New data spotlights New Yorkers’ student-debt struggles

Most students in the fashion program at Art Institute of New York, in Tribeca, won't pay down government loans anytime soon. Photo: Curtis Skinner

The trainee chefs at Monroe College in the Bronx and the aspiring fashion moguls at Tribeca’s Art Institute of New York study in different boroughs and may never appear in the same reality TV show, but they have something in common: just one in five of former students whose payments on government-sponsored student loans first came due during the 2006 and 2007 school years paid down those loans during the fall of 2010 or the first nine months of 2011.

At the Art Institute, those students left school with debt obligations equivalent to more than twice their annual discretionary income, as measured by the average earnings of the program’s graduates over two years. Monroe’s culinary grads left school with debts piling up to three times their discretionary income. In all, students from 27 programs ended up with debt payments higher than disposable income.

In New York City, 34 out of 88 professional schools rated by the U.S. Department of Education fell short on at least two of three measures gauging excessive student-loan burdens, newly released preliminary data shows. Career-training programs with track records of leaving students in a tough spot to pay back government loans are supposed to fall under special scrutiny by the agency. Under rules scheduled to take effect in 2015, trade schools that fail to meet all three standards would have to disclose the risks to prospective students, and if the numbers don’t improve they would subsequently be barred from accepting federal student loan dollars.

Click image to find out how many former students at different career school programs in New York City are repaying their loans.

A June 30 ruling by Judge Rudolph Contreras from the U.S. District Court of the District of Columbia has now thrown the new rules into doubt. Deciding a lawsuit filed against the federal Department of Education by a trade association for for-profit career schools, the judge vacated the federal regulations as “arbitrary and capricious.” Judge Contreras singled out the Department’s expectation that at least 35 percent of a program’s students will begin to repay their loans within a couple of years as “not based upon any facts at all.”

According to the U.S. Department of Education, the fight is far from over. “The court clearly upheld the authority to regulate college career programs, but found that the Department had not provided enough explanation of its debt repayment measure,” the department said in a statement following the judge’s decision. “It has given the Department an opportunity to address that concern. We are reviewing our legal and policy options to move forward.”

But while the rules remain in limbo, the new federal statistics show a sober picture of the debt burdens students carry as they enter a tough job market. Overall, New York City’s career-training programs had better average loan repayment rates, at 42 percent, than the national average of 38. Because students’ employment prospects vary among programs, different courses within schools have different results: while the Art Institute’s loan repayment rate for former fashion students is 20 percent, and the program would qualify as “failing” were the regulations in effect now, its rate for graphic design students is 35 percent — just enough to satisfy the federal standards.

Search complete table of student debt loads at New York City trade schools.

Shawnde Barrett, 21, recently transferred from the Dallas Art Institute to the one in New York City to study graphic design. While job prospects in the current economy are uncertain and she has to work part time to finance her $108,000, two-year Associate’s degree, she says she remains confident that it will be a worthwhile investment.

“I know that I want to do this,” she said, sitting outside the Institute’s pristine Tribeca campus. “I wake up every day thinking about it.”

The Art Institute emailed a statement: “The United States District Court for the District of Columbia…vacated the repayment rate measure, the debt to income measures, and other related portions of the gainful employment rule.

“Department of Education regulations require institutions to disclose all internal and accrediting agency placement rates. The methodologies used internally by the Art Institute of New York City and those required by its accreditor ACICS differ.” The Art Institute’s website claims an average employment rate for its graduates of 85 percent.

Monroe College executive vice president Marc Jerome calls the new federal data “very useful to Monroe College, and we hope to other colleges, for making decisions about our programs.” But he adds that the debt burdens for programs like culinary arts can look higher than they really are because of the way the education department calculates students’ income. “There is more unreported income and off the books income that skews the data,” he said. “Not all of them are going to work for the most formal establishments.”

As for repayment rates, Jerome says they are primarily “a reflection of the income of the student going in to the college, not going out.” The bottom line, he says, is that “our graduates are employed and second, they’re happy with their employment.”

The for-profit higher education industry lobbied intensively in Washington as the Department of Education considered the rules. Education Management Corporation, operator of the national Art Institute chain and one of the largest for-profit higher education companies, spent just short of $1 million on lobbying in the last year and half on the student loan rule and other issues, according to U.S. Senate disclosures.

Federal student loans form a significant part of career schools’ revenue. For the 2009 school year, New York City’s career schools received more than $500 million in student loan funds. Nationally, according to U.S. Department of Education statistics, more than one-quarter of for-profit institutions receive 80 percent or more of their revenues from federal student aid.

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