March 18, 2010

Avoid High Priced Private Two Year Schools

If you're looking to go to a trade school and get a two year degree then I'd strongly recommend going to a local community college.    There are a lot of for profit trade schools out there but they are very expensive and I see little evidence that the education experience is any better than a public community college program.

I've noticed an increase in the advertising from private trade schools.    These are schools that train people in things like information technology, dental assistant, medical billing or the culinary schools that train chefs.   I've never had a positive view of these schools.   I know of a couple people personally who went to these schools and ended up in piles of debt with virtually nothing to show for it.

The NY Times has an article about the for profit schools : "In Hard Times, Lured Into Trade School and Debt".  They talk about some for profit schools that charge relatively high tuition and who's students end up with significant debts. 

Lets look at one example:  
One guy named Jeffery went to a private for-profit trade school for auto body refinishing and upholstery.  He was told by the recruiter that they had a 90% placement rate and graduates made $50,000 to $70,000 a year.   HE paid $30,000 in tuition for a 9 month program and now he says  "I've got $30,000 in student loans, and I really don't have much to show for it,.."  By comparison you can get a 2 year associates degree in auto body repair from my local community college for around $7,000 to $8,000 in total tuition and fees.   The median wages for auto body jobs is about $37,000 a year.   90% job placement also seems grossly over stated.   Considering that Harvard MBA's had a 92% placement rate in 2009.    I find it a little hard to believe that employers are as eager to snatch up people with auto body 'certificates' from a school I've never heard of about as much as Harvard MBAs are in demand.   So it seems the recruiter grossly overstated placement rates and salary potentials.  

I generally favor the value of going to a public school over a private school.    If you are talking about a respectable four year college like Harvard or Stanford then I can certainly see the potential value of paying more for the educational experience and name of the school.   But for a two year degree nobody is going to pay you a big fat salary for getting a medical transcriptionist or auto body repair degree from a pricey private trade school.   Theres virtually no up side in paying up to 10 times as much to go to a private trade school.

Not only are these schools providing low value to their students they are also doing it at the expense of our tax dollars.

The Businessweek article How Colleges Are Buying Respect explored another aspect of the for profit college world.  Apparently the profit colleges are buying up small regional private schools in order get the accreditation.  In the Businessweek article they say this about ITT:

"ITT runs 120 nationally accredited technical institutes with 80,000 students, most of whom pursue associate's degrees. The cost of attending an ITT Technical Institute, including tuition, fees, and off-campus room and board, was $26,775 in 2008-09, according to the National Center for Education Statistics. Of students who entered ITT's two-year schools in 2004, 29% graduated. ITT derived 70% of its 2009 revenue from federal financial aid."

Assuming that Businessweek has all those figures correct then a bit of math tells us :  80,000 students x 71% drop out x $26,775 annual cost x 70% federal financial aid =  Over $1 B in federal financial aid going to pay tuition for students that drop out of ITT.  Yikes!    And much of that money is in the form of federal loans that those students are responsible for repaying.

ITT isn't alone in getting large amounts of money via federal funds.   The NYT article says: "The Career Education Corporation, a publicly traded global giant, last year reported revenue of $1.84 billion. Roughly 80 percent came from federal loans and grants, according to BMO Capital Markets, a research and trading firm. That was up from 63 percent in 2007.
The Apollo Group — which owns the for–profit University of Phoenix — derived 86 percent of its revenue from federal student aid last fiscal year, according to BMO. Two years earlier, it was 69 percent."

Now to be clear the federal financial aid money is part Pell grants and part federal loans.   So much of that money comes in the form of federally guaranteed and subsidized loans which the students are then on the hook to repay.

Bottom Line:   Avoid expensive private trade schools and go to a community college if you're looking to get a two year degree.

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