oversight

Proprietary Schools: Millions Spent to Train Students for Oversupplied Occupations

Published by the Government Accountability Office on 1997-06-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Subcommittee
                  on Human Resources, Committee on
                  Government Reform and Oversight,
                  House of Representatives

June 1997
                  PROPRIETARY
                  SCHOOLS
                  Millions Spent to Train
                  Students for
                  Oversupplied
                  Occupations




GAO/HEHS-97-104
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-272442

      June 10, 1997

      The Honorable Christopher Shays
      Chairman, Subcommittee on Human Resources
      Committee on Government Reform and Oversight
      House of Representatives

      Dear Mr. Chairman:

      Under the Higher Education Act’s (HEA) title IV programs,1 the federal
      government annually invests billions of student financial aid dollars to
      help fund occupation-specific training at proprietary schools.
      Administered by the Department of Education, title IV programs help
      provide access for thousands of proprietary school students to train for a
      diverse range of occupations, such as automobile mechanics, electronic
      technicians, and nurses. About $3 billion in student aid, primarily
      subsidized loans, financed occupational training for fiscal year 1995 at
      proprietary schools—the principal vendors of occupational training under
      title IV.

      Proprietary school graduates face some unique challenges in the labor
      market. Because most proprietary school skill training lacks a general
      education component, it is not readily transferable to other occupations.
      This produces proprietary school graduates who are less versatile workers
      than graduates of degree-granting programs. In addition, wages for
      positions suitable for proprietary school graduates are usually too low to
      motivate these graduates to relocate long distances to find work, making
      them more dependent on local labor market conditions. These
      circumstances make proprietary school graduates more susceptible to
      unemployment and less likely to meet their student loan obligations than
      other postsecondary graduates.

      A recent report by Education’s Inspector General (IG) raised concern
      about proprietary school students being trained for occupations with a
      surplus of job seekers but a scarcity of jobs. The IG estimated that
      taxpayers and students spent over a billion dollars for fiscal year 1990 for
      cosmetology training, even though the national supply of cosmetologists



      1
       Title IV established financial aid programs for students attending institutions of higher education and
      vocational schools and includes the Federal Family Educational Loan Program and the William D.
      Ford Direct Loan Program. Both offer subsidized and unsubsidized Stafford loans and Parent Loans for
      Undergraduate Students. Title IV also established the Federal Pell Grant Program and the Federal
      Perkins Loan Program.



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exceeded demand by over one million.2 Some members of the Congress
believe that student loan default rates for proprietary school students,
more than twice that of students attending other postsecondary schools,
may stem in large part from a mismatch between their training and the
skills employers demand.

Because of concerns about a mismatch between title IV-funded
occupational training and skills demanded in the labor market, you asked
us to determine the extent to which title IV funds finance proprietary
school training in fields with insufficient job demand. More specifically,
we agreed with your office to provide information on (1) title IV money
spent to train proprietary school students for occupations with a surplus
of trained individuals, (2) ways government-sponsored training programs
use labor market information to target training funds toward fields with
promising employment outcomes, and (3) the merits of using labor market
information to target training funds.

To address these issues, we analyzed labor supply and demand data for 12
states (see fig. 1). We selected these states mainly because they accounted
for about 63 percent of the title IV funds received by proprietary schools in
fiscal year 1995. We compared labor demand projections for selected
occupational categories, or clusters, with the number of graduates from
occupation-specific training programs. On the basis of state labor
department practices, we considered a labor supply surplus to exist when
at least two students completed training for each projected job vacancy, a
ratio of 2 to 1 or an oversupply of 100 percent.

Our analysis is based on state-level labor market data. Although local labor
market conditions—which can cross city, county, and state boundaries—
best indicate an individual’s employment opportunities, these data are not
consistently maintained for all locales. Because the job market for
graduates of occupation-specific programs rarely extends beyond state
boundaries, national-level data are not appropriate for this type of study.
According to Bureau of Labor Statistics (BLS) officials, state-level data
provide a good approximation of employment opportunities at local levels.

Although we have tried to be conservative in our analysis, our labor
market projections have some limitations. The labor demand data we used
are based on estimates of job openings prepared by states using industry
growth projections and staffing patterns. Unforeseen changes in economic


2
  Management Improvement Report No. 93-03, U.S. Department of Education IG, (Washington, D.C.:
Mar. 12, 1993).



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                                         conditions at the local or national level can cause actual and projected
                                         demand to differ. Our labor supply data are entirely based on students
                                         who graduated from postsecondary education school programs in fiscal
                                         year 1995. As such, we understated the available labor supply by, among
                                         other things, excluding avocational and adult basic education program
                                         graduates.


Figure 1: States Included in Supply and Demand Analysis




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                   We also examined the role that labor market information plays to help
                   target program funds in three major government-sponsored job training
                   programs: the Job Training Partnership Act (JTPA) and the federal
                   vocational education and welfare-to-work job training programs. We
                   reviewed their program documentation such as laws, regulations, and
                   policies. In addition, we spoke with officials of these job training programs
                   in the 12 selected states on their use of labor market information and
                   reviewed related program policies and legislation. Furthermore, we
                   discussed the merits of using labor market information to target training
                   funds with federal and state job training program administrators,
                   recognized experts,3 and officials at the Departments of Education and
                   Labor. Appendix I describes in more detail our information sources and
                   methodology.


                   The federal government spends millions of student financial aid dollars to
Results in Brief   train students for occupations that already have a surplus of workers. For
                   fiscal year 1995, $273 million in title IV funds subsidized over 112,000
                   proprietary school students to train in fields with projected labor supply
                   surpluses in the 12 states we reviewed. In some cases, proprietary school
                   students received training in occupations with projected labor supply
                   surpluses in several states. For example, 28,000 proprietary school
                   students were trained in electrical/electronic technology in seven states
                   that each had a labor supply surplus.

                   Several major federal job training programs restrict training to fields with
                   favorable job demand projections. JTPA, the largest federal employment
                   training program, specifies that participants may train only for
                   occupations for which sufficient job demand exists. In addition, the
                   federal Carl D. Perkins Vocational Education Act requires that state plans
                   describe how training funds will be used for occupations with available or
                   projected job openings. Also, until recent welfare legislation passed on
                   responsibility to states under block grants, the federal Job Opportunities
                   and Basic Skills (JOBS) program had similar requirements that compelled
                   welfare agencies to work with private industry councils to ensure that
                   programs provided training for jobs likely to become available in an area.

                   Although government officials did not support using labor market data to
                   regulate title IV participation, they and experts we interviewed advocated
                   providing prospective students of occupation-specific training programs

                   3
                    Experts included specialists from labor market research centers at three universities as well as
                   knowledgeable staff from BLS and the National Occupational Information Coordinating Council.



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             access to labor supply and demand projections. In agreeing that such
             information would help these students make more informed training
             decisions, these interviewees also noted the need to supplement the data
             with other labor market information, such as training-related placement
             and wage rates of recent program graduates. Using labor market
             projections provides a rational basis for making training investment
             decisions, which was a noted advantage. As a disadvantage, the
             interviewees cautioned that such data are inherently imprecise.


             Under title IV, the federal government provides grants and loans to help
Background   students finance the cost of attending postsecondary schools. The kind of
             schools eligible for title IV programs has changed over time. Initially, only
             public and nonprofit schools were eligible under the HEA of 1965. To
             expand access to students, the Congress amended the HEA and made
             proprietary schools eligible for the complete range of student aid by 1972.

             Proprietary schools contribute to the nation’s competitiveness by
             providing occupational training to traditionally noncollege-bound
             individuals. Most proprietary schools are small, enrolling fewer than 100
             students, and offer occupational training lasting 2 years or less. They
             enroll a higher percentage of women, minorities, and low-income students,
             serving a rather heterogeneous student population compared with
             nonprofit institutions. About 67 percent of proprietary school students
             receive title IV federal student aid.

             Under title IV, the law treats proprietary schools differently from other
             institutions. For example, a proprietary school’s eligibility is contingent on
             its training programs preparing students for gainful employment in a
             recognized occupation. As early as 1971, members of the Congress
             explicitly recognized a need for proprietary school training to relate to
             labor market needs. Because employment directly affects the ability to
             repay student loans, default rates are an important gauge of the quality and
             usefulness of postsecondary education training programs. Default rates of
             proprietary school students have consistently exceeded rates for other
             postsecondary school students. For fiscal year 1994, the default rate for
             proprietary school students was 21.1 percent as compared with 13.7 and
             6.5 percent for students of 2-year and 4-year nonprofit colleges,
             respectively. For fiscal year 1992 (the most recent data available), the
             federal government paid about $140 million to cover defaulted student
             loans to proprietary school students.




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The Congress added an additional requirement for proprietary schools’
eligibility to participate in title IV programs when it reauthorized HEA in
1992. Known as the 85-15 rule, this rule requires proprietary schools to
obtain at least 15 percent of their revenues from sources other than federal
student aid programs. The rationale for this provision is that schools
providing a quality education should be able to attract a reasonable
percentage of their revenues from sources other than title IV. Another
requirement that affects proprietary schools dictates that short-term
programs—those less than 600 hours long—must maintain completion and
placement rates of at least 70 percent for eligibility.

In addition to the Congress’ recognizing the need to treat proprietary
schools differently from other postsecondary schools, the administration
proposed combining title IV grants for nondegree programs with newly
proposed skill grants in the 1996 budget. The skill-grant proposal was
intended to ensure that vocational students get information about labor
market outcomes relevant to their proposed training field before actually
enrolling. The administration, though no longer recommending that title IV
nondegree training funds be combined with skill grants, recognizes that
labor market information is an integral part of a job training system and
supports creating a stronger labor market information system.

The philosophy underlying title IV contrasts starkly with that underlying
government-sponsored job training. Title IV programs are based on
individual choice and implicitly assume that students use some
information source to make good judgments. As a result, financial aid
recipients may choose any area of study—whether a liberal arts degree or
a certificate in air-conditioning repair—as long as the institution meets
Education’s title IV eligibility requirements such as licensure and
accreditation. The extent to which students make informed decisions
largely depends on their initiative and self-reliance. In contrast, in federal
job training programs, the law limits individuals’ choices to occupations
with labor demand. For example, some job training programs limit training
to occupations for which local employers have guaranteed placement of
program graduates.

In recognizing the critical importance of information, the Congress has
acted to expand the information available to title IV students making
education and training decisions. The Student Right-to-Know and Campus
Security Act4 requires that schools with certificate or undergraduate
degree-granting programs participating in title IV annually disclose

4
 P.L. 101-542, enacted Nov. 1990.



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                       students’ completion rates. Under implementing regulations, the first
                       results are due by January 1, 1998. The act does not require schools to
                       disclose information on graduates’ employment outcomes, however, such
                       as training-related job placement rates or wages, or on local labor market
                       conditions.


                       Millions of title IV program dollars went to proprietary schools for
Financial Aid          students who trained in fields with a surplus labor supply. For 12 states,
Recipients Train for   $273 million in title IV funds was spent to subsidize over 112,000
Occupations            proprietary school students who trained for jobs with a projected surplus
                       labor supply in fiscal year 1995, according to our estimate. Occupations
Oversupplied in        that were oversupplied and for which proprietary school students received
Multiple States        student aid were diverse, including legal assisting, respiratory therapy,
                       appliance/equipment repair, and drafting.

                       Although proprietary schools in all 12 states trained students for
                       oversupplied occupations, the amount of federal student aid spent and the
                       number of students trained in oversupplied fields varied (see table 1). Title
                       IV funds spent to finance training in oversupplied fields ranged from a low
                       of $3 million in South Carolina (about 22 percent of the title IV funds
                       received by its proprietary school students) to a high of $47 million in
                       Arizona (about 21 percent of the title IV funds received by its proprietary
                       school students). The number of students receiving such funds ranged
                       from 1,000 in Washington (about 6 percent of its proprietary school
                       students) to 17,900 in California (about 12 percent of its proprietary school
                       students).




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Table 1: Estimated Financial Aid Spent
by Students Training for Oversupplied                                                                                   Percentage of
Occupations in 12 States, Fiscal Year                                                       Percentage of                  proprietary
1995                                                                                           proprietary                      school
                                                                                                school aid                    students
                                                                      Federal financial        directed to    Number       training for
                                                                           aid dollars       oversupplied          of    oversupplied
                                             State                           (millions)       occupations    students     occupations
                                             Arizona                             $47.2 2                1      13,900               27
                                             California                            36.1 9                      17,900               12
                                             Florida                               31.7 2               3      10,700               23
                                             Illinois                              13.6 1               3       7,700               25
                                             Indiana                               33.2 3               8      16,400               50
                                             New Jersey                            16.8 1               8       5,000               17
                                             New York                              29.4 1               8      13,500               19
                                             Oregon                                 6.9 3               1       2,400               37
                                             Pennsylvania                          26.7 1               5      11,700               20
                                             South Carolina                         3.0 2               2       1,800               28
                                             Texas                                 20.3 1               1      10,300               16
                                             Washington                             8.6 1               1       1,000                6
                                             Total                                $273.3a              16     112,300               20
                                             a
                                             Numbers do not add to total due to rounding.



                                             The surplus of qualified job candidates, including proprietary school
                                             graduates, for some occupations occasionally reached dramatic
                                             proportions in some states, exceeding demand by ratios of 10 to 1 or more.
                                             Overall, 51 percent of the jobs we identified as oversupplied had ratios of
                                             graduates to projected job openings at least as high as 4 to 1; the high was
                                             42 to 1 for appliance/equipment repair in California. States where the
                                             majority of oversupplied occupations had ratios of graduates to projected
                                             job openings equaling or exceeding 4 to 1 included

                                         •   Arizona, with 11 of 15 occupations, whose high was a ratio of 34 to 1;
                                         •   Indiana, with 5 of 6 occupations, whose high was a ratio of 12 to 1; and
                                         •   New York, with 5 of 7 occupations, whose high was a ratio of 9 to 1.

                                             In the 12 states, proprietary school students received training in jobs
                                             classified under 23 occupational categories with a labor surplus. Jobs
                                             classified in two occupational categories, however—barbering/
                                             cosmetology and electrical/electronic technology—accounted for about
                                             two-thirds of the title IV funds ($172 million) and proprietary school
                                             students (75,900) associated with oversupplied occupations.



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                                         Some occupations were oversupplied in several states. The barbering/
                                         cosmetology category had a surplus labor supply in 10 of the 12
                                         states—the highest of any category—involving about $86 million in title IV
                                         funds and 48,100 proprietary school students. Appliance/equipment repair
                                         ($6.8 million and 2,100 students) and legal assisting ($18.7 million and
                                         6,400 students) had a surplus labor supply in eight states. In total, about
                                         $260 million—95 percent of the title IV dollars spent training students for
                                         oversupplied occupations—went to occupations oversupplied in many
                                         states.

Table 2: Financial Aid for Occupations
Oversupplied in Many States, Fiscal                                                                                       Estimated
Year 1995                                                                                        Estimated financial       students
                                         Occupation                                     States        aid (millions)   receiving aid
                                         Barbering/cosmetology                             10                 $85.8          48,100
                                         Appliance/equipment repair                         8                    6.8          2,100
                                         Legal assisting                                    8                  18.7           6,400
                                         Electrical/electronic technology                   7                  86.6          27,800
                                         All other engineering technology                   5                  12.8           4,600
                                         Respiratory therapy                                5                    4.2          1,600
                                         Miscellaneous health services                      5                  16.7           6,200
                                         Air-conditioning/heating                           3                    9.9          3,400
                                         installation/repair
                                         Optical technology                                 3                    6.6          4,000
                                         Electromechanical                                  2                    1.4            300
                                         equipment/instrument/ production
                                         repair
                                         Airplane piloting                                  2                    2.5            300
                                         Pharmacy support                                   2                    5.4          2,000
                                         Medical secretarial                                2                    2.9          1,500
                                                                                                                   a
                                         Total                                                               $260.2         108,200a
                                         a
                                         Numbers do not add to total due to rounding.



                                         Many of the proprietary school students who trained for oversupplied
                                         occupations benefited in one way or another. First, because each of the
                                         oversupplied fields has vacant positions, some proprietary school
                                         graduates will get jobs in their chosen fields. In New York, for example,
                                         jobs in the electrical/electronic technology field had five qualified workers
                                         for each job vacancy—1,367 trained workers vying for 280 openings. In
                                         this case, one of every five proprietary school graduates who received
                                         training could conceivably get a job in the field. Second, the education of




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                     proprietary school students may have benefits that extend beyond the
                     occupational field. Some employers use credentials—a degree or
                     certificate showing completion of a field of study—to screen out less
                     qualified job candidates. Such credentials show these employers that
                     prospective workers have demonstrated critical skills that will make them
                     effective members of the labor force, such as coming to work on time,
                     completing assignments, and following a project from beginning to end.
                     These employers may well assume that people who complete training
                     programs are more talented than those who either failed to enroll in or
                     complete a postsecondary training program.


                     Some major federal and state programs that support short-term
Some Government-     occupational training limit training to areas with a documented labor
Sponsored Training   demand. Each program requires training opportunities to be based on an
Limited to           analysis of local labor markets and training plans based on projected job
                     demand. Furthermore, these programs interact with local business
Occupations With     community representatives to continually assess local labor market
High Demand          conditions. Although each program serves different populations, such as
                     disadvantaged youth or dislocated adult workers, the programs share a
                     goal of helping clients develop training skills to improve their employment
                     prospects.


JTPA                 Enacted in 1982, title II of JTPA has been the cornerstone of federal
                     employment training programs. JTPA supports job training for individuals
                     facing barriers to employment and needing special training to obtain
                     productive employment. JTPA programs annually provide employment
                     training for specific occupations and services to roughly one million
                     economically disadvantaged individuals. Service providers, such as
                     vocational-technical high schools, community colleges, proprietary
                     schools, and community-based organizations provide training in local
                     service delivery areas. The program objectives are to increase earnings
                     and employment and to reduce welfare dependence for participants of all
                     ages. In fiscal year 1997, the Congress appropriated almost $2 billion to
                     JTPA title II programs.


                     JTPA funding is restricted to training participants for occupations with
                     demonstrated labor demand in areas where participants currently reside
                     or are willing to relocate. Although the program has various
                     implementation strategies, generally, labor market specialists from a
                     state’s labor or workforce agency develop and provide labor demand



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                       projections, usually at both local and statewide levels. Local boards use
                       this information in their annual plans to identify occupations to target.
                       Recognizing that local conditions change, states often have provisions to
                       allow local boards flexibility to respond to unforeseen changes in job
                       demands. Generally, training in fields not identified in plans requires
                       additional documentation of specific local conditions such as results of
                       local industry surveys.


Vocational Education   Funding provided under the Carl D. Perkins Vocational Education Act
                       (P.L. 98-524) supports vocational education at both the secondary and
                       postsecondary levels. Vocational education prepares students for
                       employment through an organized sequence of courses directly related to
                       jobs that do not require a baccalaureate degree. The Department of
                       Education provides funding to states for distributing to school districts
                       and community and technical colleges. Although the act requires schools
                       to ensure that students who are disadvantaged or have disabilities or
                       limited-English proficiency have access to vocational education programs,
                       school districts receive the funds to be used on vocational education in
                       general. In fiscal year 1997, the federal government provided about
                       $1.1 billion to support Perkins Act programs.

                       The federal vocational education law requires that state plans describe
                       how funds spent on occupation-specific training will be used for
                       occupations that labor market analysis shows have actual or projected job
                       vacancies.5 Schools that receive federal vocational education funds must
                       spend them according to the state priorities identified in the state plans.
                       The legislative requirement is helpful because the labor market analysis
                       encourages states to reflect changing labor market conditions in their
                       plans, commented one Education program official.


Welfare-to-Work Job    The federal welfare job training program—JOBS—was the primary federal
Training Programs      training program for welfare recipients until it was passed on to the states.6
                       The Family Support Act of 1988 created JOBS to help parents receiving
                       welfare obtain the education, job skills training, work experience, and
                       support services needed to increase their employability and avoid



                       5
                        State plans, updated as often as annually, address several areas concerning implementation of
                       vocational education, such as how program spending will reflect the state’s training needs.
                       6
                        Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, the JOBS
                       program is generally repealed as of July 1, 1997, with certain transition rules in effect.



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                   long-term welfare dependency. Administered by state welfare agencies,
                   JOBS training appropriations totaled $1 billion in fiscal year 1996.


                   The JOBS program required welfare agencies to work with private industry
                   councils and ensure that programs provided training for jobs likely to
                   become available in an area. It also required state agencies to use private
                   industry council services to identify and get advice on the types of jobs
                   available or likely to become available in a service delivery area. State
                   plans were to describe state coordination efforts with private industry
                   councils, and their consultations with the councils were to ensure that
                   JOBS training and educational activities were directed toward jobs that
                   were currently or likely to become available.


                   In discussing ways to better target occupation-specific training under title
Experts Advocate   IV, the experts we spoke with generally identified two approaches:
Students’ Use of   (1) restricting eligibility to programs with suitable future labor demand
Labor Market       and (2) ensuring that students consult sufficient information sources on
                   likely labor market needs before choosing training programs. Regulating
Information        program eligibility on the basis of labor market projections was rejected
                   by our interviewees. Schools that, despite low labor demand projections,
                   manage to place high proportions of their graduates in training-related
                   fields should not be penalized, they said. They also expressed a reluctance
                   to interfere with the free-market principles—such as allowing individuals
                   to specialize in the field of their choice—underlying the title IV program.
                   In contrast, with some stipulations, the notion of providing prospective
                   students better information on labor market conditions was unanimously
                   supported.

                   Better resource targeting could result from informing prospective students
                   of occupation-specific training of labor market conditions, according to
                   labor market experts. Enabling these students to review labor demand
                   projections provides them with a sound basis for deciding on vocational
                   training, these experts said. For example, labor demand projections would
                   allow such students to distinguish between growing and declining
                   occupations. Anecdotal information is more likely to result in poor
                   training decisions. Students could also better determine the merit of
                   investing their time and money by having data on the employment
                   experiences of recent program graduates, according to these experts. For
                   example, even though a field may have good employment prospects,
                   prevailing wages must also appeal to job candidates. Training-related




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                    placement rates would also inform prospective students about a training
                    program’s success in competing for market share, the experts said.

                    Labor demand conditions, however, should not be the sole determinant of
                    which training field a student should pursue, according to these experts.
                    First, the prospective student’s personal characteristics play an important
                    role. An individual’s basic skills, aptitude, and interests are prime
                    considerations. Second, labor supply and demand data are generally
                    imprecise. For example, labor supply projections typically exclude some
                    categories of skilled workers and potential out-of-state workers who may
                    relocate. On the demand side, labor projections, particularly for local
                    areas, can be highly sensitive to single economic incidents and therefore
                    misleading when unforeseen events in the economy curtail labor demand.


                    The discretion afforded proprietary school students under title IV makes
Conclusions         consumer information critically important. In passing the Student
                    Right-to-Know Act, the Congress recognized the need to improve the
                    quality of student-consumer information. The act stops short, however, of
                    requiring schools to report employment outcomes of recent graduates
                    such as training-related job placements. In addition, no mechanism
                    currently exists to ensure that students get important information on local
                    labor market conditions. The result is a system that embraces individual
                    choice without ensuring that students have the information needed to
                    make sound training investment decisions. Not surprisingly, this has
                    possibly contributed to student financial aid being directed to skill training
                    not demanded by the workplace—more than a quarter of a billion dollars
                    for 12 states in fiscal year 1995 alone. Having information on recent
                    graduates’ success in the job market and the likely future demand for skill
                    training should help prospective students make more informed training
                    investment choices.


                    We recommend that the Congress expand the Student Right-to-Know Act
Recommendation to   to require proprietary schools to report recent graduates’ training-related
the Congress        job placement rates. The act currently requires all title IV-eligible schools
                    to report student completion rates but not graduates’ employment
                    experiences. Such information would help prospective students
                    understand the usefulness of recent graduates’ occupational training
                    programs.




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                    We recommend that the Secretary identify and take appropriate action to
Recommendation to   ensure that prospective proprietary school students have access to
the Secretary of    employment and earnings projections relevant to their chosen training
Education           field and local area.

                    In commenting on a draft of this report, Education stated that our
Agency Comments     recommendation to require proprietary schools to report placement rate
                    data is consistent with the administration’s stated desire to ensure that
                    schools provide students useful information about educational programs
                    for making informed training decisions. The Department concurred with
                    our suggestion that information on student outcomes will help ensure that
                    market forces work better to eliminate inadequate schools and programs
                    from title IV participation. Education promised to seriously consider our
                    recommendation on enhancing the reporting requirements of the Student
                    Right-to-Know Act to include placement rates as part of its HEA
                    reauthorization proposal.

                    Education questioned one specific result, noting that the 1996-97
                    Occupational Outlook Handbook lists occupational therapy assistants and
                    aides as the fourth fastest-growing occupation in the nation, though we
                    found it to be the most oversupplied occupation in Arizona. The
                    Occupational Outlook Handbook provides national demand projections
                    which, as stated earlier, may not reflect conditions of individual labor
                    markets. In this case, the supply of qualified Arizona graduates far exceeds
                    the projected job openings. Given that proprietary school graduates are
                    less likely to relocate for work, such results underscore the importance of
                    information on local labor market conditions. (A copy of Education’s
                    comments appears in app. III.)

                    Education did not comment on our recommendation that it identify ways
                    to ensure that students have access to employment and earnings data.


                    As arranged with your office, unless you announce its contents earlier, we
                    plan no further distribution of this report until 30 days after the date of
                    this letter. At that time, we will send copies to the Secretary of Education.
                    We will make copies available to others on request.

                    If you have any questions about this report, please call Cornelia M.
                    Blanchette, Associate Director, Education and Employment Issues, at
                    (202) 512-7014. This report was prepared under the direction of Wayne B.




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Upshaw, Assistant Director. Other major contributors to this report are
listed in appendix IV.

Sincerely yours,




Richard L. Hembra
Assistant Comptroller General




Page 15                  GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Contents



Letter                                                                                                1


Appendix I                                                                                           18
                       Data Sources                                                                  18
Data Sources and       Linking Financial Aid to Oversupplied Occupations                             19
Methodology
Appendix II                                                                                          22

Detailed State-Level
Results: Analysis of
Financial Aid to
Oversupplied
Occupations
Appendix III                                                                                         27

Comments From the
Department of
Education
Appendix IV                                                                                          28

GAO Contacts and
Staff
Acknowledgments
Tables                 Table 1: Estimated Financial Aid Spent by Students Training for                8
                         Oversupplied Occupations in 12 States, Fiscal Year 1995
                       Table 2: Financial Aid for Occupations Oversupplied in Many                    9
                         States, Fiscal Year 1995
                       Table II.1: Supply and Demand Analysis for Arizona                            22
                       Table II.2: Supply and Demand Analysis for California                         23
                       Table II.3: Supply and Demand Analysis for Florida                            23
                       Table II.4: Supply and Demand Analysis for Illinois                           23
                       Table II.5: Supply and Demand Analysis for Indiana                            24
                       Table II.6: Supply and Demand Analysis for New Jersey                         24
                       Table II.7: Supply and Demand Analysis for New York                           24
                       Table II.8: Supply and Demand Analysis for Oregon                             25




                       Page 16                  GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
         Contents




         Table II.9: Supply and Demand Analysis for Pennsylvania                      25
         Table II.10: Supply and Demand Analysis for South Carolina                   26
         Table II.11: Supply and Demand Analysis for Texas                            26
         Table II.12: Supply and Demand Analysis for Washington                       26

Figure   Figure 1: States Included in Supply and Demand Analysis                       3




         Abbreviations

         BLS        Bureau of Labor Statistics
         HEA        Higher Education Act
         IG         Inspector General
         IPEDS      Integrated Postsecondary Education Data System
         JOBS       Job Opportunities and Basic Skills
         JTPA       Job Training Partnership Act


         Page 17                 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix I

Data Sources and Methodology


                       We used a variety of data sources to estimate the extent to which title IV
                       funds support students training for occupations with insufficient job
                       demand. We used 12 states’ job opening projections as our measure of job
                       demand.7 On the supply side, we estimated the supply of proprietary
                       school and other postsecondary graduates from those states using the
                       Integrated Postsecondary Education Data System (IPEDS) of the National
                       Center for Education Statistics. The corresponding financial aid
                       information came directly from the Department of Education’s student
                       loan and Pell grant records. The state and federal data were self-reported
                       and unverified. We compared the number of postsecondary graduates
                       preparing for an occupation with the projected job openings to estimate
                       which occupations would have surplus labor supply, a method that
                       experts confirmed as the most suitable approach to predict labor market
                       conditions, given the data available. We performed our work between
                       April 1996 and March 1997 in accordance with generally accepted
                       government auditing standards.



Data Sources

State Job Openings     For labor demand estimates, we used job openings projections provided
Projections            by the 12 states for 1995. Job openings result when industrial expansion
                       creates new positions (growth) and when current employees vacate
                       positions because of death, retirement, or separation (replacement). States
                       forecast industry growth using current and past BLS industry survey
                       results. Then, using knowledge of industries’ staffing patterns, states
                       convert industry growth projections into growth in occupations. BLS
                       estimates occupational replacement needs from the Current Population
                       Survey for its Occupational Projections and Training Data report and
                       provides this information to states. States calculate total job openings by
                       adding those created by industry growth and those due to replacement
                       needs. As projections, the job openings data we used are sensitive to
                       unforeseeable fluctuations in the local and national economy and within
                       industries.


IPEDS Graduates Data   We based our estimates for labor supply on IPEDS 1994-95 data on
                       postsecondary school graduates. IPEDS identifies schools by type of degree
                       (baccalaureate or higher degree-granting institutions, 2-year award

                       7
                        Together, these states represented 63 percent of the title IV funds provided to proprietary schools in
                       fiscal year 1995.



                       Page 18                            GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
                         Appendix I
                         Data Sources and Methodology




                         institutions, and less-than-2-year institutions) and by control (public,
                         private nonprofit, and proprietary). Institution-level data—on academic,
                         vocational, and continuing professional education programs—are
                         collected on almost all postsecondary institutions eligible for federal
                         student financial aid funding. IPEDS, however, provides only a partial
                         accounting of trained entrants to the workforce.

                         IPEDS understates the available supply of students trained for occupations.
                         It excludes information on avocational and adult basic education program
                         graduates. IPEDS also excludes some who complete occupational training,
                         including graduates of high school vocational education programs,
                         vocational rehabilitation programs, JTPA training, Job Corps programs, and
                         recently discharged military personnel. In using IPEDS to estimate the
                         supply of qualified individuals in an occupation, we underestimate the
                         labor supply and thus the supply and demand ratios we report.



Linking Financial Aid
to Oversupplied
Occupations

Specifying the Labor     We chose the state level as the unit of analysis for assessing supply and
Market for Proprietary   demand outlooks. Proprietary school students generally are not as likely
School Graduates         as students at 4-year colleges and universities to relocate for employment,
                         labor market experts told us. In reality, the relevant labor market could be
                         either larger or smaller than a state depending on the area and the
                         occupation. Analyzing the labor supply and demand outlook for particular
                         occupations at the national level has many drawbacks. One problem
                         occurs when national averages are assumed to apply at the state level. For
                         example, an auto mechanics shortage in California combined with an auto
                         mechanics surplus in New Jersey could appear to be a balanced supply
                         and demand. Such a conclusion would only be correct if auto mechanics
                         from New Jersey would be willing and able to relocate to California. This
                         is unlikely to occur for most occupations taught at proprietary schools,
                         according to current research. Therefore, examining too large an area
                         would lead to identifying neither the labor shortage in California nor the
                         labor surplus in New Jersey. Although experts believe an area smaller than
                         a state may be more relevant in some locations, we used the state as the
                         analytical unit in all cases.




                         Page 19                        GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
                           Appendix I
                           Data Sources and Methodology




Identifying Oversupplied   We compared the supply of new graduates with the projected demand for
Occupations                new employees in an occupation to identify oversupplied occupations. We
                           used the Units of Analysis matrix, developed by the National Occupational
                           Information Coordinating Committee, to determine which instructional
                           programs were linked to occupations for which we had obtained job
                           opening projections. The matrix identifies over 200 occupational clusters,
                           or groups, of one or more occupations with similar duties and training
                           requirements. The matrix also links the roughly 1,000 instructional
                           programs identified in the IPEDS graduates data to an occupational cluster.
                           We used IPEDS information on program graduates to identify the clusters
                           taught at proprietary schools. We excluded 10 occupational clusters
                           ranging from psychology to legal services because more than half their
                           graduates received baccalaureate or advanced degrees. By comparing
                           projected job openings with new graduates trained for jobs in clusters, we
                           identified occupations with surplus labor supply. For this report, we
                           defined surplus labor supply as two or more graduates for each projected
                           job opening in an occupation.

                           After discussions with an expert on the Units of Analysis matrix, we
                           limited our analysis to those occupations with the strongest relationship
                           between training and the occupation. The matrix classifies occupational
                           clusters into three categories, depending on the directness of the link
                           between training and occupational employment. “A” cluster
                           occupations—which we analyzed—have specific training programs that
                           lead directly to employment in an occupation. For these occupations, an
                           individual would be unlikely to enter the occupation without having
                           received the “A” cluster training. Such training would also be unlikely to
                           prepare someone for employment in a different occupation. For “B” and
                           “C” clusters, the link between training and employment is less direct.
                           Either the skills mastered are more transferable or the occupation draws
                           new employees from a wide variety of sources—or both in the case of “C”
                           cluster occupations.


Linking Financial Aid      We used IPEDS information on institutional characteristics to associate
Information to             students with training programs. For schools offering more than one
Occupations                occupational program, we assumed that the amount of aid being used for
                           each occupation was proportional to the percentage of its graduates in
                           that program. For example, if 20 percent of the graduates of a proprietary
                           school studied air-conditioning repair and 100 students spent $100,000 in
                           student aid at the school, we assumed that $20,000 in aid came from the 20
                           air-conditioning repair students. Our estimates of federal financial aid



                           Page 20                        GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix I
Data Sources and Methodology




dollars and student financial aid recipients associated with oversupplied
occupations are sensitive to this assumption because more than 78 percent
of the financial aid going to train students in oversupplied occupations
went to schools with multiple occupational training programs.




Page 21                        GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix II

Detailed State-Level Results: Analysis of
Financial Aid to Oversupplied Occupations

                                This appendix presents detailed results of our analysis of fiscal year 1995
                                financial aid8 to oversupplied occupations in 12 states. (See tables II.1 to
                                II.12.) We calculated the supply and demand ratio using data from the
                                Integrated Postsecondary Education Data System on program graduates
                                from the Department of Education and job opening projections provided
                                by each state. We estimated title IV aid and the number of student aid
                                recipients by associating Education’s student aid data with proprietary
                                schools by program (numbers may not add to totals due to rounding).

Table II.1: Supply and Demand
Analysis for Arizona                                                                          Title IV aid to            Number of
                                                                   Supply/demand                occupation              student aid
                                Occupation                                   ratio                 (millions)            recipients
                                Occupational therapy
                                assisting                                        34:1                    $0.6                    420
                                Musical instrument repair                        29:1                     0.1                      40
                                Optical technology                               11:1                     0.6                    295
                                Respiratory therapy                               7:1                     1.1                    664
                                Miscellaneous health
                                services                                          6:1                     1.0                    442
                                Air-conditioning/heating
                                installation/repair                               6:1                     5.8                  1,925
                                All other engineering
                                technology                                        5:1                     0.5                      88
                                Barbering/cosmetology                             5:1                     2.7                  1,308
                                Electromechanical
                                equipment/instrument
                                production/repair                                 5:1                     0.7                    192
                                Drafting                                          4:1                     6.9                  1,855
                                Surgical technology                               4:1                     0.6                    224
                                Legal assisting                                   3:1                     2.1                    610
                                Radiologic technology                             3:1                     0.8                    348
                                Electrical/electronic
                                technology                                        3:1                    22.1                  4,518
                                Medical secretarial                               3:1                     1.6                    936
                                Total                                             4:1                  $47.2                  13,864




                                8
                                 Financial aid includes grants and loans disbursed through the Federal Pell Grant Program, the Federal
                                Family Educational Loan Program, and the William D. Ford Direct Loan Program.



                                Page 22                           GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
                                Appendix II
                                Detailed State-Level Results: Analysis of
                                Financial Aid to Oversupplied Occupations




Table II.2: Supply and Demand
Analysis for California                                                             Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Appliance/equipment
                                repair                                      42:1              $1.1                310
                                Barbering/cosmetology                        7:1              11.6              7,662
                                Optical technology                           5:1               5.1              3,158
                                Legal assisting                              4:1               4.7              1,477
                                Miscellaneous health
                                services                                     3:1               8.9              3,615
                                Pharmacy support                             2:1               4.7              1,682
                                Total                                        5:1            $36.1              17,904

Table II.3: Supply and Demand
Analysis for Florida                                                                Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Airplane piloting                            8:1              $2.3                222
                                Legal assisting                              4:1               4.6              1,535
                                Respiratory therapy                          3:1               2.3                686
                                Electrical/electronic
                                technology                                   3:1              15.9              3,829
                                Barbering/cosmetology                        2:1               6.6              4,464
                                Total                                        3:1            $31.7              10,736

Table II.4: Supply and Demand
Analysis for Illinois                                                               Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Appliance/equipment
                                repair                                      11:1              $0.4                205
                                Barbering/cosmetology                        3:1              11.7              6,942
                                Air-conditioning/heating
                                installation/repair                          3:1               1.5                584
                                Total                                        3:1            $13.6               7,731




                                Page 23                       GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
                                Appendix II
                                Detailed State-Level Results: Analysis of
                                Financial Aid to Oversupplied Occupations




Table II.5: Supply and Demand
Analysis for Indiana                                                                Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Electrical/electronic
                                technology                                  12:1            $18.1              10,016
                                All other engineering
                                technology                                  11:1               9.5              3,870
                                Appliance/equipment
                                repair                                       6:1               1.4                401
                                Legal assisting                              5:1               0.4                130
                                Barbering/cosmetology                        4:1               3.6              1,944
                                Miscellaneous health
                                services                                     3:1               0.1                 33
                                Total                                        6:1            $33.2              16,395

Table II.6: Supply and Demand
Analysis for New Jersey                                                             Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Appliance/equipment
                                repair                                       6:1              $1.1                375
                                Electrical/electronic
                                technology                                   4:1              15.0              4,274
                                Legal assisting                              2:1               0.6                317
                                Total                                        4:1            $16.8               4,966

Table II.7: Supply and Demand
Analysis for New York                                                               Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Appliance/equipment
                                repair                                       9:1              $1.0                349
                                Miscellaneous health
                                services                                     5:1               4.9              1,400
                                Optical technology                           5:1               0.9                535
                                All other engineering
                                technology                                   5:1               0.1                 94
                                Electrical/electronic
                                technology                                   5:1               7.5              4,235
                                Barbering/cosmetology                        3:1              14.7              6,784
                                Respiratory therapy                          2:1               0.3                106
                                Total                                        4:1            $29.4              13,502




                                Page 24                       GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
                                Appendix II
                                Detailed State-Level Results: Analysis of
                                Financial Aid to Oversupplied Occupations




Table II.8: Supply and Demand
Analysis for Oregon                                                                 Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Barbering/cosmetology                        7:1              $3.7              1,337
                                Legal assisting                              4:1               0.4                116
                                Medical secretarial                          4:1               1.3                530
                                Pharmacy support                             3:1               0.7                277
                                Electromechanical
                                equipment/instrument
                                production/repair                            2:1               0.7                133
                                Respiratory therapy                          2:1               0.1                 44
                                Total                                        4:1              $6.9              2,437

Table II.9: Supply and Demand
Analysis for Pennsylvania                                                           Title IV aid to        Number of
                                                              Supply/demand           occupation          student aid
                                Occupation                              ratio            (millions)        recipients
                                Appliance/equipment
                                repair                                      31:1              $0.4                142
                                Carpentry                                   11:1               0.3                 56
                                All other engineering
                                technology                                  10:1               0.2                 50
                                Legal assisting                              6:1               3.1              1,167
                                Barbering/cosmetology                        6:1              14.1              7,383
                                Miscellaneous health
                                services                                     5:1               1.9                667
                                Air-conditioning/heating
                                installation/repair                          3:1               2.7                917
                                Computer/business
                                machine production/repair                    3:1               2.2                684
                                Legal secretarial                            3:1               1.0                350
                                Stenography                                  2:1               0.4                132
                                Respiratory therapy                          2:1               0.3                115
                                Total                                        4:1            $26.7              11,663




                                Page 25                       GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
                                 Appendix II
                                 Detailed State-Level Results: Analysis of
                                 Financial Aid to Oversupplied Occupations




Table II.10: Supply and Demand
Analysis for South Carolina                                                          Title IV aid to        Number of
                                                               Supply/demand           occupation          student aid
                                 Occupation                              ratio            (millions)        recipients
                                 Barbering/cosmetology                        7:1              $2.3              1,591
                                 Aircraft mechanics                           6:1               0.1                 27
                                 Airplane piloting                            4:1               0.1                 28
                                 Electrical/electronic
                                 technology                                   3:1               0.4                137
                                 Total                                        5:1              $3.0              1,783

Table II.11: Supply and Demand
Analysis for Texas                                                                   Title IV aid to        Number of
                                                               Supply/demand           occupation          student aid
                                 Occupation                              ratio            (millions)        recipients
                                 Barbering/cosmetology                        4:1            $14.8               8,695
                                 Legal assisting                              3:1               2.7              1,067
                                 Appliance/equipment
                                 repair                                       3:1               0.3                106
                                 All other engineering
                                 technology                                   2:1               2.5                471
                                 Total                                        3:1            $20.3              10,339

Table II.12: Supply and Demand
Analysis for Washington                                                              Title IV aid to        Number of
                                                               Supply/demand           occupation          student aid
                                 Occupation                              ratio            (millions)        recipients
                                 Appliance/equipment
                                 repair                                      14:1              $1.0                259
                                 Electrical/electronic
                                 technology                                   2:1               7.6                742
                                 Total                                        3:1              $8.6              1,001




                                 Page 26                       GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix III

Comments From the Department of
Education




               Page 27   GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix IV

GAO Contacts and Staff Acknowledgments


                  Wayne B. Upshaw, Assistant Director, (202) 512-7006
GAO Contacts      Carol L. Patey, Evaluator-in-Charge, (617) 565-7575


                  In addition to those named above, the following individuals made
Acknowledgments   important contributions to this report: Gene G. Kuehneman, Jr., and
                  Arthur T. Merriam, Jr., assisted in collecting and analyzing the data and
                  writing the report; Edward H. Tuchman performed analysis of financial aid
                  data; and Linda W. Choy and Wayne M. Dow assisted with and reviewed
                  database analysis.




(104853)          Page 28                 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
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