Student loans: For-profit colleges leave students with more debt than public peers

Yahoo Finance’s Aarthi Swaminathan joins the Live show to discuss student loans and reports that those who attend for-profit colleges graduate with more debt than those who attend public colleges.

Video Transcript

AKIKO FUJITA: Well, one in eight Americans have student loan debt, with a grand total of $1.6 trillion. New data, though, points to the fact that the toll has fallen disproportionately on students who attend for-profit colleges. And our very own Aarthi Swaminathan is here with that data. Aarthi, it's a real contrast here, when you look at the two sides.

AARTHI SWAMINATHAN: Akiko, it's really nice to see you. So when you think about what kind of schools that these people are going to, that transparency is really important, right. So if you are a nontraditional student and you are thinking about what college to go to, very often you kind of choose the college that is nearest to you. And this is according to new research from-- researchers from Cornell, from the Federal Reserve of New York. And it is really striking to see how much more you're paying because you're going to a for-profit college.

If you take a for-profit college, a four-year degree, versus a community college, you're going to pay about $3,300 more. And if you choose a two-year course, say like welding or like barber school, and you go to a for-profit school over a community college that's kind of further away from you, you're going to pay $6,000 more in debt. So when we zoom out and think about student loan forgiveness and what are we forgiving, we need to also think about why these people are taking on more and more of this debt.

And it is really-- again, it's a convenience thing, right. Like, if you see a school, an ad, University of Phoenix, DeVry, you sort of gravitate towards these options because you are familiar with them. But going to a community college might actually save you thousands of dollars more. You're less likely to default if you take on less debt.

If you go to a for-profit school, you kind of increase the likelihood of default by 11 percentage points. So information is really key before you take on debt, before you choose your school. But during periods of recession, especially when people are out of work, people are desperate to pivot, people just really want to fill gaps in their resume, they don't really spend as much time on this thing, which is sort of why we need to think about improving all these things.

BRIAN CHEUNG: Aarthi, it's Brian here. Great to see you. I wanted to ask about the government pressure on these for-profit colleges. There's been some chatter about maybe them cracking down on the way that these kind of universities can extract a little extra tuition out of them. Is the government going to do anything about that?

AARTHI SWAMINATHAN: So what is interesting is, during the Trump administration, we saw sort of a very heavy leaning towards for-profit schools. Some of the government officials that were in the Department of Education had come from for-profit schools, so there was this pullback during the Betsy DeVos era against regulation. But now with the new administration, with this new head of the Consumer Financial Protection Bureau, the FTC, all these government regulators are paying more attention to, OK, how much debt are these students taking, are the job placement rates making sense.

So there is really a concerted effort to look at outcomes. So it's going to be very interesting to see if they're going to be cracking down. The FTC has already put 70 schools on the watch list, saying if you misrepresent job placement rates, we're going to come after you. So it's going to be very, very interesting to see when enforcement actions will be taken. Obviously, they take a little bit of time.

You need to do a little bit of investigation. So that's why we've done stories in the past about a crackdown that's coming. So it's just-- it's going to be very, very interesting to watch.

BRIAN CHEUNG: All right. Yahoo Finance's Aarthi Swaminathan. Great to see you again. Talk to you very soon.