Students Shouldn’t Take On Debt for Low-Performing Cosmetology Schools

As millions of borrowers fall behind on their federal student loans—leading to ruined credit and significant losses for taxpayers—one type of school bears outsize blame for its contribution to the student loan crisis. Students who borrowed for cosmetology schools—those that provide generally shorter-term courses that lead to licensure in the beauty industry—fail to repay their loans at extraordinarily high rates. Among roughly 1,000 institutions where student loan delinquency rates exceed 30 percent , nearly half are cosmetology schools. At the typical cosmetology school, roughly a third of students have fallen behind on their debts. Every year, 116,000 students borrow some $700 million from the federal government to pursue courses in cosmetology. But due to high delinquency rates and income-contingent repayment plans, much of that sum is unlikely to be repaid. The reason is obvious: graduates of cosmetology schools largely don’t earn enough to afford their debts. Four years after completion, the typical graduate of a cosmetology certificate program earns just $27,000. This exceptionally poor return on investment justifies the Trump administration’s proposed “Do No Harm” standard for degree and certificate programs receiving federal loans. The proposal is simple: the federal government will not provide student loans to a program where the median graduate earns less than comparable individuals with only a high school diploma. The rule applies to all types of institutions, traditional universities and trade schools alike. But cosmetology schools, with their poor earnings outcomes, are among the likeliest to fail Do No Harm. If the Do No Harm proposal goes into effect as written, it’s likely that most cosmetology schools will lose access to federal loans. That will protect hundreds of thousands of students from taking on unpayable debt. But it could also make beauty school more affordable. Economists Stephanie Cellini and Claudia Goldin have found that certificate-granting institutions which participate in the federal student loan program charge 78 percent higher tuition than comparable schools which don’t take federal subsidies. Beauty schools that don’t generate adequate earnings outcomes for their graduates are free to continue operating . However, those schools can no longer allow students to take on debt they are unlikely to repay, which means they will probably have to charge less. Cosmetology schools argue that the official data on graduates’ earnings understates their true incomes, due to unreported tips. But this objection is inadequate. Cosmetology schools still have much higher rates of student loan delinquency than other institutions, suggesting their graduates’ total incomes are insufficient to pay debts. Moreover, additional research by Cellini and Kathryn Blanchard has shown that accounting for unreported tip income would increase beauticians’ measured earnings by just 8 percent. Even after making such an adjustment, around 85 percent of cosmetology programs would fail the Do No Harm standard. It’s time to acknowledge the elephant in the salon: it’s simply inappropriate for students to take on debt for a career which tends to pay so little. Loan-dependent cosmetology schools which overcharge their students are to blame, but so are state licensing laws that force aspiring beauticians to attend these schools in the first place. States require cosmetologists to undergo at least 1000 hours of training prior to licensure, with some states requiring as much as 2300 hours. For comparison, emergency medical technicians need between 110 and 250 hours of training. The federal government effectively subsidizes these heavy requirements, since it pays for the training through student loans. Pulling back that subsidy could force states to reckon with whether these requirements are truly necessary. In multiple studies , researchers find that lowering required training hours reduces tuition and improves completion rates. Expanding cosmetology apprenticeship can also help workers gain licensure without debt. If salons want workers with extensive formal schooling—the kind that requires taking on debt—they will need to pay their employees enough for schools to pass the Do No Harm standard. The student loan crisis happened because the federal government does little due-diligence before handing out student loans. The Do No Harm standard—which cuts off loans to programs where students earn abysmally low wages—is a first step towards correcting that. For too long, cosmetology schools have taken advantage of the government’s willingness to fund low-performing programs, while students and taxpayers have paid the price. The Trump administration’s Do No Harm rule could finally force some overdue change. The post Students Shouldn’t Take On Debt for Low-Performing Cosmetology Schools appeared first on American Enterprise Institute - AEI .