2008 would go into default, according to new Education Department data.

This figure is significantly larger than the rate of default on student loans overall, which in 2008 amounted to 15.8 percent.

The staggering percentage of defaulted loans at proprietary institutions may garner support for federal efforts to regulate such colleges and provide a boost for the DoE's proposed "gainful employment" rule, which would screen for-profit institutions according to their students' ability to repay loans. Essentially, the rule would test the likelihood that students will graduate and then become gainfully employed.

If approved, "gainful employment" would mandate a two-part test for colleges, including an analysis of their students' debt to income ratio and a determination of whether those students are paying down principals on loans.

Colleges that fail the tests will not be allowed to receive tuition in the form of federal aid -- which is the source of up to 90 percent of most proprietary institutions' current revenue.

In attempts to thwart the rule, for-profit institutions have launched a lobbying campaign and argued that "gainful employment" will limit access to education for low-earning minorities. Others have argued that the rule implies that an education's value can be measured by the amount of money students earn after graduation.

But as things stand, for-profit schools have close ties with the government, leaving some to question the legitimacy of possible reform. Mother Jones has more:

The thing that's confusing about these for-profit schools is that they're actually almost fully supported by the government. Most of them receive 75% or more of their revenue in federal loan funding. And at The University of Phoenix's parent company, Apollo Group, federal dollars constitute more than 90% of revenue.

But The Department of Education is trying to crack down on the way these schools depend on federal money, by creating regulations that would mandate that for-profit college graduates earn enough to repay their federal loans. If not, DoE could withhold funding. Hopefully that happens soon. If these schools aren't helping their graduates earn more money after graduation, why do they exist?

What do you think should be done about for-profit colleges? Weigh in below.

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