Hold cosmetology schools accountable for low earnings
Plus: Tuition discounting in higher ed.
Let’s start with some facts.
Roughly 12 million borrowers are in default on their student loans, or on course to default soon.
At over 1,000 schools, more than 30 percent of borrowers who recently entered repayment are at least three months behind on their loan payments.
The federal government is on track to disburse $84 billion in new loans this fiscal year and expects that 21% of that balance will end up in default at some point.
The Congressional Budget Office estimates that student loans cost taxpayers between 5 and 17 cents on the dollar, equating to annual losses between $4 billion and $14 billion.
Any private bank making loans like this would conclude that something needs to change—and quickly. Congress belatedly reached the same conclusion last year. As part of the One Big Beautiful Bill Act, Congress created the “Do No Harm” standard, which stipulates that degree programs must ensure that most of their graduates earn more than comparable people who never went to college at all. If a program can’t meet this very basic standard, the school can no longer enroll students in that program using federal student loans.
Do No Harm should be the bare minimum we expect from schools that put students into debt for their education. Students who graduate shouldn’t earn less than people who never enrolled in the first place. That’s a low bar—it doesn’t consider whether any boost in earnings was worth the price students paid for college, and it ignores the outcomes of students who start a program but don’t finish—but it’s better than the standard that came before, which was virtually no standard at all.
I’m not kidding about the low bar: Less than 5 percent of programs are expected to fail the Do No Harm standard and lose access to federal student loans. (With some exceptions, most can still access Pell Grants.) Certain types of programs, though, are poised to fail at much higher rates—because, ironically, their student outcomes don’t look pretty at all.
Cosmetology schools’ contribution to the student loan crisis
Those 1,000-plus schools I mentioned with a student loan delinquency rate above 30 percent? Just under half are cosmetology schools—those which provide shorter-term courses designed to lead to licensure in the beauty industry. At the median cosmetology school, 32 percent of students are at least three months behind on their loan payments.
The reason isn’t difficult to understand: cosmetology schools’ graduates don’t earn very much, even several years after they complete their programs. Four years after completion, a typical cosmetology student earns just $27,000, versus $35,000 for a comparable high school diploma holder. (Contrary to objections from schools, research has shown that unreported tip income doesn’t move that number very much.) It’s difficult to cover your basic living expenses and make your student loan payments on wages that low.
Because of these exceptionally poor earnings outcomes, most cosmetology programs that rely on federal loans are likely to fail the Do No Harm standard. They will be free to continue operating—indeed, plenty of beauty schools exist today without participating in the federal student aid system. But schools won’t be allowed to load students up with debt they are unlikely to repay.
Cutting off loans could actually make beauty school more affordable: a study by economists Stephanie Cellini and Claudia Goldin found that certificate-granting institutions which take federal loans and grants charge almost double the tuition of comparable schools that don’t participate in federal student aid.
The elephant in the salon: occupational licensing laws
But the core of the problem, as I argue in an op-ed for the Washington Examiner with my friend Ed Timmons of the Archbridge Institute, is that state licensing laws force aspiring beauticians to attend expensive cosmetology schools just to practice their trade.
Every state licenses cosmetologists and specifies that aspiring workers obtain a minimum number of hours of education or training in order to practice their trade—usually over 1,000 hours. In some states, the education and training requirements exceed 1,800 hours (please boo Nebraska and West Virginia). For comparison, to become an emergency medical technician in most states you only need 110 to 250 hours of training.
The federal government has effectively subsidized these excessive education requirements, by making unconditional subsidies available through the federal student loan program. But if states roll back licensing requirements for cosmetologists, price cuts at cosmetology schools may follow—indeed, Ed’s research finds that this is exactly what happened when certain states reduced the required number of training hours for this profession.
The most radical response by states would be to eliminate licensing for cosmetologists altogether—but it’s not as radical as you might think. Many jurisdictions abroad, including Britain, Spain, and some Canadian provinces, do not license cosmetologists. As Ed and I write, these places rely on other mechanisms to ensure safety and quality:
Instead, regulation often occurs at the shop level. Beauty salons may need to register their business and be subject to random inspections. This way, the public is offered protection without overly cumbersome regulation that limits entry to the profession—which research has shown fails to limit accidents and bad actors.
For too long, a combination of over-credentialism in state licensing and the lack of accountability in federal student aid programs has fueled a key part of the student loan crisis. Fortunately, the Do No Harm rule is poised to compel some overdue change.
For more, check out my post at AEIdeas on cosmetology schools’ high student loan delinquency rates, my op-ed with Ed Timmons on reforming cosmetology licensing, and my public comment debunking some common criticisms of the Do No Harm rule.
What I’m writing
Repairing a broken college financial aid system. I wrote a chapter for an edited volume from Encounter Books on what’s wrong with higher education. My contribution focused on the high price of college—and why a lack of price transparency is a problem. Students must generally be accepted to college before they know the price they will pay, which means comparison-shopping and walking away from a bad deal is harder than it would be in a more price-transparent market. Schools are also known to hike prices on returning students. There’s no perfect solution to all this, but requiring standardized financial aid award letters and upfront four-year price guarantees would be a good start.
What I’m reading
My colleague Tao Tan writes about the disproportionate influence of a few foundations in the humanities and arts, drawing on a new dataset of foundation grantmaking.
Neetu Arnold does a deep dive into the history of college grade inflation for the Manhattan Institute—and proposes that universities start reporting grade inflation-adjusted GPAs on transcripts.
Why K-12 test scores have been in decline since 2013, from Kevin Mahnken at The 74.
Student loan defaults return after the pandemic pause, from the New York Fed.
More colleges are reinstating the SAT—but college applicants’ test scores are declining even as their high school grades rise, according to the Wall Street Journal.
What I’m doing
At the end of May, I took a long-awaited family vacation to Japan, where you can get the best food you’ll ever purchase at a train station. Unfortunately it wasn’t the season to climb Mt. Fuji—so I guess I’ll have to go back.
