Rodney Williams graduated from ASA in 2011 with a two-year degree in criminal justice and $28,083 in student loans. According to NYLAG’s suit, which names Williams as a plaintiff, the 36-year-old secured two externships, including one in a NYPD precinct in Harlem, but could not find steady employment after graduating. According to the suit, Williams called ASA for help, but the school did not help him find a job “in any way.”
But Williams said ASA representatives did call him in 2012, when he was at risk of defaulting on his loans. The school asked Williams, who was homeless, to come into the school to talk about putting his loans in forbearance.
A high percentage of students who fail to pay back their federal loans can lead to ineligibility for federal student aid – a death sentence for for-profit schools that rely on federal funds for revenue. Legislators passed a law to this effect for the first time in 1990, marking the end of a for-profit boom.
“Some for-profit trade schools with high loan default rates received substantial proceeds from such loans while providing students with little or no education in return,” wrote the GAO in a report that led to the policy shift.
Beginning in 1991, schools were judged using two-year default rates – students’ default rates two years after graduation. Default rates to about 5 percent by the early 2000s. Not only were the worst schools forced to close, but schools also learned how to manipulate the default rates while following Department of Education guidelines.
Students like Williams, who can’t pay back the money given to a school in their names, are a threat to a for-profit school’s existence. But if they participate in forbearance or deferment programs – options put into place for struggling borrowers – they aren’t counted as defaulters.
The Higher Education Opportunity Act of 2008 increased the default window to three years. When the window was widened, for-profit default rates jumped from 15 percent to 22.7 percent, compared to 7.2 to 11 for public schools and 4.6 to 7.5 for non-profits.
“They were doing a lot to keep people out of the two-year window,” said Kevin Kinser, an associate professor focusing on for-profit higher education at the University of Albany. “When [the government] switched to three-year, they caught some people who they had basically ignored because they were outside the window.”
But the three-year rate is almost as easily manipulated, said Kinser. A student who has been unable to find work can postpone payments for three years through deferment alone. Forbearance through the loan provider can add another five years, and a loan isn’t counted as in default until a borrower fails to make a required payment for 270 days. That’s more than eight years that students could avoid default, even if they had been unable to make payments since they walked across the stage, diploma in hand.
Once the metric changed, the new three-year rate also began dropping for for-profit schools, falling from 25 percent for the 2008 cohort to 19 percent for 2011, while the overall rate barely changed at all. The percentage of borrowers in deferment or forbearance has also jumped over the years, from 10 percent in 1996 to 22 percent in 2007. More than half of all for-profit borrowers are in such programs today.