Student debt: The cost of learning a trade

Feb 29, 2012

America’s student loan debt is now bigger than its credit card debt. It’s about a trillion dollars. Student loan default rates are rising. While many families struggle to afford traditional colleges, a lot of student debt comes from attending private, for-profit schools that focus on vocational training. These students default on their loans twice as often as students from public colleges. Today we’re looking at one small school battling big defaults.

“I guess I do what everyone else has been doing, dodging the phone calls.”

Mark Howell is on the verge of defaulting on his student loans. Actually, the school he went to has the highest student loan default rate in Michigan.  (For the moment.)

It’s not the University of Michigan. Not Kalamazoo College.

It’s barber college.

In Ohio and Wisconsin beauty schools top the list. Now, these are small schools so their default rates are volatile; a few defaults make a big difference. But this is a story about why these default rates matter to old-fashioned trade schools like the Flint Institute of Barbering.

So, picture an overgrown barber shop, bright and cheerful. In the morning, a crowd of people gathers for student haircuts — $2.50 for a beginning student, $5 for advanced.

The Flint Institute of Barbering doubles as a community barber shop

Tom Amundson is 50 and new to barber school. He was an automotive designer for 30 years but got laid off a few times. Then he caught up with a buddy who owns a barber shop.

“He talked to me about it and he said, ‘Why don’t you get into the business?’” he says. “And I said, ‘Kinda old.’ And he said, ‘No, you’re never too old to cut hair.’”

So Amundson took out federal loans, just like three quarters of his class.  He’s hoping to make up to $35,000 as a barber — about half what he made as a designer.

Martha Poulos’s family has run the barber school since 1925. Tuition and fees are about $8,000 for a year. But Poulos says most of her students are low-income, from urban Flint; many come to school full-time while supporting children. She says that all plays into the default rates.

“The three year ago rate was 15.5%,” she says. “Our 2008 cohort was 29%. Our 2009 cohort – and these are the official rates – was 30.5%.”

That means almost a third of those who started repaying their loans in fiscal year 2009 had defaulted two years later.

“We were very alarmed,” Poulos says. “And not happy, and we’re trying to work as much as we can and do the best we can…”

Now, Martha Poulos is dedicated to her students. This woman will dye their jeans black, by hand, if they can’t afford to meet the school’s dress code. But she didn’t have a DIY solution to the default problem.  So she hired a service to track students who are delinquent on their loans. She says she couldn’t risk it.

Schools with high default rates can lose access to federal student aid. While the Flint Institute of Barbering does bring in money through its barber shop, more than half its revenue comes from federal student aid.

 “They are so reliant on federal financial aid dollars,” says David Deming of Harvard’s Graduate School of Education. He’s talking about the wider for-profit sector of higher education, which he says gets almost 75% of its revenue from federal student aid.

According to the Department of Education, 15% of students who train at proprietary schools default on their federal loans. That’s compared to a national average of 8.8%, at last count.

(You can see the national trend on this graph. The big dip was due to a tightening of financial aid regulations in the early 90s.)

David Deming thinks for-profit students default more because they tend to pay more than students at public colleges. He adds that default statistics understate the extent to which people struggle to pay back loans.

“If you take out a five figure loan for a relatively short program,” he says, “if you don’t find employment relatively soon after that program it’s going to be very hard to pay back your loan.”

Of course, barber school is a small part of the for-profit training world. Changing Gears is going to look at student debt from bigger technical schools in the weeks ahead.

In the meantime, remember Mark Howell? He’s now a barber in a kindof hard to find corner of a mall in Flint. Cutting hair is his passion. But he says building clientele is slow in a town that’s full of barbers.

“You can’t make the payments,” he says, “but at the same time, you’re trying to find work to make the payments. And if you don’t make the payments, you gotta deal with the consequences behind that, which is your license at stake.”

He’s already gotten a couple loan deferments. He says he’s scratching and hustling to make ends meet. And he’s not the only one.