Proprietary Schools

Proprietary schools are private, nonprofit institutions primarily offering vocational training. GAO found that proprietary schools that rely more heavily on federal student aid tend to have poorer student outcomes. On average, the greater a school's reliance on federal funds, the lower its students' completion and placement rates and the higher its students' default rates. Requiring proprietary schools to obtain a higher percentage of their revenues from other sources could save millions in default claims. Achieving this result, however, would require a substantial increase to the current 15-percent threshold, which requires that proprietary institutions obtain at least 15 percent of their revenues from sources other than federal student financial aid programs. Yet raising the threshold significantly might cause schools to make changes, such as admitting fewer poor students, that might compromise student access to postsecondary education.

GAO noted that: (1) proprietary schools that relied more heavily on title IV funds tended to have poorer student outcomes; (2) GAO's analysis showed that, on average, the higher a school's reliance on title IV, the lower its students' completion and placement rates, and the higher its students' default rates; (3) although reliance on title IV was a significant factor in explaining completion and default rates, it was not significant in explaining placement rates; (4) requiring proprietary schools to obtain a higher percentage of their revenues from non-title-IV sources could save millions in default claims; (5) based on GAO's analysis, however, achieving this result would require a substantial increase to the current 15-percent threshold; (6) this is because, in relative terms, large differences in schools' 85-15 measures are associated with small differences in outcomes; (7) for example, raising the threshold to 45 percent could improve the average default rate of schools currently relying the most on title IV funds to the level of those that rely the least, 3 percentage points lower, for an estimated annual savings of $11 million; and (8) however, a standard this high might cause schools to make changes, such as admitting fewer low-income students, that might compromise student access to postsecondary education.