Proprietary Schools: Analysis of Comments Received From an Association of Schools

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

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

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education   and Human Services Division

      October 10, 1997
      The Honorable Christopher Shays
      Chairman, Subcommitteeon Human Resources
      Committee on GovernmentReform and Oversight
      House of Representatives
      Subject: Promietarv Schools:Analvsis of CommentsReceivedFrom an
               Associationof Schools
      Dear Mr. Chairman:

      Title IV of the Higher Education Act of 1966as amended(HEA) established
      financial aid programs for students attending institutions of higher educat5on.l
      The federal governmentannually invests billions of student fI.nanciaIaid dollars
      to help fund occupation-specifictraining at proprietary (for-profit) schools. In
      June 1997,in responseto your concerns about title IV funds financing
      proprietary school training in fields with insuffkient job demand, we reported
      that federal student financ!ial aid was being spent to train proprietary school
      students for oversuppliedoccupati~ns.~
      On August 20, 1997,the President of the American Association of Cosmetology
      SchooIs (AACS) wrote to you about certain findings in our report. You asked
      us to addressAACS’comments and respond to you. AACS criticized our
      report as misleading,inaccurate, and basedon a flawed methodology. It aLso
      commented that our recommendationsreflect a lack of understandingof HEA’s
      requirements and that implementing our recommenmons would result in a
      redundant requirement.

      %tle IV programs include the Federal Family Educational Loan Program and
      the William D. Ford Direct Loan Program, both of which offer subsidizedand
      unsubsidizedStafford loans and Parent Loans for UndergraduateStudents, the
      Federal PelI Grant Program, and the Federal Perkins Loan Program.
      2h.oDrietaw Schools &fillion!sScent to Train Studentsfor Ow?rsuunlied
      Occunations (GAO/HEHS-97-194,  June 10, 1997).
                   GAO/HEHS-98-12B          Students    Training   for Oversupplied   Fields

In summary, we reviewed AACS’s comments and considered them in the
context of our work. We do not agree with AACS’ comments that our report is
misleading, inaccurate, and based on a flawed methodology. Our Endings and
recommendations reflect the need to ensure that students have access to and
get important information on local job labor market conditions. We believe that
implementing our recommendations would help ensure that prospective
proprietary school students have the information they need to make better and
more informed educational decisions and may help them to avoid spending
federal student aid to study for oversupplied occupations. The following
responds to AACS’ major comments.


AACS took issue with the part of our report that stated that proprietary school
graduates face unique challenges in the labor market, saying that these
challenges are no d3ferent than those facing other postsecondary graduates. It
asserted that few college graduates can earn enough to allow them to move to
other cities with better employment opportunities. AACS also said that a
graduate’s ability to move to different cities in search of employment is virtually
identical, regardless of the type of institution from which a student graduates.
In addition, AACS said that we did not explain or give a basis for the statement
that proprietary school graduates are less mobile and thus depend more on
local labor market conditions, and it seriously doubted that any reliable
authority can support the statement.

Although we agree with AACS that all postsecondary graduates face challenges
in the labor market, most proprietary school graduates face unique challenges.
An occupation-specific training program (such as that generally provided by
proprietary schools) that lacks a general education component makes graduates
less versatile than their counterparts who complete degree-granting programs.
This reduced versa=@ could limit proprietary school graduates’ opportunities
for employment beyond the field for which they have trained.

We reported that proprietary school graduates are less motivated-not
necessarily less able-to relocate than graduates of degree-granting programs,
making them depend more on local labor markets and therefore more
susceptible to unemployment. We based this information on our discussions
with several labor market experts, state employment specialists, and officials at

2            GAO/HEHS-9%12R         Students   Training   for Oversupplied    Fields

the Department of Labor’s Bureau of Labor Statistics (BLS).    A journal of
economic research published similar conclusions in 1990.3

AACS also stated that starting salaries for postsecondary school graduates are
similar, although the lifetime wages of college graduates are higher. This
difference in lifetime earnings may motivate college graduates more than
proprietary school graduates to relocate long distances to find work;


In addition to its other comments, AACS noted that we should not have used a
management information report issued by the Department of Education’s O&e
of the Inspector General (OIG) because it has serious methodological flaws.
AACS stated that our use of this report raises serious questions about the
validity of our conclusions.

We limited our use of the OIG report to providing background for our report
and to establishing the context for the concerns raised about proprietary school
students being trained for oversupplied occupations. We neither evaluated the
report nor based our conclusions on information in it.


AACS also said that our reporting that cosmetology and other occupations were
among those with labor supply surpluses disagrees with the Department of
Labor because Labor’s 1996-97 Occunational Outlook Handbook states that
overall employment of cosmetologists is expected to grow about as fast as the
average for all occupations. AACS said that this does not imply a labor surplus
and that its members all report that salons are calling them seeking referrals of
graduates. AACS said that the credibility of our report was undermined
because AACS believes that the outlook for some occupations we classified as
oversupplied is reasonably good.

We agree that the description of cosmetology published in the 1996-97
Occunational Outlook Handbook implys no labor surplus. The handbook’s
occupational demand projections and accompanying narrative refer to

3Axel Borsch-Supan, “Education and its Double-Edged Impact on Mobility,”
Economics of Education Review, Vol. 9, No. 1 (1990), pp. 39-53.

3           GAOBIEHS-98-1232      Students   Training   for Oversupplied      Fields

“employment.“” The handbook relies heavily on BLS’ national projections of job
openings. It uses phrases such as “good or favorable opportunities” to mean
that job openings compared with job seekers are about the same and “may face
competition” to mean job openings may outnumber job seekers. These
descriptions of supply and demand reflect the judgment of economists in the
BLS Office of Employment Projections, not a numerical comparison of job
openings with tiaining program graduates.

Our report went a further step, however. We compared job openings expected
(“employment”) with the corresponding number of postsecondary graduates
who completed training programs, such as cosmetology, in 12 states. (See
enclosure for a description of our methodology.) We found that the number of
barbering/cosmetology graduates in 1994-95 exceeded the number of projected
job openings by more than 100 percent in 10 of the 12 states we studied.

In addition, 1                                             the statistical and
research supplement to the handbook, ran& the relative employment prospects
of occupations-including   barbers and cosmetologists. It ranked barbers as
having “very low” projected employment growth,, annual job openings due to
growth and replacement needs, weeMy earnings, and a %igh” percentage of
part-time employment. It ranked hairdressers, hairstylists, and cosmetologists
as having “low” projected employment growth and annual job openings due to
growth and replacement needs, “very low” weekly earnings, and a “very high”
percentage of part-time employment. Therefore, even without accounting for
the number of students expected to graduate from cosmetology training
programs, BLS did not view the employment prospects for barbers/
cosmetologists as favorable.

We discussed our approach for identifying oversupplied occupations with BLS
officials in the Office of Employment Projections whose work was used to
prepare the handbook. They explained that although BLS has available national
labor demand data, using state data would be more appropriate for our analysis.
BLS data may show a national occupational need, but such demand may not
reflect demand in a pticular    labor market.

4The handbook also states that the competition for jobs and customers may be
greater at higher paying saIons because applicants compete with a large pool of
licensed and experienced cosmetologists.

4           GAOAEHS-9%12R         Students   Training   for OversuppLied   Fields


AACS took issue with the part of our report showing that employment directly
affects a graduate’s ability to repay loans and that default rates are an
important gauge of the quality and usefulness of a postsecondary education
program. It said that employment is only one factor ‘that affects the ability of a
graduate to repay student loans and that proprietary institutions serve what
could be called a high-risk population. AACS criticized our comparison of
proprietary schools’ 21.1 percent default rate in fiscal year 1994 with rates of
13.7 and 6.5 percent for 2-year and 4yea.r nonprofit colleges, respectively.
AACS said that it is unreasonable to expect a proprietary school that serves a
high-risk population to compare favorably on default rates with other
institutions. In addition, high default rates at proprietary schools reflect the
low income of students rather than low employment opportunities for
graduates, AACS said.

Although we agree that other factors may contribute to graduates defauhing on
student loans, our report focused on the employment prospects of proprietary
school students in the specialty for which they had been trained. Preparing
students for gainful employment in recognized occupations is a federal statutory
requirement for proprietary schools that participate in federal student financial
aid programs. Student borrowers who graduate and cannot obtain a suitable
job and income are less likely to be able to repay their student loan obligations
than those who do find jobs.

Federal law governing eligibility to participate in federal student aid programs
does not distj.nguish between proprietary schools and other institutions in
setting default rate thresholds, regardless of the at-risk population schools may
serve. Therefore, generally all schools must follow the same requirements5 In
those instances in which a school may have default rates exceeding the
statutory threshold and it believes that exceptional mitigating circumstances
(such as serving high-risk students) exist, it may ask the Secretary of Education
for relief, and the Secretary can waive the requirement.

5Historically black colleges or universities, tribally controlled community
colleges, and Navajo Community Colleges are statutorily exempt from default
rate thresholds untiI July 1, 1998.

5           GAO/BEHS-9%12R         Students   Training   for Oversupplied   Fields


Although AACS noted that students’ access to labor market information is
criticalIy important, it said that providing incorrect information may be worse
than providing no information. It also said that an accrediting agency must
have standards on “success with respect to student achievement in relation to
its mission, including, as appropriate, consideration of course completion, State
licensing examination, and job placement rates.” AACS said that the National
Accrediting Commission of Cosmetology Arts and Sciences (NACCAS) requires
that all institutions it accredits provide students, before enrollment, placement
rates for that particular institution and certain other information about
employment prospects that far exceed federally mandated guidelines.

We agree that providing prospective students accurate information about their
employment prospects is important. That is why we recommended that the
Congress and the Secretary of Education take steps to ensure that prospective
students receive information about their employment prospects. We commend
NACCAS for requiring those institutions that it accredits to provide this kind of
information to prospective students.


AACS claims that the state-level information we used was flawed. It questioned
our rationale that state-level statistics are more reliable than national statistics
and for not using Labor’s analyses. AACS also said that it strongly questioned
our use of state-level data on the basis of its experience with cosmetologists. It
said that AACS board members, located in 9 of the 10 states that we reported
with a surplus of cosmetology graduates, said that none of the schools that they
operate is experiencing difsculty fjmding immediate employment for their

AIthough we used local labor market conditions in our analyses because they
best indicate an individual’s employment opportunities, we did not say that
such statistics are more reliable than national statistics. Instead, according to
BLS officials, state-level data provide a better approximation of employment
opportunities at local levels than do national data because job openings may
not occur in the same geographic area where training takes place. We found
that proprietary school graduates are less motivated to relocate than graduates
of degree-granting programs, making them depend more on local labor markets
and therefore more susceptible to unemployment. Labor market experts
advised us that some schools, despite low labor demand projections, manage to
place high proportions of their graduates. They did not believe that this

6            GAOIHEHS-9%12R         Students   Training   for Oversupplied    Fields

condition necessarily invalidated our findings or our recommendation that
prospective students be provided with better information on labor market


AACS said that our report had other examples.of seemingly erroneous
conclusions. For example, it said that the Occuoational Outlook Handbook
states that respiratory therapy has a much faster than average growth rate
because of the substantial growth in the middle-age and elderly population.
Florida and Arizona are two of the 12 states we studied. AACS questioned how
these two states (characterized by AACS as having large elderly populations)
could have an oversupply of respiratory fberapists, while Washington
(characterized by AACS as a state not known for having a large elderly
population) has no shortage.

In the ease of respiratory therapists in Arizona, Florida, and Washington, we
evaluated their employment prospects by comparing the projected job openings
with the number of graduates being trained for the occupation and found an
oversupply of graduates in Florida and Arizona, The Occunational Proiections
and Training Data supplement ranks the annual average job openings for
respiratory therapists, due to growth and replacement, as very low. After
reviewing a draft of our analysis, Arizona state officials commented that the
ratio of graduates to respiratory therapist jobs in Arizona was 3 to 1. Florida
state officials provided us with more data confirming our tiding that the state
is oversupplied with respiratory therapists. We also provided prehminary
results to Washington state officials, but they did not comment on our results.


AACS stated that because federal student financial aid for cosmetology and
electricaVelectronics accounts for two-thirds of the funds being spent on
oversupplied occupations and if our reporting these two occupations as
oversupplied is wrong as AACS asserted, then our report’s conclusions and
recommendations must be rejected. AACS said that two-thirds of the students
receiving federal student financial aid funds are training for occupations that
have no oversupply.

We have no evidence that these occupations are not oversupplied and have no
basis on which to revise our report or its conclusions. In our report, we
compared job openings with the graduates of training programs and found that

7           GAOLElEHS-98-12R      Students   Training   for Oversupplied   Fields

barbering/cosmetology was oversupplied in 10 states and electricaVelectronic
technology was oversupplied in 7 states. Furthermore, the Occuaational
Proiections and Training Data supplement shows that for 1994 to 2005 the
annual average openings for barbers and cosmetologists are expected to be
“very low” or “low.” The same supplement also shows that the annual average
openings for electrical and electronic technicians and technologists are
expected to be “low.”


AACS said that our recommendation to amend the Student Right-to-Know Act
would only further complicate already complicated federal regulations for
proprietary institutions participating in federal student financial aid programs.
It noted that the HEA already gives the Department of Education authority to
require accrediting organizations to address the issue of providing labor market
conditions to prospective students. It said that our recommendation appears to
be based on a lack of understanding of HEA’s current requirements and the role
of accrediting organizations.

In our report, we recommended that the Secretary of Education identify and
tie appropriate action to ensure that prospective proprietary students have
access to employment and earnings projections relevant to their chosen training
field and local area Although the Department has the authority to require
accrediting organizations to address the issue of providing labor market
information to prospective students, the Department has not exercised this
authority in the past, Our recommendation to the Congress to expand the
Student Right-to-Know Act to require proprietary schools to report training-
related job placement rates for recent graduates would help ensure that
prospective students receive information about their employment prospects that
may not now be provided to them.

We are sending copies of this correspondence to the Chairman and Ranking
Minority Member of the House Committee on Education and the Workforce and
the Senate Committee on Labor and Human Resources, the Secretaries of
Education and Labor, and other interested parties.

8            GAO/HEHS-9%12R        Students   ‘Jhining   for Oversupplied   Fields

If you have any further questions about our report, please call me or Gene
Kuehneman, senior economist, at (202) 5X2-7014.

Sincerely yours,

Cornelia M. Blanchette
Associate Director, Education
 and Employment Issues


9            GAOEIEHS-9%12R       Students   Training   for Oversupplied   Fields

ENCLOSURE                                                                     ENCLOSURE


Although many proprietary institutions teach job skills that are ubiquitously in demand,
the supply of proprietary school graduates exceeds the job openings for their skills in
many of the states that we studied. This highlights an important distinction between job
openings (labor demand) and training program graduates (labor supply). We numerically
compared the supply of new graduates in an occupation with the projected demand for
new employees in an occupation to determ ine which occupations, if any, are

We used a tool, the Units of Analysis matrix, developed by the National Occupational
Information Coordinating Committee to determ ine which instructional programs were
linked to the occupations for which we had obtained job opening projections. The matrix
defines over 200 clusters of occupational categories. Each cluster consists of one or
more job categories that have similar duties and training requirements. In addition, each
of the roughly 1,000 instructional programs identied in Education’s Integrated
Postsecondary Education Data System is linked to an occupational cluster. By comparing
a cluster’s projected job openings with the new graduates trained for jobs in that cluster,
we could determ ine which occupations had insufficient demand. We delined insufficient
demand as two or more graduates for each projected job opening in an occupation.

The matrix classifies occupational clusters by the strength and directness of the link
between training and occupational employment. Some cluster occupations have specific
training programs that lead directly to employment in the occupation. For these
occupations, someone’s entering the occupation without having received the related
training is unlikely. Nor is it likely that the related training would prepare someone for
employment in a different cluster of occupations. For other occupational 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

After discussing the issue with a matrix expert, we restricted our analysis to the clusters
of occupations with the most direct link between training and employment because such
links for other clusters are weak. For example, the matrix identifies four educational
programs that lead to employment in barbering/cosmetology:      cosmetic services,
barber/hairstylist, cosmetologist, and electrolysis technician. We added the number of
graduates that completed their studies in these programs. The job openings in
barbering/cosmetology     comprised four occupations: barber, hairdresser, manicurist, and
shampooer. We added the job openings for the four occupations and compared this with
the total postsecondary graduates in the four educational programs. If the number of
graduates exceeded the number of openings by 100 percent, or 2 to 1 or more, we
 classified the occupation as oversupplied.

 10                    GAO/EEHS-9%12R        Students   Ihihing   for Oversupplied    Fields
ENCLOSURE                                                                     ENCLOSURE

In Florida, we found 4,704 graduates in the four educational programs leading to
barbering/cosmetology in school year 199495. These graduates exceeded the 2,193
projected openings in the four barbering/cosmetology occupations by more than 100
percent; therefore, we identified barbering/cosmetology as oversupplied in Florida. As
this example shows, Florida has many projected opportunities in cosmetology. However,
as we compared the number of opportunities available with the number of graduates
competing for these opportunities, using the criteria of two or more graduates for every
projected job opening as oversupplied, an oversupply of cosmetology graduates is evident.


11                    GAO/HEHS-9%12R       Students   Training   for Oversupplied   Fields
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