Guess Which Schools and Degrees Produce the Most Student Loan Defaults? Hint: It’s Not the Humanities

By Michael Olenick, a research fellow at INSEAD

Yves wrote yesterday about the surreal world of student loans where an account isn’t in default until it’s delinquent for a year.

Building on that, I downloaded data about the defaults that shows an equally surreal world where the government refuses to pull the student loan spigot. Let’s take a stroll through the latest data, available here. Student loan defaults are reported for fiscal years 2012 -2014.

Looking at the top-ten by default rate, it doesn’t take a PhD in data science to recognize some patterns. Nine of the ten are beauty schools. Of the nine the Rob Roy Academy, appears twice, representing two different schools. Rob Roy is also in fifteenth place taking a full one-third of the top slots for the fifteen highest school default rates. The one school not in the top-ten that is not a beauty school is a tribal school, probably struggling with first-generation students.

Twenty-four of the top thirty with the highest default rates are cosmetology schools. It’s not a lack of name-brand cosmetology schools: Paul Mitchell Cosmetology School has strong reviews but one of their many schools sports the twenty-fifth highest default rate, 34.3 percent, of the 4,712 schools in the dataset. There are 64 different schools that reference the Paul Mitchell name. Since some reference being a “partner” it’s probably fair to say they’ve licensed the name, franchise style. It’s unclear why a school would need to license a name.

Rival Aveda has only seven of their 31 schools in the top 1,000, the highest a number at 212 (Corpus Christi, with a 25.3% default rate). If you’re dead-set on beauty school choose Aveda, especially their West Chester, OH campus, with default rate three slots better than Georgetown, at 4,547.

Non-cosmetology schools prominent in the top are also obvious candidates for cutoff. In the top-100 Everest is at slots numbered 16, 38, 53, 57, 87, and 94 (Everest apparently had nine separately listed schools). One entry in the top-100 should require a presumption a school should be ineligible for federal funds: five becomes a no-brainer. Of course, Everest was eventually shut down but not before ruining countless lives with crushing, non-dischargeable student loan debt.

Some schools did surprisingly well. Strayer University is at 1,611th place and the University of Phoenix just below it, at 1,686th place (with another Paul Mitchell beauty school sandwiched in between, at 1,670).

At the other end of the list there is a heavy grouping of medical schools, theology seminaries, and prominent business schools, all with a default rate of zero. Cornell and Harvard are one slot apart, at 4,555 and 4,556 respectively, with a default rate of .7%.

States with the highest default rates are, in order, MS, NV, NM, NC, ID, AZ, WV, AL, AK, and HI. At the other end congratulations to, in order from best to still pretty good, RI, VT, MA, IN, NE, VI, IA, CT, NY, and PA.

Moving into another dataset, we see what happens to people who can’t or won’t pay, the bill collection data.

As of Q2, 2017, there is $87.1 billion with private bill collectors. Of those, fourteen could be termed aggressive, accounting for 19 percent of money recovered. Despite that these 14 represent only 2.6 percent of money due they’re the only collection agencies that are likely to garnish wages from over ten percent of their unfortunate student loan borrowers. One outfit, that goes by the name “ERS,” is responsible for only .07 percent of outstanding debt but has chosen wage garnishment for 60 percent of the people unlucky enough to be assigned to them. Way to drive an underground economy, ERS. Most mainstream collectors seem to favor rehabilitation, consolidation, or voluntary payments over wage garnishment. Despite their gentler methods these firms collect far more revenue than the metaphoric knee crackers.

Finally, we get to the craziest default dataset of all: projected defaults. Cutting to the end, 52.7 percent of two-year proprietary (private) loans, by dollar volume, originated in 2007, are projected to default within 20 years. By loan volume, the figure drops to a still obscene 36.3 percent. Two-year public and non-profits are better, with 36.2 percent defaults predicted by dollar volume and 27.3 by loan volume. For two and four-year degrees default rates are predictably higher for those who drop out of school than those who earn degrees, suggesting a penalty might be in order for schools with abnormally low graduation rates.

Let’s briefly dive into one of these businesses (err, schools). I chose to lookup Cheryl Fell’s School of Business because, honestly, the name is ridiculous. Before diving into the degree programs let’s check out the campus ambiance. Here’s a photo, from Google Maps:

The “campus,” in Niagara Falls, NY, is a two-story building abutted by a Burger King, “Military Liquors,” and a place called the “People’s Casino Gold Mine.”

In 2014 there were apparently 71 students enrolled plus 84 students in repayment and 19 in default, a default rate of 22.6 percent. This puts them at number 389 on the list, sandwiched right between Lil Lou’s Beauty and Barber College LLC and the Olympian Academy of Cosmetology (no, I’m not making this up). There are three Paul Mitchell schools with higher default rates.

Cheryl offers four programs: Accounting Assistant, Administrative Assistant/Accounting, Medical Receptionist, and Medical Secretary. The instructional hours required are 900, 1,500, 900, and 1,500 respectively. Fees are $8,500, $14,100, $8,500, and $14,100. Classes include, among other things, “Keyboarding” I, II, III, and IV.

These “Academic Programs” lie at the heart of the student loan program. Basic typing and computer literacy skills are likely necessary for these jobs but, judging by the ages of the people hanging outside the school, they’re likely to know how to operate web-based software. They can probably type just fine but if they can’t then Google returns 11.3 million entries for “free online typing class.”

Reiterating, there’s nothing more wrong with Cheryl’s business school than any other similar program but none of them should be eligible for federal student funds. Nobody should take out a loan for a degree to be a receptionist. Even if the tuition were free, which it isn’t, the 900 hours is at least 860 more than necessary. Any reputable medical office will allow for a week of on the job training for a promising job candidate. Paul Mitchell, with a personal fortune of $3.1 billion, can guarantee dischargeable loans to his cosmetology schools if he’s confident the students are receiving a valuable education and can pay him back.

These programs would not exist but for the availability of non-dischargeable student loans. It’d be bad enough if this were merely a waste of taxpayer money but these are loans, for worthless degrees, that will saddle these students with junk debt for years or decades. Common sense reforms – specifically, throwing more schools off the eligibility list earlier – seem like no-brainers. But, under either Democrats or Republicans, they’re not going to happen with lobbyists funneling the graft back up the chain.

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  1. ChiGal in Carolina

    This post should be required reading for all. Wonderfully straightforward writing pulling no punches–tell it!

  2. Jim Haygood

    One is only surprised to find no schools of pole dancing, auto detailing, bail bonding, title lending, pet grooming and offroad truck modification.

    *eyes empty storefront nearby*

  3. Wukchumni

    Rob Roy was an outlaw, so it’s fitting that students that went to the academy named after him are making off like bandits.


    So, don’t attend a cosmetology school in the south if you don’t want to end up defaulting on your debt.

    1. Afrikaan

      People who attend cosmetology school, and to whom cosmetology school is advertised, do not necessarily know the meaning of the word ‘default’. Nor ‘garnishing order’ nor ‘non-dischargeable’.

      And the schools know that.

      1. jrs

        yea it’s kinda all about class really isn’t it, are we really going to pretend that those going to medical schools, theology schools and prominent business schools are the same class as those going to cosmetology school? Are we going to pretend they just made better choices or something. Yea and the moon is made of cheese! It’s hard to escape one’s class in the U.S.. Now going to cosmetology school may not be a great way to escape poverty and could sometimes I guess make it worse, but I don’t think we are looking at people with tons of options.

        And no middle class person sending their kids to college would advise their kids to study liberal arts unless they planned to teach K-12 or go to grad school afterward, so liberal arts is probably at this point the domain of the well off.

        Maybe it’s all just a case of where you end up usually depending on where you start.

        1. Marco

          My sister barely made it thru high school and cosmetology school was her only option. Upon getting her license (in Michigan) she was lucky to get a spot at a high-end salon in a wealthy exurb of Detroit. The owner of the salon invested heavily in training her “girls” and they often went to trade shows and took additional hair “tinting” and “coloring” classes. My sister was making $80-100K a year (3 years after getting her GED) in the mid 90s. Location is key. And a good boss.

            1. Daryl

              Here in Texas, it’s legal to pay them below minimum wage with the understanding they will make up the difference in tips.

              I stopped going to a local chain because I never, ever saw the same people working there twice. The turnover rate must be abysmal.

          1. Yves Smith Post author

            You can make a lot of money doing hair color. You can process a lot of heads at the same time. And customers are loyal if you do a good job.

            1. Joel

              Amen. My sister-in-law was paying $300/month!

              Of course, a lot of that goes to buy the products and to use their brand names in your advertising, and there is an upfront cost in taking classes in how to do the coloring and even getting “certified” by a company.

              But, I’d guess it’s one of the best-paying automation-proof and offshoring-proof (and even competition-from-immigration-proof thanks to licensing requirements) opportunities for someone who is not academically inclined.

  5. Joel

    Do cosmetology schools *over all* have high default rates or are there just a lot of bad apples?

    It’s one of the few jobs that probably can be offshored or automated and state licensing requirements mean there’s a high barrier to entry. Even if few beauticians are earning more than 3X minimum wage, I’d be surprised if it weren’t a sound career choice for a lot of people.

      1. RMO

        By Jove I think you may have hit on something there! I would also suspect that a cosmetology school would tend to have a lot more students from poor backgrounds with little to no influential friends or family than say, Harvard Business School.

        The “business school” shown here reminds me of a friend of mine who is extremely intelligent, a fast and accurate typist, has a wonderful telephone voice and manner, is a hard worker, has superb writing skills and is remarkably proficient with quite a lot of software – Photoshop, Excel, etc. and is pretty good with HTML too. She finds it extremely difficult to find receptionist or secretarial work. Why? She has no post-secondary qualifications that seem to be mandatory to get past the screening process of the HR departments (or the contracted equivalent). I wonder if the students throwing their money at this school have found themselves in the same situation. The number of low-paying receptionist jobs she has applied for that demand a degree plus some manner of “official” accreditation with software is depressing.

        1. Joel

          Tell her to try working for herself as a virtual assistant. It’s a tough nut to crack but once it’s cracked I think someone with strong skills would have a better shot at it.

    1. Michael O

      I was going to try to analyze that but didn’t have time to look up all the schools in the data set to see if they’re cosmetology schools. Many obviously are and many obviously aren’t but there are a great many that aren’t clear without more research. It doesn’t take long for each but 4K+ times just a little is a lot of time.

      1. Joel

        I’m shocked that the data do not already include that classification.

        What a joke our government is sometimes.

  6. FreshOH

    “There are 64 different schools that reference the Paul Mitchell name. Since some reference being a “partner” it’s probably fair to say they’ve licensed the name, franchise style. It’s unclear why a school would need to license a name.”

    This is straight forward Business Franchise.
    1. Acquire/work-with a endorsement of well-known/brand name.
    2. Establish payments to the individual/trust for licencing of the well-known/brand name.
    3. Establish a franchise opportunity that takes advantage of college loans but operates like a fast-food restaurant. [two suckers, franchisee and student(s)]
    4. Advertise on radio, TV, internet demonstrating those franchise fees are working
    5. Sit-back: collect fees, dues, added college costs and payments from loan companies.

    Oh the students can’t pay back the loans.
    Well that is on the loan issuer, not the franchise business fault/issue.

    The franchisee probably has the students purchasing the well-known/brand name “on campus” merchandise at a hefty 65% over cost. If only the student bought their supplies at Walmart or an online retailer. But then the student wouldn’t be using approved/certified supplies and tools and will have a difficult time passing the class.

    Wondering if there are parking fees to maintain the lot in winter or not provide enough parking spaces per student for said fees. Always great when a professor states that in a capitalistic system those that are first/early are better served, while those that are late are marginalized and left out.

  7. nonsense factory

    Let’s just say the seven-year bankruptcy rule for student loan dischargement is re-instated (the Clinton Administration did away with it in 1998, in the Higher Education Amendment Act). Critics of this move always roll out the claim that this would destroy the federal student loan program as well as cut off all private loans for education (90% of such private student loans are co-signed by the student’s parents).

    First, declaring bankruptcy is a serious step with long-lasting effects, and the creditors have ample opportunity to challenge the bankruptcy claim (fraudulently obtained credit is not dischargeable, etc.) Nobody would do this lightly, as it has long-lasting effects on one’s future ability to obtain credit.

    Second, if fewer student loans were available, this would force universities to start thinking about steep cuts in administrative salaries; for example the University of California pays ridiculously high salaries to top administrators, well more than the state governor makes. Likewise, coaches for college sports teams are often overpaid. Tuition costs would have to come down, and if the country wanted to remain competitive, tax rates on high income individuals and tax-dodging corporations like Apple would have to rise; cuts to the bloated military budget would also have to be considered.

    Third, the frivolous and fraudulent ‘private university’ scams of the Trump University nature would be shut down once and for all, as private lenders would be unwilling to risk financing students who would be so likely to default after receiving their worthless degrees.

    1. Harry

      Didnt seem to harm President Trumps life chances so much. How many times have his corporate vehicles experienced bankruptcy?

      I guess only poor people experience personal bankruptcy.

      1. nonsense factory

        Well, people like Donald Trump have lots of lawyers who help them hide their assets in all sorts of clever ways (‘exemptions’) before they declare bankruptcy, peons can’t afford such legal teams. The American ‘justice system’ acts to protect the wealthy, as always.

      2. Yves Smith Post author

        I hate to sound like I am defending Trump, but he has hundreds of legal vehicles. Admittedly quite a few probably never got past the paper company stage. Nevertheless. 6 bankruptcies across that many is small, particularly since unlike every major NYC developer save Steve Ross of Related, he didn’t declare BK on his NYC holdings nor did he give up any of his equity in them in the restructuring in the early 1990s. That recession slaughtered high end NYC commercial properties.

        Pretty much every private equity fund that has been around has a higher level of BKs.

      3. UserFriendly

        Trump went through corporate bankruptcy; which is a whole other ball game than personal bankruptcy. Since every red blooded American prays at the church of LLC, and would sooner shoot a poor person than give them the time of day, the former is pain and stigma free while the latter is designed to make you feel like as much of a pathetic failure as possible and making it even harder to piece life back together afterwards.

    2. Joel

      Dear God, is it possible that Clinton’s presidency actually did more harm to the country than Reagan’s?

      1. some lurker

        Dear God, is it possible that Clinton’s presidency actually did more harm to the country than Reagan’s?

        Not more but plenty. The Telecom Reform act or whatever it’s called means local cable/telco monopolies are outside local control: they raise their rates with impunity. Financial deregulation we know about…Don’t Ask/Don’t Tell and all that went with that. He was no liberal and barely a Dem, in any real sense. He was GOP-lite.

  8. Wukchumni

    Cheryl Fell’s @ Niagara Falls has a nice sound to it, but it has the look of one of those motels where they have a sign that says “monthly rate $450”.

  9. John

    Like payday loans, school loans are just another manifestation of the grifter economy. Support for these grifter institutions is a bipartisan project. My Virginia US Senator Warner just loves himself some PayDay Loan operators. Grrr.
    I know some middle class people with reputable degrees who have walked on their student loans which has forced them into the international arena. In one situation the PhD in Public Health will be had in Amsterdam
    instead of the US. They intend to work internationally, so the parasitic deVos bill collectors can just suck on it.
    Debt Jubilee for all!

  10. JTMcPhee

    Just another “down escalator” for the “hopefully desperate,” right? Like the flood of solicitations my little debt-free (mortgage and car payment at 5% and0.2% don’t count, amiright?) household gets, for HELOCs and credit cards and life insurance.

    Nondischargeable crushing student loan debt weighing “the economy” down? What is a person to do?

    Pretty simple, it seems to me. #justsayno, and #juststoppaying.

    Defaults at current levels are priced, and baked, into the Big Scam. Covert socialism, where we mopes create the real wealth that supports full-faith-and-crest MMT money that guarantees these debt traps, is also baked in.

    So just everyone do like Banksters and Venture Capitalists and corporate looters do, when applying their business acumen to loading up they unsustainable debt they happily incur in their looting practices: #justsay no. Or maybe #juststoppaying.

    If your landlord rentier stops maintaining the premises and the rats and roaches start chewing on your babies, you can do a rent strike, “legally” in many or most places. “Racking debt” is a thing, and has been since people have been operating debt-generating mechanisms. People with power routinely welsh on debts, stiff their creditors, but because they sit on piles of “capital,” and tradespeople always hope that the rich folks will pay them, they keep giving them stuff in exchange for promises to pay. See how the Upper Crust in Merry Olde England treat THEIR creditors, and how many Rich Folks here in the US and Australia and elsewhere stiff their “creditors,” in blunt and novel ways…

    Granted, there are many student debtors who would probably be happy to take “jobs” applying the whip to their fellow debtors, in hopes of earning enough to keep current on their own “obligations,” to protect their invaluable “FICO scores” and “rights” to keep consuming in self-pleasing bliss (/s). In keeping with the reminder that class warrior Jay Gould, that “he could pay half the working class to kill the other half.”

    So, all together, now:


  11. Jeremy Grimm

    We have a little problem with the treatment of our future generations coupled with a very large scam financed by the government of, by, and for our ‘Elite’. But the default rate for student loans — whether for Columbia or Harvard or a Paul Mitchell school of cosmetology — should not be of primary concern unless we are worried about the amount of money scammed out of students versus the amount of money contributed to the scam by the U.S. government.

    Suppose there were no defaults at all on any of the student loans. Our future generations will still be held in debt slavery paying off loans and penalties until they die. And there will probably be legislation — if there isn’t already — that will attach the debt to any small estates the debtors, our young, may squeeze together. Similar laws are already in effect for those on Medicaid.

    There are many concerns that seem to get lost in the student loans tempest. State and Federal support for public colleges and universities is all but completely gone and nothing controls the charges racked up for units at public colleges and universities.

    Our public colleges and universities — once a premier system providing education, scientific research, and cultural research for the common good — have been trashed and converted into a U.S. government backed scam.

    1. JTMcPhee

      And let’s not forget that the Kochs and Devosses ( and the rest have bought the intellectual distance and honesty (as if there ever was much of that, of a whole lot of “institutions of higher learning” for pretty close to a farthing and a penny whistle:

      “Who’s afraid of Virginia Woolf NOW? Any Rand is on the faculty review committee!”

  12. David

    Back in 2015, the Department of Education implemented the Gainful Employment Regulations,

    Under the new regulations, a program would be considered to lead to gainful employment if the estimated annual loan payment of a typical graduate does not exceed 20 percent of his or her discretionary income – what is left after basic necessities like food and housing have been paid for – or 8 percent of his or her total earnings. Programs that exceed these levels would be at risk of losing their ability to participate in taxpayer-funded federal student aid programs.

    Looking at the individual web pages for Cheryl Fell’s School of Business shows the following:

    Undergraduate certificate in Medical Secretary – Does not meet DOE standards for federal student grants and loans. Yet 100% of students who attend this program borrow money to pay for it with typical debt at $16,500.

    The other certificate programs do not appear to even meet the reporting requirements for the DOE.

    It would have been interesting to see an article about the DOE’s enforcement of these regulations and the impact of those regulations on the people that attend these for-profit institutions.

    1. JTMcPhee

      Maybe the reason there are no articles on such enforcement is that there isn’t any. But that’s the point, of course…

    2. diptherio

      For only $10,000 I’m offering a degree in starting and running a for-profit business school!*

      *degree not DOE certified

  13. nihil obstet

    I don’t know how prevalent it is, but in some cases desperate people go to school not for the degrees but for the grants/loans. If tomorrow can’t be financially any worse than today, might as well take the money and avoid hunger and homelessness now, and let tomorrow take care of its problems. It’s kind of like a big, long-term payday loan.

    I should note that I don’t have moralistic objectors to the borrowers. I, after all, support a UBI, but I do wish we didn’t have to pay off the grifters who are running the supposed schools.

  14. ewmayer

    “Twenty-four of the top thirty with the highest default rates are cosmetology schools.” — Blast you, Stephen Hawking! Oh, wait…

    “I chose to lookup Cheryl Fell’s School of Business because, honestly, the name is ridiculous.” — That brought to mind the old Steve Martin stand-up routine in which he muses on any man-off-the-street opening up a bank, and uses “Fred’s Bank” as an example name of such an institution. “Let me just take your deposit, sir, and put it in my coat pocket right here…”

  15. Dirk77

    I guess I should be the one to ask it: What are the default rates on non-dischargable student loans in Russia?

  16. Stephen Douglas

    I guess I should be the one to ask: in what world is 3 out of 15 “fully one-third of the top 15?”

  17. upwising

    Some time back as a continuation high school teacher, I had numerous students investigate what I labeled “The University of Loveliness!” Tuition was paid by the County and it wasn’t cheap.

    The hitch was that in order to get ones Cosmetologist License from the State of California, one had to complete 1600 hours of documented training, a “product” which The University of Loveliness gladly provided (for a price).

    Don’t underestimate the requirements for licensing for some of these “professions” (though I doubt there is a California Board of Receptionist Professional Standards, at least not yet).

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