## Wednesday, March 15, 2017

### Student Debt and The Rise of Private For-Profit Schools

Student Debt and The Rise of Private For-Profit Schools

Question One:  The table below contains information on share of students in three types of institutions – public universities, private non-profit universities, and private for-profit universities for both 2004 and 2012.

The table also contains information on the percent of students taking out federal loans in 2012 and the average loan balance per student in 2012.

Note that the share of students in both public universities and private non-for profit schools fell and the share of students in private for-profit schools rose.  The increased share of students in for-profit schools is of concern because around 70 percent of students in this sector take out federal student loans.

Based on this information:

What is the best estimate of total loans in dollars for each institution type for 10,000 students representative of all three sectors?

What is the best estimate in total loans in dollars for 10,000 students at each institution type if the share of students across institution types were at their 2004 levels and lending patterns were at 2012 levels?

How did the increase in the share of students attending private for-profit schools impact the issuance of total federal student loans?

 Institution Type and Federal Student Loans Institution Share 2004 Institution Share 2012 % of Students taking out federal   loan in 2012 Average   federal Loan in \$ 2012 Public 76.96% 73.42% 30.96% \$6,012 Private not-for-profit 14.99% 13.05% 60.00% \$7,095 Private for-profit 8.05% 13.53% 71.14% \$7,030
The data was obtained from the 2004 and 2012 NPSAS databases accessed from https://nces.ed.gov/datalab/powerstats/default.aspx

Analysis:

10,000 students multiplied by share of institution at each institution is the number of students out of 10,000 students going to each type of institution.  Multiply number of students at each institution type by percent of students taking out loans to get number of borrowers (from 10,000 students) at each institution type.  Multiply total number of borrowers at each institution type by average federal loan per borrower to get total amount borrowed at each institution type for 10,000 students.

Total borrowed for 10,000 students is calculated using 2012 and 2004 institution shares below.

 Impact of Change in Institution Share on Loans In \$ Total Loans In Dollars 2012 for 10000 Students Total Loans In Dollars in 2012 for 10,000 Students at 2004 Institution Shares Change in Dollars (2012 - 2012 at 2004 Institution Share) Public \$13,668,740 \$14,327,789 -\$659,048 Private not-for-profit \$5,555,560 \$6,381,444 -\$825,884 Private for-profit \$6,766,687 \$4,026,004 \$2,740,683 Total \$25,990,987 \$24,735,236 \$1,255,751

Observations:

The increase in federal student debt incurred from 10,000 students due to the increased share of students in private for-profit schools is around 2.7 million, which is 10.5% of total debt for 10,000 students.   After netting out the decrease in public school and private non-profit student I get 4.8 percent of the total.

A more apt comparison involves the change in debt due to increase share of students attending for-profit schools to total change in debt.  Again the analysis is based on 10,000 students.  I found that 10,000 students in 2004 would have accumulated around 14.5 million in debt, around \$10 million less than debt incurred by 10,000 students in 2012.  After accounting for decreased share of public and private not-for profit schools it appears as though the shift toward private for profit schools is responsible for around 12 percent of the increase in total student debt.

Concluding Thoughts:  The for-profit sector represents around 13 percent of students in 2012 up from 8 percent in 2004.   The shift towards this sector increased federal student debt by around 12 percent between 2004 and 2012.

People interested in a broader overview of changes in three forms of student debt between 2004 and 2012 should read the following post.

Student Debt Overview: