The Trade School Trap: What You Should Know to Avoid Getting Caught

April 6, 2009

By Jillian Estes:

If you think it’s getting too expensive to go to Harvard or Yale, just wait until you hear about trade schools. It’s hard to imagine a fair comparison of elite Ivy League powerhouses with non-traditional, often web-based institutions, but when it comes to cost, it’s a close competition.

The premier universities cost about $30,000 per year, but the expense is justifiable. These schools are universally recognized as the gold standard, and they regularly produce presidents and politicians, Nobel and Pulitzer Prize winners, leading scientists and scholars.

It’s even easier to accept the $10,000 per year price-tag for the country’s top public universities. But what about $70,000 for a three-year fashion marketing degree from American InterContinental University? Or $65,000 for a three-year criminal justice online degree from Kaplan University? Or most frightening, High Tech Institute, which refuses to disclose the total cost of attendance until the student signs an enrollment contract?

Never heard of those schools? Neither have employers. And the cost is just the tip of the iceberg.

Schools Preying on Students

In today’s stumbling economy, many uneducated and under-educated workers are flocking back to college to bolster their positions in the workforce. Traditional community colleges have reported enrollment increases up to 26% in the past six months, a sure sign of a fast-growing trend. But where there is need and urgency, there are predators.

High-cost, low-return trade schools have made an art of preying on down-on-their-luck students by selling them a bill of goods neatly packaged in the students’ hopes and dreams. A former trade school admissions representative, who asked not to be identified for fear of backlash from his ex-employer, explained that potential students who are desperate for change are the ideal targets.

This representative says he was trained to seek out details about a student’s “pathetic life” and then use that as “ammunition to load the gun to shoot down any objections” the student might have about signing up for a high-cost school.

Trade Schools Popular & Profitable

Unfortunately, the for-profit schools are startlingly successful in this sales pitch. In the past year, trade schools have rapidly increased in popularity and profitability.

Career Education Corporation, or CEC, is one of the largest trade-school parent companies.  It operates 86 worldwide campuses under 25 different names. Stock prices for CEC (symbol: CECO), a company fresh on the heels of a nationwide settlement for deceptive practices, hit a 52-week high in February.  It’s currently trading nearly 40% higher than three months ago.

Another trade school giant, ITT Technical Institute (symbol: ESI), is also trading near its 52-week high and has seen a 35% increase in the past three months. The correlation is clear: the deeper the economy sinks, the higher the trade schools are flying.

Crippling Payments

As stock prices soar, so do the interest rates that a student will be forced into in order to finance the trade school education.  Student loan lenders want a piece of the trade school pie, so they offer to “help” students by making financing available through special loan programs.

Sallie Mae, the student lending giant, leads the pack with their Career Training Loan.  Recognizing the astronomic cost of attending trade schools, Sallie Mae has no limit on the amount of money that one student can borrow under this loan program.  But there seems to be no limit on the interest rates either.

The standard Career Training Loan interest rate is currently as high as a whopping 15.24% (LIBOR + 13.5%) with a monthly variable rate, meaning the rate will increase as federal loan rates increase.  A 15-year repayment of a $70,000 loan would require $990 per month payments and a total amount of over $175,000.00 paid right into Sallie Mae’s pocket!  FinAid, a leading consumer debt calculator, says that payments like that would require an annual salary of $118,000.00.  With most trade school job opportunities in the $30,000 range, that’s a risky gamble to take.

The Confusing Accreditation Game

While any college, even trade schools, might meet a student’s immediate needs, the devastating impact of a trade school decision is most notable when students finish their educations. Students who attended traditional, regionally-accredited programs enter the workforce with a leg up. Students who attended non-traditional, nationally-accredited programs are simply stuck in the mud with massive debt and a virtually valueless degree.

The value of proper accreditation is one of the most closely guarded secrets of the trade school industry. The terminology is confusing, and trade schools capitalize on this to further their own interests.

Regional accreditation is actually the preferred level of accreditation, while national accreditation is widely viewed as substandard. Although there is no guarantee of credit recognition even among regionally-accredited schools, the industry standard is that regionally-accredited schools simply will not accept or recognize credits from a nationally-accredited institution.

Rich Douglas, a distance learning expert, researched whether credits from a particular national accrediting agency, DETC, were transferable to seven other colleges.  He “was surprised that the response was so uncontroversial: almost unanimously, they do not.”

Worthless Degrees

The consequences of national accreditation or no accreditation can be drastic.  If a student has to move to another school or wants to seek a higher degree, the nationally-accredited school’s credits generally aren’t worth the paper they are printed on.  Unfortunately, this is an all-too-common scenario.  Most trade schools have retention rates of less than 40%, leaving students who want out with no options and a mountain of debt.

Additionally, the accreditation difference is critical for students who returned to school simply to seek higher standing with employers. Degrees from nationally-accredited schools may not even be recognized as legitimate education.

One student spent more than $60,000 and three years obtaining a criminal justice degree from a brick-and-mortar trade school in California, only to be rejected by every local, state and national law enforcement agency to which he applied. With tremendous disappointment evident in his voice, he explained that, “They told me it didn’t count. I needed to go back and get a degree from a real school.”   This student is in the process of seeking legal action against his school, so his name cannot be used at this time.

Avoiding devastating disasters like that one is like attempting to navigate a minefield in the trade school world.  The pursuit of higher education can open infinite doors if you’re on the right path. But making a wrong turn and chasing a dream into the trade school trap can lead to lifelong financial ruin and personal despair.