1. Applied Summary Paper
A Project Report Presented to the
Faculty of Geneva College
In partial fulfillment of the requirements
For Module HRS 442
By
Becky Smith
Dr. Watt
Cohort #264
December 2, 2016

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BACKGROUND, HISTORY, CONTEXT
As of September 2010, total student loan debt in the United States exceeded credit card
debt by $26 billion. (Hawley, 2010). This represents an increase in student loan borrowing of
over 500% within the last decade. Today, two-thirds of the student population graduate from
Bachelor’s degree programs with an average student loan debt of $27,200; in the 1990’s it was
less than half of college students graduating with any student loan debt.
Students of for-profit collegiate institutions represent the largest portion of this total
student loan indebtedness (Hechinger, 2011). The median loan debt amount for proprietary or
for-profit institutions is $31,190. Conversely, private non-profit and public institutions show a
median loan debt of $17,040 and $7,960 respectively.
Proprietary institutions currently enroll one in eight United States students and are
notorious for serving low-income, minority, immigrant, and non-traditional or working adult
students (Hechinger, 2011). Statistics show the graduation rate of proprietary institutions is
around 22%; whereas, private non-profit and public institutions graduate around 55% of their
student population.
Because of the culture of students proprietary institutions serve, the large amount of loan
debt these students accumulate, and the low graduation rate from this sector, students of these
institutions are often times unable to find gainful employment upon leaving his or her school. As
a result, these students subsequently default or fail to pay on their student loans and thus, the
Department of Education as well as the taxpayer assumes the burden of these debts.

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LAWS, POLICIES, STANDARDS
Established in 1964, Title IV of the Higher Education Act formed the mission of making
education beyond high school attainable for all Americans, regardless of socioeconomic status.
Such programs as the Federal Pell Grant, the Federal SEOG Grant, the Federal Work-Study
Program, and the William D. Ford Direct Student Loan Program fall under the umbrella of
Federal Student Aid Programs and have come to represent the largest source of student financial
aid in America.
In order for an institution of higher learning to qualify for Title IV funding, it must first
be classified as a public institution (operated and funded by state and local governments), a
private non-profit institution (the net earnings of the institution do not benefit shareholders or
individuals), or a proprietary institution (the net earnings of the institution can benefit the
shareholders or individuals) (Scott, 2099).
In order to maintain eligibility for funding, the institution of higher learning must meet
the following three specific criteria regulated by the Department of Education: (1) the school
must be licensed by the Department of Education to provide higher education. (2) The institution
must meet federally accepted accreditation standards by professional accrediting agencies. (3)
The school must be deemed eligible to participate in Federal Student Aid Programs by the
Department of Education. (Scott, 2099).
Additionally, the institution must maintain compliance under specific programs. By
definition, a program that leads to a Certificate, Associates Degree, Bachelors Degree, Graduate
or Professional Degree, and Vocational or Technical Degree all qualify for federal funding under
the Higher Education Act.

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THE MORAL ISSUE
Considering the data indicated above, one must ask the question, are for-profit
institutions manipulating the mission of Federal Student Aid Programs for financial gain and
perhaps compromising the integrity of higher education or do they serve a significant purpose in
providing higher education opportunities to low-income, minority, and non-traditional students?
Because of the rise in student loan indebtedness and its relationship to student loan
defaulters from proprietary institutions as well as the rapid expansion of these institutions from
local sole-proprietor organizations to very profitable publicly traded corporations, the United
States Government Accountability Office (GAO) asked a similar question and launched an
investigation of proprietary institutions in August 2009. (Scott, 2099).
Some of the findings as a result of the investigation included the violation of proper
administration of Math and English tests as part of college admission for those who did not have
a high school diploma or GED equivalent (Scott, 2099). The GAO indicates, “…inadequate
monitoring of basic skills and tests and the lack of guidance on valid high school diplomas
enables unqualified students to gain access to Federal Student Aid.” These “unqualified”
students pose a greater risk of incurring a substantial amount of student loan debt, dropping out
of school, and subsequently, defaulting on their student loans.
Secondly, the GAO discovered in the past, proprietary institutions focused on offering
Certificate or Associate Degree programs that were more vocational in nature. Programs such as
Cosmetology, Medical Assistance, and Business Management were their primary program
focuses (Scott, 2099). Recently, these institutions have begun offering Bachelor’s, Master’s, and
even Doctoral Programs that appear to remain more vocational in nature. For instance, a student
who earns a Certificate in Cosmetology might be offered further schooling in this field; however,

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the nature of this profession would not facilitate gainful employment that compensated for the
additional cost of obtaining the higher degree.
Finally, the GAO found a statistically significant higher default rate of students enrolled
in proprietary institutions. A student defaults on their college loans whenever they fail to make a
payment for 270 days after dropping below half-time enrollment or leaving school. Sanctions
are imposed on schools whose annual default rate exceeds 30%. In 1999, 1,846 schools received
such sanctions; of those schools, 1,580 were proprietary. In 2008, four schools immediately lost
their eligibility for Title IV funding because of their default rates, three of these schools were
proprietary.
When a student defaults on their school loans, the federal government and the taxpayer
assume the risk associated with the debt, and are left the cost. Additionally, the student gets a
bad credit rating which prohibits them from obtaining car loans, mortgages, employment, and
further eligibility for Title IV financial aid programs.
BIBLICAL APPLICATION
In Deuteronomy 25:13-16, we read of the concept of just weight. Businesses must give
equal quality for what is paid. If students (or the taxpayer) are paying for higher education but
statistics are showing that students are not becoming more productive members of society as a
result of the education they are receiving, for-profit institutions are not demonstrating the
concept of just weight.
In Luke 12:15, we read, “…Be on your guard against all kinds of greed…” While the
Bible supports the concept of reasonable profits, the rapid expansion and growth of proprietary
institutions appears to be out of balance with this concept.

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Finally, in Jeremiah 1:5, we read, “Before I formed you in the womb, I knew you…”.
God has a plan and a purpose for each of us. Institutions of higher learning are fundamental in
assisting students in discovering God’s plan and purpose for them. Considering the less than
favorable graduation rates, proprietary schools are falling short of this.
POSSIBLE COURSES OF ACTION
From an ethical egoism perspective, for-profit institutions are well within their right to
treat higher education as a business and develop a mission that focuses on increasing profit
margins for themselves as well as their shareholders. After all, profit is an excellent source of
motivation. Students have the potential to benefit from the innovation and competition that
comes from the dynamics of institutions competing for student enrollment.
The negative consequence of this philosophy lies in the egoism system failing, “to umpire
conflicting interests without appeal to some other system.” (Rae & Wong, 1996). It shows
shortsightedness of the institution whenever they financially benefit from taxpayer federally
funded programs, but fail to produce college students that later become productive members of
society. Instead, students become victims of large amounts of unnecessary student loan debt and
are unable to find gainful employment as a result.
From a utilitarian ethical perspective, for-profit institutions do facilitate an environment
that has the potential to represent the greatest good for society as a whole. After all, thousands of
students graduate from these programs annually, and many are able to effectively manage their
student loan debt as well as establish adequate incomes to support their lifestyle. Many of these
students would not have had the opportunity to pursue higher education otherwise, so in this

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regard, for-profit institutions make the impossible, possible for thousands of students each and
every year.
There is however, a fundamental flaw in the utilitarian perspective regarding this
situation. What happens to the large percentage of students who “fall thru the system?” Many of
them are immigrant, minority, and non-traditional students. Questionable recruitment and
admission practices serve a great injustice to those who may not be fully aware of the negative
consequences of over-borrowing or the limitations on employment. In this case, the utilitarian
perspective has a great potential to, “justify obvious injustices because the greater good is
served” (Rae & Wong, 1996).
From a deontological ethical perspective, we are all entitled to basic human rights. The
Christian deontological theory would substantiate this claim by subscribing to the divine
command theory, or the theory that guidance related to any ethical issue can be found in the
Bible (Rae & Wong, 1996).
On the secular side, deontological theory is substantiated in the use of natural law.
“Natural law refers to broad, general, objective, and widely shared moral values that are
consistent with Scripture and revealed apart from Scripture.” (Rae & Wong, 1996).
In the ethical issue demonstrated in this paper, one could argue that everyone, regardless
of race, age, or gender has a basic human right to pursue higher education. Before the
establishment of the Higher Education Act, college was only available to the wealthy. Everyone
else had no chance at higher education, and therefore, no chance at a better life for their families
than their parents did before them. In this regard, for-profit institutions are supporting a
deontological perspective as they encourage equal human rights for all Americans wishing to
pursue higher education.

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Conversely, one could argue that for-profit institutions prey on a potentially at-risk
student population. Instead of protecting these students’s basic human right to pursue higher
education, for-profit institutions are setting the students up for a lifetime of debt, bad credit, and
underemployment. This demonstrates not only a lack of consideration for basic human rights,
but also a lack of consideration for basic human dignity.
BEST COURSE OF ACTION
After weighing the ethical perspectives mentioned above, and considering the rise
in student loan debt, the rise in defaulted student loans, and the findings of the United States
Government Accountability Office, the writer makes the following three recommendations for
resolution of this ethical issue.
The writer recommends standardized entrance testing for all students upon college
admission. These tests should be audited on an annual basis to ensure institutions of higher
education are admitting students who demonstrate academic capability at the collegiate level. In
addition, the Department of Education should establish minimum graduation and retention
requirements in order for all institutions to maintain eligibility under Federal Student Aid
Programs. This will ensure that students who may not be successful in their classes are properly
identified and counseled.
Secondly, the writer recommends requirements on college campuses to hold financial
literacy programs upon admission to college, and reiterated each semester the student is in
attendance. The financial literacy program should stress the importance of debt management and
creating a budget while in college as well as upon graduation.

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Finally, the writer recommends a restructuring of the federal work-study program.
Instead of allowing students to offset college expenses with loans, it could be more advantageous
to promote working to pay for school expenses. Work-study programs have proven to not only
off set school expenses, but assist in connecting students to the campus, providing on-the-job
training, and encouraging participation in community service programs.
CONCLUSION
In conclusion, ignoring the rise in student loan debt and student loan default could prove
detrimental to the already unstable economic condition of this country. By holding for-profit
institutions accountable for potential unethical business practices, one will protect the integrity of
higher education, protect the integrity of federal student aid programs, and create an education
environment that every American citizen has a right to pursue if the wish to do so.

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REFERENCES
Hawley, J. (2010). Student loan debt surpasses credit debt. HigherEdMorning. September 24,
2010.
Hechinger, J. (2011) For-profit college grads also earn a life of debt. Bloomberg Businessweek.
January 11, 2011
NIV study bible. (1995). Grand Rapids, MI: Zondervan Press.
Rae, S. B. & Wong, K.L. (1996). Beyond integrity-A Judeo-Christian approach to business
ethics. Grand Rapids, MI: Zondervan Press.
Scott, G. (2009). Proprietary schools: Strong department of education oversight needed to help
ensure only eligible student receive federal student aid. Government Accountability
Office, August 17, 2009.
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