Fact: Too many career-training programs lead to low wages, high debt

One common reason students go to college, or to some other form of education after high school, is to get training that will lead to a job. A good job—one that makes the training they got worth whatever money and time they spent and worth whatever debt they had to take on.

That motivation is especially behind students’ enrollment in what are known as gainful employment programs. Found at two-year and four-year colleges and universities, public and private, nonprofit and for-profit, brick-and-mortar and online, these programs exist with the explicit mission of training students for work in a recognized occupation, and it is on that condition that the students who attend gainful employment programs are eligible for federal grants and loans.

Some of these programs empower students to succeed by providing high-quality education and career training. But too many of these programs, particularly those at for-profit colleges, are failing to do so—at taxpayers’ expense and at the cost of students’ futures.

Students at for-profit colleges represent only about 13 percent of the total higher education population, but about 31 percent of all student loans and nearly half of all loan defaults. In the most recent data, about 22 percent of student borrowers at for-profit colleges defaulted on their loans within three years, compared to 13 percent of borrowers at public colleges.

For-profit colleges can receive up to 90 percent of their revenue from taxpayer dollars, with the additional revenue frequently coming from veterans’ benefits and private student loans. Because they want to turn a profit, they tend to focus on enrolling as many students as possible in their programs, which has led in some cases to well-documented evidence of misleading and aggressive marketing practices.

In March 2014, the Obama Administration announced new steps to address growing concerns about burdensome student loan debt by requiring career colleges to do a better job of preparing students for gainful employment—or risk losing access to federal student aid.

In announcing proposed regulations of career training programs, the U.S. Department of Education illustrated our concern using an alarming statistic about for-profit programs: 72 percent of the programs we analyzed produce graduates who on average earned less than high school dropouts.

That figure drew the attention of a Washington Post feature called “The Fact Checker,” which challenged the Department’s methodology. If you’re reading this blog, you probably know that already. What you may not know is some pretty important information that the Post ignored—information that supports the Department’s statistic and further explains why consumers and taxpayers should be concerned about some career training programs that seek to make a profit. Please take the time to read what’s below and decide for yourself.

The regulations that the administration has proposed will help to strengthen students’ options for higher education by giving all career training programs an opportunity to improve, while stopping the flow of federal funding to the lowest-performing ones that fail to do so. That’s an important balance. It recognizes that career training programs offer millions of Americans an opportunity to further their education so that they can pursue their dreams of gaining a well-paying job, owning a home, and providing for their family. These values are the cornerstone of our nation’s economy and the gateway to the middle class.

There’s no question that “going to college” pays off over the course of a graduate’s career. But data on earnings and debt shows that’s not true for every college program. If you or someone you care about is looking for career training, make sure it’s in an affordable program that has a good chance of delivering on its promise of a good job.

Exploring the Claims of the Washington Post’s “Fact Checker”

Fact Checker: Could attending a for-profit institution actually result in a three out of four chance of earning less than a high school dropout? The claim seems to overturn the widely-held assertion that college-level education will boost earnings.

  • The Fact Checker appears to be misreading a statistic. The datapoint is offered simply to make an observation about the earnings level of graduates, not the boost in earnings they received by attending the program. We know that postsecondary education does in fact boost earnings. Page 16535 of the NPRM includes a discussion, citing independent research confirming this.
  • There likely is an earnings gain in the vast majority of the programs that we evaluated. It just may be the case that a student may be making something less than a high school dropout before they enroll in a program, and three years after they graduated they are still making something less than a high school dropout.

For-profit education institutions are now one of the fast-growing areas in higher education and have a different business model than private universities, which generally don’t pay taxes, and community colleges, which receive state subsidies.

  • The Fact Checker makes an accurate point – unlike public and non-profit institutions, for-profit colleges aim to make money and often have shareholders to consider. Because they want to turn a profit, they tend to focus on enrolling as many students as possible in their programs, which has led in some cases to well-documented evidence of misleading and aggressive marketing practices. Too many consumers do not understand clearly on the front end exactly what their chances are of higher earnings on the back end.
  • The Fact Checker was not very clear in stating that most of the revenue for most for-profits, up to 90% of revenue and beyond, comes from taxpayer dollars.  In a statement about business models, that is an essential piece of information. Their entire business model is based on collecting taxpayer funds.

Labor Department officials said the Education Department’s math is actually an incorrect method for using the weekly wage data. “We wouldn’t report it that way,” one BLS official said. “We don’t know if the workers worked year around.”

  • We don’t know with whom the Fact Checker spoke at BLS, but they in fact do use a 52-week earnings year in at least one of their methodologies, as demonstrated by footnote 2 to the data presented on this page: http://www.bls.gov/OES/current/oes_nat.htm. In other data sets, BLS uses 50.5 weeks, which would not reduce our result of $24,492 by very much.
  • Regardless, we feel that 52 weeks is a fair and reasonable assumption for the work-year of workers who are high school dropouts—of those who work, 87% work 52 weeks a year. (Source: Analysis of 2013 Current Population Survey Outgoing Rotation Group data, http://ceprdata.org/cps-uniform-data-extracts/cps-outgoing-rotation-group/cps-org-data/ ).
  • Additionally, we wanted our comparison point of annual earnings to be easily understandable by the public. The simplest formulation of “annual” is, of course, 52 weeks.

Indeed, an arm of the Education Department, using the same CPS data set, puts the median high school dropout’s annual wage at $22,860 in 2011.

  • The Fact Checker cites a median annual earnings figure of $22,680 from the Current Population Survey conducted by the Department of Labor’s Bureau of Labor Statistics.  But that figure is from 2011. The most current version of these figures, from 2012, shows the median annual earnings of a high school dropout as $25,876 for those who dropped out between 9th through 12th grade and $22,618 for those who dropped out prior to 9th grade.  (Source: https://www.census.gov/hhes/www/cpstables/032013/perinc/pinc03_1_1_1_1.xls) Combining those groups would give a figure somewhere in between those two calculations, and very close to our estimate of $24,492 

The most recent published Census Bureau average annual wage (from 2009) is $20,241.

  • The Fact Checker cites another annual earnings figure of $20,241, also from the Current Population Survey. But that figure is five years old, from 2009. Further, it is not directly comparable. This statistic is based on mean earnings, while our $24,492 figure is based on median earnings.  Also, this statistic is for people 18 years old and older with any earnings, while ours is for people 25 and over who worked full-time. As the Fact Checker noted, many of those at gainful employment programs come from a range of backgrounds and are likely to be older, so a metric that focuses on 25 and over is more appropriate.

A different Labor Department measure, using information from employers, puts the median annual wage as low as $18,580 for high school dropouts with no training.

  • The third figure cited by the Fact Checker, $18,580, is from a wholly different dataset, the Occupational Employment Statistics program of the Department of Labor’s Bureau of Labor Statistics. We chose to use the Current Population Survey data, as it is the more commonly referenced data set when examining earnings figures such as this. The CPS directly asks respondents about their earnings during the week. The OES asks employers how many workers they employ in each of a number of coarse wage bins (for example, under $7.50 an hour, $7.50-$9.50, etc.) and then applies a statistical model to estimate average hourly wages. That procedure is imperfect due to the coarseness of the underlying data, so labor economists prefer the CPS. Incidentally, the OES data cited by the Fact Checker uses a 52-week earnings year just as the Department did.  (Source: http://www.bls.gov/OES/current/oes_nat.htm — the annual mean wage is the mean hourly wage multiplied by 40 hours per week and 52 weeks per year.)
  • Further, in the OES data set, $18,580 is the median earnings for a high school dropout with no training. Using this datapoint would imply that students in gainful employment programs have no training prior to their completing their programs. There is simply no basis upon which to make this assumption. The students who attend career-training programs often are older than the typical student and have been previously in the workforce. It is likely they would, in fact, have some prior training. But, rather than make assumptions on this point, we chose to look at all high school dropouts, regardless of training.

Education Department officials defend their method as reasonable but, as it happens, it turned out they used the highest number available.

  • That’s not true. We could have used the 2012 CPS figure for the median annual earnings of a high school dropout, $25,876, for those who dropped out between 9th through 12th grade, but we did not. Instead, we tried to make this statistic as simple as possible to help the public understand, in general terms, that earnings outcomes are often low at many for-profit programs.
  • We could have also used other, higher reference points, such as the median annual earnings of a high school graduate: $33,582 using our methodology ($651 x 52 http://www.bls.gov/emp/ep_chart_001.htm, which would also have been reasonable). But we did not.

The $18,580 figure, by contrast, would improve the results for for-profit institutions to about 49 percent, down from 72 percent.

  • It would also have improved the results for other sectors – community colleges would have dropped to only 20%. The Fact Checker did not make that adjustment.

That still seems high, right? But here’s the strange thing: the numbers are bad for all educational institutions. Buried in the regulation — and not advertised by the Department — is that graduates of 32 percent of community college programs earn less than high school dropouts. “We were surprised by that,” one Education official acknowledged.

  • We never said we were surprised. That is just what the data shows.
  • A key fact that the Fact Checker overlooks is that students in for-profit programs tend to take on far more debt than those in community colleges, where many students do not borrow at all. Of the programs that we evaluated with annual earnings below our comparison point of $24,492, the average median annual loan payment of a for-profit graduate is $1,221, in comparison to just $115 for a community college program—10 times higher.  Further, 75% of the public programs with average earnings below $24,492 have a median loan debt of $0. In comparison, only 8% of the for-profit programs have this result. So, while it is true that a not insignificant percentage of community college programs have earnings below our comparison point of $24,492, the debt of their graduates is far lower.
  • While our proposed rule applies to all gainful employment programs, of the students who are in the lowest-performing programs under our proposed metrics, 98% of them happen to be in programs at for-profit institutions. That is why we stress the generally poor outcomes at for-profits.

Officials also confirmed that graduates of 57 percent of private institutions — a list that includes Harvard’s Dental School but also child care training programs — earn less than high school dropouts.

  • The list includes two post-baccalaureate certificate programs at the Harvard School of Dental Medicine – not all programs at the school. Further, since the Fact Checker’s statement is misleading, we should clarify that we do not have earnings data for these two programs.

Second, on wages, the Department is comparing apples and oranges. The Social Security earnings data obtained by the department includes people who are not working, which would bring down the average wages for programs. But the wage data for high school dropouts only counts people who are working — and it includes all high school dropouts, even people who left school decades earlier.

  • Students enroll in these programs for the purpose of finding gainful employment in a recognized occupation. The Higher Education Act dictates this is the reason these programs can receive federal student aid. The problem is too many of these programs are not leading to jobs with earnings sufficient to allow students to manage their debt – or to jobs at all. We want the bar to be set at full-time work, and that is why we used this dataset as our comparison point. Students don’t go to school to not get a job or to be limited to a part-time occupation. These students – three years after graduating – should be able to earn a full-time wage. Right now, our data shows they do not.  We should not lower the bar just because some programs have not prepared their students to find employment.

As an example of how this might work, imagine taking the same approach to evaluate different departments at an elite college. Three years after graduation, how would the philosophy department fare, on average? Suppose you had five philosophy majors, and one was unemployed, one made $20,000 a year, two made $30,000 a year and one made $40,000. “On average,” the wage is in the program is $24,000 — just enough for the philosophy department at Ivy League U to be labeled as producing graduates earning less than high school dropouts under the department’s metric.

  • The Department’s metrics in the proposed rule do not set any sort of earnings threshold. The Department has chosen to define gainful employment based on whether programs meet the standards of two measures: how much debt former students have relative to their income, and how often they are defaulting. Neither one of those measures uses the earnings of high school dropouts as a benchmark. That comparison was used instead to highlight the Department’s concern that the outcomes for many of these programs should be better.
  • Further, this regulation only applies to gainful employment programs, not other types of programs at an “elite college” or any other college. Implicit in the idea of preparing students for gainful employment is, first, that the program leads to employment and, second, that the employment is gainful – producing wages that allow the graduates to pay their student loan debt. And so, we believe that the standards we have set forth are appropriate.

It’s possible a large percentage of for-profit programs are not serving students well — and that students are emerging from those programs with heavy debts. But this statistic is too fishy to make that case. In straining for a striking factoid, the Education Department went too far. Officials calculated a relatively high figure for the earnings of high school dropouts, compared to other available data. Then they compared it to average wages that likely were adversely affected by recent graduates unable to find employment.

  • Looking at the earnings of individuals who are employed full-time is appropriate as a benchmark, since a program that exists to prepare students for gainful employment should produce graduates who are able to find full-time jobs. The point we are making with the 72% statistic is that too many gainful employment programs, particularly in the for-profit sector, are failing to do so. The inability of graduates of many gainful employment programs to find full-time jobs, or any jobs, is among the issues that concern us and that we seek to address through this rulemaking. To adjust the calculation of our comparison point to account for those that are unemployed would defeat the purpose of making the comparison. We want to see the students who graduate these programs find full-time employment and have earnings that allow them to manage their debt.
  • The average earnings for the graduates of these programs were measured about three years after graduation, which the Fact Checker describes as recent. We believe this is a reasonable point at which to measure earnings as it provides sufficient time for graduates to find jobs and increase earnings.  The most recent BLS data indicates the average (mean) length of unemployment has been about 36 weeks. It is hard to imagine that if a program had in fact prepared a student for gainful employment, the student would, because of other factors, have stayed unemployed for three years – 156 weeks – more than four times as long as the average amount of time an unemployed worker remains unemployed.

Not only were these two datapoints apples and oranges, but the entire comparison to high school dropouts is fairly bogus. There’s a reason academic researchers have not tried to compare the earnings of graduates for-profit colleges to the earnings of high school dropouts — it also would be considered an apples and oranges comparison unworthy of research.

  • Again, we have not set the metrics or their thresholds of the proposed rule based on any earnings threshold. We highlighted this datapoint simply as an easily understandable reference point so that the public can better understand the poor outcomes of some gainful employment programs.  Americans can understand the concept of a high school dropout – they don’t want themselves or their loved ones to be one, and they likely perceive that dropouts have low earnings. What they may not realize is that many for-profit career-training programs do not lead to earnings much above that benchmark. Attending such a program may help them make more money, but maybe not enough to pay off the debt they took on.
  • There may very well be earnings gains in the vast majority of these programs. A student may be making much less than a high school dropout before they enroll in a program, and three years after they graduated they are still making slightly less than a high school dropout. That’s a problem if you have accumulated debt that requires a couple of thousand dollars a year in loan payments. In short, an individual in that situation has gone from worse off to bad off. Too many for-profit programs have this combination of low earnings and high debt—far more than in non-profit career programs, public or private.

You can find more information on the Department of Education’s Notice of Proposed Rulemaking on Gainful Employment, including instructions on how to comment on the proposed regulation, at ED.gov. The Department’s March 14, 2014, news release summarizes the proposal and explains how the rule is designed to protect Americans from predatory, poor-performing career colleges.