United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Human Resources, Committee on

Government Reform and Oversight,

House of Representatives

June 1997 PROPRIETARY

SCHOOLS

Millions Spent to Train

Students for

Oversupplied

Occupations

GAO/HEHS-97-104

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-272442 

June 10, 1997

The Honorable Christopher Shays

Chairman, Subcommittee on Human Resources

Committee on Government Reform and Oversight

House of Representatives

Dear Mr. Chairman:

Under the Higher Education Act’s (HEA) title IV programs,1

 the federal

government annually invests billions of student financial aid dollars to

help fund occupation-specific training at proprietary schools.

Administered by the Department of Education, title IV programs help

provide access for thousands of proprietary school students to train for a

diverse range of occupations, such as automobile mechanics, electronic

technicians, and nurses. About $3 billion in student aid, primarily

subsidized loans, financed occupational training for fiscal year 1995 at

proprietary schools—the principal vendors of occupational training under

title IV.

Proprietary school graduates face some unique challenges in the labor

market. Because most proprietary school skill training lacks a general

education component, it is not readily transferable to other occupations.

This produces proprietary school graduates who are less versatile workers

than graduates of degree-granting programs. In addition, wages for

positions suitable for proprietary school graduates are usually too low to

motivate these graduates to relocate long distances to find work, making

them more dependent on local labor market conditions. These

circumstances make proprietary school graduates more susceptible to

unemployment and less likely to meet their student loan obligations than

other postsecondary graduates.

A recent report by Education’s Inspector General (IG) raised concern

about proprietary school students being trained for occupations with a

surplus of job seekers but a scarcity of jobs. The IG estimated that

taxpayers and students spent over a billion dollars for fiscal year 1990 for

cosmetology training, even though the national supply of cosmetologists

1

Title IV established financial aid programs for students attending institutions of higher education and

vocational schools and includes the Federal Family Educational Loan Program and the William D.

Ford Direct Loan Program. Both offer subsidized and unsubsidized Stafford loans and Parent Loans for

Undergraduate Students. Title IV also established the Federal Pell Grant Program and the Federal

Perkins Loan Program.

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B-272442 

exceeded demand by over one million.2 Some members of the Congress

believe that student loan default rates for proprietary school students,

more than twice that of students attending other postsecondary schools,

may stem in large part from a mismatch between their training and the

skills employers demand.

Because of concerns about a mismatch between title IV-funded

occupational training and skills demanded in the labor market, you asked

us to determine the extent to which title IV funds finance proprietary

school training in fields with insufficient job demand. More specifically,

we agreed with your office to provide information on (1) title IV money

spent to train proprietary school students for occupations with a surplus

of trained individuals, (2) ways government-sponsored training programs

use labor market information to target training funds toward fields with

promising employment outcomes, and (3) the merits of using labor market

information to target training funds.

To address these issues, we analyzed labor supply and demand data for 12

states (see fig. 1). We selected these states mainly because they accounted

for about 63 percent of the title IV funds received by proprietary schools in

fiscal year 1995. We compared labor demand projections for selected

occupational categories, or clusters, with the number of graduates from

occupation-specific training programs. On the basis of state labor

department practices, we considered a labor supply surplus to exist when

at least two students completed training for each projected job vacancy, a

ratio of 2 to 1 or an oversupply of 100 percent.

Our analysis is based on state-level labor market data. Although local labor

market conditions—which can cross city, county, and state boundaries—

best indicate an individual’s employment opportunities, these data are not

consistently maintained for all locales. Because the job market for

graduates of occupation-specific programs rarely extends beyond state

boundaries, national-level data are not appropriate for this type of study.

According to Bureau of Labor Statistics (BLS) officials, state-level data

provide a good approximation of employment opportunities at local levels.

Although we have tried to be conservative in our analysis, our labor

market projections have some limitations. The labor demand data we used

are based on estimates of job openings prepared by states using industry

growth projections and staffing patterns. Unforeseen changes in economic

2

Management Improvement Report No. 93-03, U.S. Department of Education IG, (Washington, D.C.:

Mar. 12, 1993).

Page 2 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

conditions at the local or national level can cause actual and projected

demand to differ. Our labor supply data are entirely based on students

who graduated from postsecondary education school programs in fiscal

year 1995. As such, we understated the available labor supply by, among

other things, excluding avocational and adult basic education program

graduates.

Figure 1: States Included in Supply and Demand Analysis

Page 3 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

We also examined the role that labor market information plays to help

target program funds in three major government-sponsored job training

programs: the Job Training Partnership Act (JTPA) and the federal

vocational education and welfare-to-work job training programs. We

reviewed their program documentation such as laws, regulations, and

policies. In addition, we spoke with officials of these job training programs

in the 12 selected states on their use of labor market information and

reviewed related program policies and legislation. Furthermore, we

discussed the merits of using labor market information to target training

funds with federal and state job training program administrators,

recognized experts,3

 and officials at the Departments of Education and

Labor. Appendix I describes in more detail our information sources and

methodology.

Results in Brief The federal government spends millions of student financial aid dollars to

train students for occupations that already have a surplus of workers. For

fiscal year 1995, $273 million in title IV funds subsidized over 112,000

proprietary school students to train in fields with projected labor supply

surpluses in the 12 states we reviewed. In some cases, proprietary school

students received training in occupations with projected labor supply

surpluses in several states. For example, 28,000 proprietary school

students were trained in electrical/electronic technology in seven states

that each had a labor supply surplus.

Several major federal job training programs restrict training to fields with

favorable job demand projections. JTPA, the largest federal employment

training program, specifies that participants may train only for

occupations for which sufficient job demand exists. In addition, the

federal Carl D. Perkins Vocational Education Act requires that state plans

describe how training funds will be used for occupations with available or

projected job openings. Also, until recent welfare legislation passed on

responsibility to states under block grants, the federal Job Opportunities

and Basic Skills (JOBS) program had similar requirements that compelled

welfare agencies to work with private industry councils to ensure that

programs provided training for jobs likely to become available in an area.

Although government officials did not support using labor market data to

regulate title IV participation, they and experts we interviewed advocated

providing prospective students of occupation-specific training programs

3

Experts included specialists from labor market research centers at three universities as well as

knowledgeable staff from BLS and the National Occupational Information Coordinating Council.

Page 4 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

access to labor supply and demand projections. In agreeing that such

information would help these students make more informed training

decisions, these interviewees also noted the need to supplement the data

with other labor market information, such as training-related placement

and wage rates of recent program graduates. Using labor market

projections provides a rational basis for making training investment

decisions, which was a noted advantage. As a disadvantage, the

interviewees cautioned that such data are inherently imprecise.

Background Under title IV, the federal government provides grants and loans to help

students finance the cost of attending postsecondary schools. The kind of

schools eligible for title IV programs has changed over time. Initially, only

public and nonprofit schools were eligible under the HEA of 1965. To

expand access to students, the Congress amended the HEA and made

proprietary schools eligible for the complete range of student aid by 1972.

Proprietary schools contribute to the nation’s competitiveness by

providing occupational training to traditionally noncollege-bound

individuals. Most proprietary schools are small, enrolling fewer than 100

students, and offer occupational training lasting 2 years or less. They

enroll a higher percentage of women, minorities, and low-income students,

serving a rather heterogeneous student population compared with

nonprofit institutions. About 67 percent of proprietary school students

receive title IV federal student aid.

Under title IV, the law treats proprietary schools differently from other

institutions. For example, a proprietary school’s eligibility is contingent on

its training programs preparing students for gainful employment in a

recognized occupation. As early as 1971, members of the Congress

explicitly recognized a need for proprietary school training to relate to

labor market needs. Because employment directly affects the ability to

repay student loans, default rates are an important gauge of the quality and

usefulness of postsecondary education training programs. Default rates of

proprietary school students have consistently exceeded rates for other

postsecondary school students. For fiscal year 1994, the default rate for

proprietary school students was 21.1 percent as compared with 13.7 and

6.5 percent for students of 2-year and 4-year nonprofit colleges,

respectively. For fiscal year 1992 (the most recent data available), the

federal government paid about $140 million to cover defaulted student

loans to proprietary school students.

Page 5 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

The Congress added an additional requirement for proprietary schools’

eligibility to participate in title IV programs when it reauthorized HEA in

1992. Known as the 85-15 rule, this rule requires proprietary schools to

obtain at least 15 percent of their revenues from sources other than federal

student aid programs. The rationale for this provision is that schools

providing a quality education should be able to attract a reasonable

percentage of their revenues from sources other than title IV. Another

requirement that affects proprietary schools dictates that short-term

programs—those less than 600 hours long—must maintain completion and

placement rates of at least 70 percent for eligibility.

In addition to the Congress’ recognizing the need to treat proprietary

schools differently from other postsecondary schools, the administration

proposed combining title IV grants for nondegree programs with newly

proposed skill grants in the 1996 budget. The skill-grant proposal was

intended to ensure that vocational students get information about labor

market outcomes relevant to their proposed training field before actually

enrolling. The administration, though no longer recommending that title IV

nondegree training funds be combined with skill grants, recognizes that

labor market information is an integral part of a job training system and

supports creating a stronger labor market information system.

The philosophy underlying title IV contrasts starkly with that underlying

government-sponsored job training. Title IV programs are based on

individual choice and implicitly assume that students use some

information source to make good judgments. As a result, financial aid

recipients may choose any area of study—whether a liberal arts degree or

a certificate in air-conditioning repair—as long as the institution meets

Education’s title IV eligibility requirements such as licensure and

accreditation. The extent to which students make informed decisions

largely depends on their initiative and self-reliance. In contrast, in federal

job training programs, the law limits individuals’ choices to occupations

with labor demand. For example, some job training programs limit training

to occupations for which local employers have guaranteed placement of

program graduates.

In recognizing the critical importance of information, the Congress has

acted to expand the information available to title IV students making

education and training decisions. The Student Right-to-Know and Campus

Security Act4

 requires that schools with certificate or undergraduate

degree-granting programs participating in title IV annually disclose

4

P.L. 101-542, enacted Nov. 1990.

Page 6 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

students’ completion rates. Under implementing regulations, the first

results are due by January 1, 1998. The act does not require schools to

disclose information on graduates’ employment outcomes, however, such

as training-related job placement rates or wages, or on local labor market

conditions.

Financial Aid

Recipients Train for

Occupations

Oversupplied in

Multiple States

Millions of title IV program dollars went to proprietary schools for

students who trained in fields with a surplus labor supply. For 12 states,

$273 million in title IV funds was spent to subsidize over 112,000

proprietary school students who trained for jobs with a projected surplus

labor supply in fiscal year 1995, according to our estimate. Occupations

that were oversupplied and for which proprietary school students received

student aid were diverse, including legal assisting, respiratory therapy,

appliance/equipment repair, and drafting.

Although proprietary schools in all 12 states trained students for

oversupplied occupations, the amount of federal student aid spent and the

number of students trained in oversupplied fields varied (see table 1). Title

IV funds spent to finance training in oversupplied fields ranged from a low

of $3 million in South Carolina (about 22 percent of the title IV funds

received by its proprietary school students) to a high of $47 million in

Arizona (about 21 percent of the title IV funds received by its proprietary

school students). The number of students receiving such funds ranged

from 1,000 in Washington (about 6 percent of its proprietary school

students) to 17,900 in California (about 12 percent of its proprietary school

students).

Page 7 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

Table 1: Estimated Financial Aid Spent

by Students Training for Oversupplied

Occupations in 12 States, Fiscal Year

1995

State

Federal financial

aid dollars

(millions)

Percentage of

proprietary

school aid

directed to

oversupplied

occupations

Number

of

students

Percentage of

proprietary

school

students

training for

oversupplied

occupations

Arizona $47.2 2 1 13,900 27

California 36.1 9 17,900 12

Florida 31.7 2 3 10,700 23

Illinois 13.6 1 3 7,700 25

Indiana 33.2 3 8 16,400 50

New Jersey 16.8 1 8 5,000 17

New York 29.4 1 8 13,500 19

Oregon 6.9 3 1 2,400 37

Pennsylvania 26.7 1 5 11,700 20

South Carolina 3.0 2 2 1,800 28

Texas 20.3 1 1 10,300 16

Washington 8.6 1 1 1,000 6

Total $273.3a 16 112,300 20

aNumbers do not add to total due to rounding.

The surplus of qualified job candidates, including proprietary school

graduates, for some occupations occasionally reached dramatic

proportions in some states, exceeding demand by ratios of 10 to 1 or more.

Overall, 51 percent of the jobs we identified as oversupplied had ratios of

graduates to projected job openings at least as high as 4 to 1; the high was

42 to 1 for appliance/equipment repair in California. States where the

majority of oversupplied occupations had ratios of graduates to projected

job openings equaling or exceeding 4 to 1 included

• Arizona, with 11 of 15 occupations, whose high was a ratio of 34 to 1;

• Indiana, with 5 of 6 occupations, whose high was a ratio of 12 to 1; and

• New York, with 5 of 7 occupations, whose high was a ratio of 9 to 1.

In the 12 states, proprietary school students received training in jobs

classified under 23 occupational categories with a labor surplus. Jobs

classified in two occupational categories, however—barbering/

cosmetology and electrical/electronic technology—accounted for about

two-thirds of the title IV funds ($172 million) and proprietary school

students (75,900) associated with oversupplied occupations.

Page 8 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

Some occupations were oversupplied in several states. The barbering/

cosmetology category had a surplus labor supply in 10 of the 12

states—the highest of any category—involving about $86 million in title IV

funds and 48,100 proprietary school students. Appliance/equipment repair

($6.8 million and 2,100 students) and legal assisting ($18.7 million and

6,400 students) had a surplus labor supply in eight states. In total, about

$260 million—95 percent of the title IV dollars spent training students for

oversupplied occupations—went to occupations oversupplied in many

states.

Table 2: Financial Aid for Occupations

Oversupplied in Many States, Fiscal

Year 1995

Occupation States

Estimated financial

aid (millions)

Estimated

students

receiving aid

Barbering/cosmetology 10 $85.8 48,100

Appliance/equipment repair 8 6.8 2,100

Legal assisting 8 18.7 6,400

Electrical/electronic technology 7 86.6 27,800

All other engineering technology 5 12.8 4,600

Respiratory therapy 5 4.2 1,600

Miscellaneous health services 5 16.7 6,200

Air-conditioning/heating

installation/repair

3 9.9 3,400

Optical technology 3 6.6 4,000

Electromechanical

equipment/instrument/ production

repair

2 1.4 300

Airplane piloting 2 2.5 300

Pharmacy support 2 5.4 2,000

Medical secretarial 2 2.9 1,500

Total $260.2a 108,200a

aNumbers do not add to total due to rounding.

Many of the proprietary school students who trained for oversupplied

occupations benefited in one way or another. First, because each of the

oversupplied fields has vacant positions, some proprietary school

graduates will get jobs in their chosen fields. In New York, for example,

jobs in the electrical/electronic technology field had five qualified workers

for each job vacancy—1,367 trained workers vying for 280 openings. In

this case, one of every five proprietary school graduates who received

training could conceivably get a job in the field. Second, the education of

Page 9 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

proprietary school students may have benefits that extend beyond the

occupational field. Some employers use credentials—a degree or

certificate showing completion of a field of study—to screen out less

qualified job candidates. Such credentials show these employers that

prospective workers have demonstrated critical skills that will make them

effective members of the labor force, such as coming to work on time,

completing assignments, and following a project from beginning to end.

These employers may well assume that people who complete training

programs are more talented than those who either failed to enroll in or

complete a postsecondary training program.

Some GovernmentSponsored Training

Limited to

Occupations With

High Demand

Some major federal and state programs that support short-term

occupational training limit training to areas with a documented labor

demand. Each program requires training opportunities to be based on an

analysis of local labor markets and training plans based on projected job

demand. Furthermore, these programs interact with local business

community representatives to continually assess local labor market

conditions. Although each program serves different populations, such as

disadvantaged youth or dislocated adult workers, the programs share a

goal of helping clients develop training skills to improve their employment

prospects.

JTPA Enacted in 1982, title II of JTPA has been the cornerstone of federal

employment training programs. JTPA supports job training for individuals

facing barriers to employment and needing special training to obtain

productive employment. JTPA programs annually provide employment

training for specific occupations and services to roughly one million

economically disadvantaged individuals. Service providers, such as

vocational-technical high schools, community colleges, proprietary

schools, and community-based organizations provide training in local

service delivery areas. The program objectives are to increase earnings

and employment and to reduce welfare dependence for participants of all

ages. In fiscal year 1997, the Congress appropriated almost $2 billion to

JTPA title II programs.

JTPA funding is restricted to training participants for occupations with

demonstrated labor demand in areas where participants currently reside

or are willing to relocate. Although the program has various

implementation strategies, generally, labor market specialists from a

state’s labor or workforce agency develop and provide labor demand

Page 10 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

projections, usually at both local and statewide levels. Local boards use

this information in their annual plans to identify occupations to target.

Recognizing that local conditions change, states often have provisions to

allow local boards flexibility to respond to unforeseen changes in job

demands. Generally, training in fields not identified in plans requires

additional documentation of specific local conditions such as results of

local industry surveys.

Vocational Education Funding provided under the Carl D. Perkins Vocational Education Act

(P.L. 98-524) supports vocational education at both the secondary and

postsecondary levels. Vocational education prepares students for

employment through an organized sequence of courses directly related to

jobs that do not require a baccalaureate degree. The Department of

Education provides funding to states for distributing to school districts

and community and technical colleges. Although the act requires schools

to ensure that students who are disadvantaged or have disabilities or

limited-English proficiency have access to vocational education programs,

school districts receive the funds to be used on vocational education in

general. In fiscal year 1997, the federal government provided about

$1.1 billion to support Perkins Act programs.

The federal vocational education law requires that state plans describe

how funds spent on occupation-specific training will be used for

occupations that labor market analysis shows have actual or projected job

vacancies.5

 Schools that receive federal vocational education funds must

spend them according to the state priorities identified in the state plans.

The legislative requirement is helpful because the labor market analysis

encourages states to reflect changing labor market conditions in their

plans, commented one Education program official.

Welfare-to-Work Job

Training Programs

The federal welfare job training program—JOBS—was the primary federal

training program for welfare recipients until it was passed on to the states.6

The Family Support Act of 1988 created JOBS to help parents receiving

welfare obtain the education, job skills training, work experience, and

support services needed to increase their employability and avoid

5

State plans, updated as often as annually, address several areas concerning implementation of

vocational education, such as how program spending will reflect the state’s training needs.

6

Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, the JOBS

program is generally repealed as of July 1, 1997, with certain transition rules in effect.

Page 11 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

long-term welfare dependency. Administered by state welfare agencies,

JOBS training appropriations totaled $1 billion in fiscal year 1996.

The JOBS program required welfare agencies to work with private industry

councils and ensure that programs provided training for jobs likely to

become available in an area. It also required state agencies to use private

industry council services to identify and get advice on the types of jobs

available or likely to become available in a service delivery area. State

plans were to describe state coordination efforts with private industry

councils, and their consultations with the councils were to ensure that

JOBS training and educational activities were directed toward jobs that

were currently or likely to become available.

Experts Advocate

Students’ Use of

Labor Market

Information

In discussing ways to better target occupation-specific training under title

IV, the experts we spoke with generally identified two approaches:

(1) restricting eligibility to programs with suitable future labor demand

and (2) ensuring that students consult sufficient information sources on

likely labor market needs before choosing training programs. Regulating

program eligibility on the basis of labor market projections was rejected

by our interviewees. Schools that, despite low labor demand projections,

manage to place high proportions of their graduates in training-related

fields should not be penalized, they said. They also expressed a reluctance

to interfere with the free-market principles—such as allowing individuals

to specialize in the field of their choice—underlying the title IV program.

In contrast, with some stipulations, the notion of providing prospective

students better information on labor market conditions was unanimously

supported.

Better resource targeting could result from informing prospective students

of occupation-specific training of labor market conditions, according to

labor market experts. Enabling these students to review labor demand

projections provides them with a sound basis for deciding on vocational

training, these experts said. For example, labor demand projections would

allow such students to distinguish between growing and declining

occupations. Anecdotal information is more likely to result in poor

training decisions. Students could also better determine the merit of

investing their time and money by having data on the employment

experiences of recent program graduates, according to these experts. For

example, even though a field may have good employment prospects,

prevailing wages must also appeal to job candidates. Training-related

Page 12 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

placement rates would also inform prospective students about a training

program’s success in competing for market share, the experts said.

Labor demand conditions, however, should not be the sole determinant of

which training field a student should pursue, according to these experts.

First, the prospective student’s personal characteristics play an important

role. An individual’s basic skills, aptitude, and interests are prime

considerations. Second, labor supply and demand data are generally

imprecise. For example, labor supply projections typically exclude some

categories of skilled workers and potential out-of-state workers who may

relocate. On the demand side, labor projections, particularly for local

areas, can be highly sensitive to single economic incidents and therefore

misleading when unforeseen events in the economy curtail labor demand.

Conclusions The discretion afforded proprietary school students under title IV makes

consumer information critically important. In passing the Student

Right-to-Know Act, the Congress recognized the need to improve the

quality of student-consumer information. The act stops short, however, of

requiring schools to report employment outcomes of recent graduates

such as training-related job placements. In addition, no mechanism

currently exists to ensure that students get important information on local

labor market conditions. The result is a system that embraces individual

choice without ensuring that students have the information needed to

make sound training investment decisions. Not surprisingly, this has

possibly contributed to student financial aid being directed to skill training

not demanded by the workplace—more than a quarter of a billion dollars

for 12 states in fiscal year 1995 alone. Having information on recent

graduates’ success in the job market and the likely future demand for skill

training should help prospective students make more informed training

investment choices.

Recommendation to

the Congress

We recommend that the Congress expand the Student Right-to-Know Act

to require proprietary schools to report recent graduates’ training-related

job placement rates. The act currently requires all title IV-eligible schools

to report student completion rates but not graduates’ employment

experiences. Such information would help prospective students

understand the usefulness of recent graduates’ occupational training

programs.

Page 13 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

Recommendation to

the Secretary of

Education

We recommend that the Secretary identify and take appropriate action to

ensure that prospective proprietary school students have access to

employment and earnings projections relevant to their chosen training

field and local area.

Agency Comments In commenting on a draft of this report, Education stated that our

recommendation to require proprietary schools to report placement rate

data is consistent with the administration’s stated desire to ensure that

schools provide students useful information about educational programs

for making informed training decisions. The Department concurred with

our suggestion that information on student outcomes will help ensure that

market forces work better to eliminate inadequate schools and programs

from title IV participation. Education promised to seriously consider our

recommendation on enhancing the reporting requirements of the Student

Right-to-Know Act to include placement rates as part of its HEA

reauthorization proposal.

Education questioned one specific result, noting that the 1996-97

Occupational Outlook Handbook lists occupational therapy assistants and

aides as the fourth fastest-growing occupation in the nation, though we

found it to be the most oversupplied occupation in Arizona. The

Occupational Outlook Handbook provides national demand projections

which, as stated earlier, may not reflect conditions of individual labor

markets. In this case, the supply of qualified Arizona graduates far exceeds

the projected job openings. Given that proprietary school graduates are

less likely to relocate for work, such results underscore the importance of

information on local labor market conditions. (A copy of Education’s

comments appears in app. III.)

Education did not comment on our recommendation that it identify ways

to ensure that students have access to employment and earnings data.

As arranged with your office, unless you announce its contents earlier, we

plan no further distribution of this report until 30 days after the date of

this letter. At that time, we will send copies to the Secretary of Education.

We will make copies available to others on request.

If you have any questions about this report, please call Cornelia M.

Blanchette, Associate Director, Education and Employment Issues, at

(202) 512-7014. This report was prepared under the direction of Wayne B.

Page 14 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
B-272442 

Upshaw, Assistant Director. Other major contributors to this report are

listed in appendix IV.

Sincerely yours,

Richard L. Hembra

Assistant Comptroller General

Page 15 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Contents

Letter 1

Appendix I 

Data Sources and

Methodology

18

Data Sources 18

Linking Financial Aid to Oversupplied Occupations 19

Appendix II 

Detailed State-Level

Results: Analysis of

Financial Aid to

Oversupplied

Occupations

22

Appendix III 

Comments From the

Department of

Education

27

Appendix IV 

GAO Contacts and

Staff

Acknowledgments

28

Tables Table 1: Estimated Financial Aid Spent by Students Training for

Oversupplied Occupations in 12 States, Fiscal Year 1995

8

Table 2: Financial Aid for Occupations Oversupplied in Many

States, Fiscal Year 1995

9

Table II.1: Supply and Demand Analysis for Arizona 22

Table II.2: Supply and Demand Analysis for California 23

Table II.3: Supply and Demand Analysis for Florida 23

Table II.4: Supply and Demand Analysis for Illinois 23

Table II.5: Supply and Demand Analysis for Indiana 24

Table II.6: Supply and Demand Analysis for New Jersey 24

Table II.7: Supply and Demand Analysis for New York 24

Table II.8: Supply and Demand Analysis for Oregon 25

Page 16 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Contents

Table II.9: Supply and Demand Analysis for Pennsylvania 25

Table II.10: Supply and Demand Analysis for South Carolina 26

Table II.11: Supply and Demand Analysis for Texas 26

Table II.12: Supply and Demand Analysis for Washington 26

Figure Figure 1: States Included in Supply and Demand Analysis 3

Abbreviations

BLS Bureau of Labor Statistics

HEA Higher Education Act

IG Inspector General

IPEDS Integrated Postsecondary Education Data System

JOBS Job Opportunities and Basic Skills

JTPA Job Training Partnership Act

Page 17 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix I 

Data Sources and Methodology

We used a variety of data sources to estimate the extent to which title IV

funds support students training for occupations with insufficient job

demand. We used 12 states’ job opening projections as our measure of job

demand.7

 On the supply side, we estimated the supply of proprietary

school and other postsecondary graduates from those states using the

Integrated Postsecondary Education Data System (IPEDS) of the National

Center for Education Statistics. The corresponding financial aid

information came directly from the Department of Education’s student

loan and Pell grant records. The state and federal data were self-reported

and unverified. We compared the number of postsecondary graduates

preparing for an occupation with the projected job openings to estimate

which occupations would have surplus labor supply, a method that

experts confirmed as the most suitable approach to predict labor market

conditions, given the data available. We performed our work between

April 1996 and March 1997 in accordance with generally accepted

government auditing standards.

Data Sources

State Job Openings

Projections

For labor demand estimates, we used job openings projections provided

by the 12 states for 1995. Job openings result when industrial expansion

creates new positions (growth) and when current employees vacate

positions because of death, retirement, or separation (replacement). States

forecast industry growth using current and past BLS industry survey

results. Then, using knowledge of industries’ staffing patterns, states

convert industry growth projections into growth in occupations. BLS

estimates occupational replacement needs from the Current Population

Survey for its Occupational Projections and Training Data report and

provides this information to states. States calculate total job openings by

adding those created by industry growth and those due to replacement

needs. As projections, the job openings data we used are sensitive to

unforeseeable fluctuations in the local and national economy and within

industries.

IPEDS Graduates Data We based our estimates for labor supply on IPEDS 1994-95 data on

postsecondary school graduates. IPEDS identifies schools by type of degree

(baccalaureate or higher degree-granting institutions, 2-year award

7

Together, these states represented 63 percent of the title IV funds provided to proprietary schools in

fiscal year 1995.

Page 18 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix I 

Data Sources and Methodology

institutions, and less-than-2-year institutions) and by control (public,

private nonprofit, and proprietary). Institution-level data—on academic,

vocational, and continuing professional education programs—are

collected on almost all postsecondary institutions eligible for federal

student financial aid funding. IPEDS, however, provides only a partial

accounting of trained entrants to the workforce.

IPEDS understates the available supply of students trained for occupations.

It excludes information on avocational and adult basic education program

graduates. IPEDS also excludes some who complete occupational training,

including graduates of high school vocational education programs,

vocational rehabilitation programs, JTPA training, Job Corps programs, and

recently discharged military personnel. In using IPEDS to estimate the

supply of qualified individuals in an occupation, we underestimate the

labor supply and thus the supply and demand ratios we report.

Linking Financial Aid

to Oversupplied

Occupations

Specifying the Labor

Market for Proprietary

School Graduates

We chose the state level as the unit of analysis for assessing supply and

demand outlooks. Proprietary school students generally are not as likely

as students at 4-year colleges and universities to relocate for employment,

labor market experts told us. In reality, the relevant labor market could be

either larger or smaller than a state depending on the area and the

occupation. Analyzing the labor supply and demand outlook for particular

occupations at the national level has many drawbacks. One problem

occurs when national averages are assumed to apply at the state level. For

example, an auto mechanics shortage in California combined with an auto

mechanics surplus in New Jersey could appear to be a balanced supply

and demand. Such a conclusion would only be correct if auto mechanics

from New Jersey would be willing and able to relocate to California. This

is unlikely to occur for most occupations taught at proprietary schools,

according to current research. Therefore, examining too large an area

would lead to identifying neither the labor shortage in California nor the

labor surplus in New Jersey. Although experts believe an area smaller than

a state may be more relevant in some locations, we used the state as the

analytical unit in all cases.

Page 19 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix I 

Data Sources and Methodology

Identifying Oversupplied

Occupations

We compared the supply of new graduates with the projected demand for

new employees in an occupation to identify oversupplied occupations. We

used the Units of Analysis matrix, developed by the National Occupational

Information Coordinating Committee, to determine which instructional

programs were linked to occupations for which we had obtained job

opening projections. The matrix identifies over 200 occupational clusters,

or groups, of one or more occupations with similar duties and training

requirements. The matrix also links the roughly 1,000 instructional

programs identified in the IPEDS graduates data to an occupational cluster.

We used IPEDS information on program graduates to identify the clusters

taught at proprietary schools. We excluded 10 occupational clusters

ranging from psychology to legal services because more than half their

graduates received baccalaureate or advanced degrees. By comparing

projected job openings with new graduates trained for jobs in clusters, we

identified occupations with surplus labor supply. For this report, we

defined surplus labor supply as two or more graduates for each projected

job opening in an occupation.

After discussions with an expert on the Units of Analysis matrix, we

limited our analysis to those occupations with the strongest relationship

between training and the occupation. The matrix classifies occupational

clusters into three categories, depending on the directness of the link

between training and occupational employment. “A” cluster

occupations—which we analyzed—have specific training programs that

lead directly to employment in an occupation. For these occupations, an

individual would be unlikely to enter the occupation without having

received the “A” cluster training. Such training would also be unlikely to

prepare someone for employment in a different occupation. For “B” and

“C” 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 both in the case of “C”

cluster occupations.

Linking Financial Aid

Information to

Occupations

We used IPEDS information on institutional characteristics to associate

students with training programs. For schools offering more than one

occupational program, we assumed that the amount of aid being used for

each occupation was proportional to the percentage of its graduates in

that program. For example, if 20 percent of the graduates of a proprietary

school studied air-conditioning repair and 100 students spent $100,000 in

student aid at the school, we assumed that $20,000 in aid came from the 20

air-conditioning repair students. Our estimates of federal financial aid

Page 20 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix I 

Data Sources and Methodology

dollars and student financial aid recipients associated with oversupplied

occupations are sensitive to this assumption because more than 78 percent

of the financial aid going to train students in oversupplied occupations

went to schools with multiple occupational training programs.

Page 21 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix II 

Detailed State-Level Results: Analysis of

Financial Aid to Oversupplied Occupations

This appendix presents detailed results of our analysis of fiscal year 1995

financial aid8

 to oversupplied occupations in 12 states. (See tables II.1 to

II.12.) We calculated the supply and demand ratio using data from the

Integrated Postsecondary Education Data System on program graduates

from the Department of Education and job opening projections provided

by each state. We estimated title IV aid and the number of student aid

recipients by associating Education’s student aid data with proprietary

schools by program (numbers may not add to totals due to rounding).

Table II.1: Supply and Demand

Analysis for Arizona

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Occupational therapy

assisting 34:1 $0.6 420

Musical instrument repair 29:1 0.1 40

Optical technology 11:1 0.6 295

Respiratory therapy 7:1 1.1 664

Miscellaneous health

services 6:1 1.0 442

Air-conditioning/heating

installation/repair 6:1 5.8 1,925

All other engineering

technology 5:1 0.5 88

Barbering/cosmetology 5:1 2.7 1,308

Electromechanical

equipment/instrument

production/repair 5:1 0.7 192

Drafting 4:1 6.9 1,855

Surgical technology 4:1 0.6 224

Legal assisting 3:1 2.1 610

Radiologic technology 3:1 0.8 348

Electrical/electronic

technology 3:1 22.1 4,518

Medical secretarial 3:1 1.6 936

Total 4:1 $47.2 13,864

8

Financial aid includes grants and loans disbursed through the Federal Pell Grant Program, the Federal

Family Educational Loan Program, and the William D. Ford Direct Loan Program.

Page 22 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix II 

Detailed State-Level Results: Analysis of

Financial Aid to Oversupplied Occupations

Table II.2: Supply and Demand

Analysis for California

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Appliance/equipment

repair 42:1 $1.1 310

Barbering/cosmetology 7:1 11.6 7,662

Optical technology 5:1 5.1 3,158

Legal assisting 4:1 4.7 1,477

Miscellaneous health

services 3:1 8.9 3,615

Pharmacy support 2:1 4.7 1,682

Total 5:1 $36.1 17,904

Table II.3: Supply and Demand

Analysis for Florida

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Airplane piloting 8:1 $2.3 222

Legal assisting 4:1 4.6 1,535

Respiratory therapy 3:1 2.3 686

Electrical/electronic

technology 3:1 15.9 3,829

Barbering/cosmetology 2:1 6.6 4,464

Total 3:1 $31.7 10,736

Table II.4: Supply and Demand

Analysis for Illinois

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Appliance/equipment

repair 11:1 $0.4 205

Barbering/cosmetology 3:1 11.7 6,942

Air-conditioning/heating

installation/repair 3:1 1.5 584

Total 3:1 $13.6 7,731

Page 23 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix II 

Detailed State-Level Results: Analysis of

Financial Aid to Oversupplied Occupations

Table II.5: Supply and Demand

Analysis for Indiana

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Electrical/electronic

technology 12:1 $18.1 10,016

All other engineering

technology 11:1 9.5 3,870

Appliance/equipment

repair 6:1 1.4 401

Legal assisting 5:1 0.4 130

Barbering/cosmetology 4:1 3.6 1,944

Miscellaneous health

services 3:1 0.1 33

Total 6:1 $33.2 16,395

Table II.6: Supply and Demand

Analysis for New Jersey

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Appliance/equipment

repair 6:1 $1.1 375

Electrical/electronic

technology 4:1 15.0 4,274

Legal assisting 2:1 0.6 317

Total 4:1 $16.8 4,966

Table II.7: Supply and Demand

Analysis for New York

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Appliance/equipment

repair 9:1 $1.0 349

Miscellaneous health

services 5:1 4.9 1,400

Optical technology 5:1 0.9 535

All other engineering

technology 5:1 0.1 94

Electrical/electronic

technology 5:1 7.5 4,235

Barbering/cosmetology 3:1 14.7 6,784

Respiratory therapy 2:1 0.3 106

Total 4:1 $29.4 13,502

Page 24 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix II 

Detailed State-Level Results: Analysis of

Financial Aid to Oversupplied Occupations

Table II.8: Supply and Demand

Analysis for Oregon

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Barbering/cosmetology 7:1 $3.7 1,337

Legal assisting 4:1 0.4 116

Medical secretarial 4:1 1.3 530

Pharmacy support 3:1 0.7 277

Electromechanical

equipment/instrument

production/repair 2:1 0.7 133

Respiratory therapy 2:1 0.1 44

Total 4:1 $6.9 2,437

Table II.9: Supply and Demand

Analysis for Pennsylvania

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Appliance/equipment

repair 31:1 $0.4 142

Carpentry 11:1 0.3 56

All other engineering

technology 10:1 0.2 50

Legal assisting 6:1 3.1 1,167

Barbering/cosmetology 6:1 14.1 7,383

Miscellaneous health

services 5:1 1.9 667

Air-conditioning/heating

installation/repair 3:1 2.7 917

Computer/business

machine production/repair 3:1 2.2 684

Legal secretarial 3:1 1.0 350

Stenography 2:1 0.4 132

Respiratory therapy 2:1 0.3 115

Total 4:1 $26.7 11,663

Page 25 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix II 

Detailed State-Level Results: Analysis of

Financial Aid to Oversupplied Occupations

Table II.10: Supply and Demand

Analysis for South Carolina

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Barbering/cosmetology 7:1 $2.3 1,591

Aircraft mechanics 6:1 0.1 27

Airplane piloting 4:1 0.1 28

Electrical/electronic

technology 3:1 0.4 137

Total 5:1 $3.0 1,783

Table II.11: Supply and Demand

Analysis for Texas

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Barbering/cosmetology 4:1 $14.8 8,695

Legal assisting 3:1 2.7 1,067

Appliance/equipment

repair 3:1 0.3 106

All other engineering

technology 2:1 2.5 471

Total 3:1 $20.3 10,339

Table II.12: Supply and Demand

Analysis for Washington

Occupation

Supply/demand

ratio

Title IV aid to

occupation

(millions)

Number of

student aid

recipients

Appliance/equipment

repair 14:1 $1.0 259

Electrical/electronic

technology 2:1 7.6 742

Total 3:1 $8.6 1,001

Page 26 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix III 

Comments From the Department of

Education

Page 27 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
Appendix IV 

GAO Contacts and Staff Acknowledgments

GAO Contacts Wayne B. Upshaw, Assistant Director, (202) 512-7006

Carol L. Patey, Evaluator-in-Charge, (617) 565-7575

Acknowledgments In addition to those named above, the following individuals made

important contributions to this report: Gene G. Kuehneman, Jr., and

Arthur T. Merriam, Jr., assisted in collecting and analyzing the data and

writing the report; Edward H. Tuchman performed analysis of financial aid

data; and Linda W. Choy and Wayne M. Dow assisted with and reviewed

database analysis.

(104853) Page 28 GAO/HEHS-97-104 Student Aid for Oversupplied Occupations
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