It’s been more than three years since our office released an Oregon look at student loans, defaults and the economy. We are working on updating parts of the report, more in the near future. However the big education news this week is the closing of ITT Tech, following the closure of Corinthian College last year. One item that really stood out, or at least surprised us when we last looked at student loan defaults was that many of these proprietary (career and technical, by and large) did not have extremely high default rates. Yes, they were significantly above default rates from four year universities and even a bit higher than beauty schools, however below the culinary and art schools and community colleges. The graph below is an update using the latest data from the U.S. Department of Education.
Now, just because default rates are not exceptionally high does not mean they are great education bets. The biggest issue here is not only that some rely heavily upon federal student loans for their revenue, but also whether or not students actually complete the degree/training programs and whether or not such degrees/training actually improve labor market outcomes. That is, are these schools actually improving employment rates for their students and are the students earning higher wages after completion then they would have without the program? That is what we care about from an economic perspective. Clearly in some cases the answer is yes, however not always.
In terms of the outlook, this latest news raises an interesting question. IHS and some other macroeconomic forecasters have the outlook that private education employment will decline in the near future. In conversation with IHS their reasoning is due to things like the ITT Tech closure where some of these schools’ underlying business model falls apart. This has been their employment outlook for a number of years now, however with each passing quarter and year where employment does not fall, they simply shift out the decline. This may be the correct long-term view, it’s an interesting and open question. However it also has not been very accurate lately. Our office’s view is that these private sector education jobs will grow more in-line with population growth over time and school- and college-age population. There is more to these jobs than the career and technical institutes, as it includes private K-12 schools, private universities and the like.
Overall private education is a relatively small employment sector in Oregon and nationwide. The big news today is not whether or not these jobs will grow slowly or decline slowly in the future. The potentially big news is making sure that students actually graduate from their training programs and get better jobs than without the programs. That would be the best economic outcome and help with future growth.