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Victor Gregory teaches high schoolers about cars. He worries when they take on debt after graduation.

Americans owe close to a trillion dollars in student loan debt.  Changing Gears has been reporting on that debt, a lot of which comes from attending private, for-profit schools.  They’re the fastest growing part of higher education, popular for non-degree technical training.  Call them career colleges, technical schools or trade schools … just don’t call them cheap.

Fact: For-profit schools cost more than community colleges.  Fact: For-profit students borrow more, then default more than students from public colleges.  Fact:  All this explains why I ended up at the strip club in Detroit.

So I’m at Cobra’s the Grind, eyes-avoiding-buttocks, walking up dimly lit stairs to meet the manager. Steve is a big guy; he started here as a bouncer. He lays his gun down next to us as we talk.  He had different life plans after graduating high school in 2006.

“Not this,” he says.  “I mean, I don’t mind it now but I didn’t think I’d be here.  I thought I would’ve been in a shop, turning a wrench.”

He wanted to work on cars.  So he got a diploma in automotive technology at Lincoln College of Technology in Indianapolis.  It’s part of a big for-profit chain.  The program was about a year and roughly $25,000, not including housing.  An associate’s degree from community college would’ve cost less than ten grand.

“My mom was actually talking to me about it, but I wouldn’t listen, I was stubborn,” he says.  “Whoever takes their mom’s advice, until you f*** up?  I regret it.”

He didn’t find a car job, but he says he did rack up about 30 thousand dollars in debt.

Victor Gregory taught Steve’s auto class back at Dearborn High School.  He also  teaches at the local community college.  That’s partly why the cost of for-profit training worries him.  He’s actually barred some schools’ recruiters from his classroom if they can’t demonstrate good student results.

“I do not want my students going out in the field and becoming balled and chained to a bank.  And having to park the whole idea of having a better life, just so they can pay their debts,” he says.

Victor Gregory doesn't want his students "becoming balled and chained to a bank."

The big question is return on investment: What do students get for the cost?  The private, for-profit sector of higher education is so broad, it can be hard to generalize.

But take the big, publicly traded company Universal Technical Institute Inc., or UTI.  It has a campus outside Chicago.  The median cost of its 15 month auto tech certificate program is $30,000.  According to the school, the median federal loan debt for that program is about $14,000.

Tom Riggs is Senior Vice President of Operations for UTI.  He says its graduation rates are drastically better than at many community colleges.

“We graduate in the high 60%, sometimes 70% of our students who start, graduate,” he says.  “If you look at community college programs and certificate programs, a lot of their numbers are in the low 20s.”

Some students are drawn to short intense training.  They get hands their hands on metal, and then they can start earning money.  Riggs says employment rates coming out of school are also high.

“There are students out there who four year university isn’t the right thing for them,” he says.  “And they have tremendous talent and passion around the things that we do, and we are the right place for them.”

One reason yearly tuition is lower at public schools is they get public support.  But David Deming of Harvard’s Graduate School of Education says for-profits get a different kind of public support.  Their revenues come overwhelmingly from federal financial aid dollars.  In other words, from student grants and loans.

“For-profit schools are not allowed to take any more than 90% of their total revenue from federal financial aid.  That’s the maximum and quite a few schools are relatively close to the maximum,” he says.

For-profit students later default on their federal loans more often than those who attended public schools or private schools that are not-for-profit.

Still, it’s not hard to find technical school graduates who are employed and paying back those taxpayer dollars.  I just went down the street to Suburban Chevrolet of Ann Arbor, where Andrew Marihugh works.  He recently graduated from UTI.

“I was told it was one of the best in the country,” he says.

He’s repaying $25,000 in loan debt from his training there.

“It was worth it,” he says.  “I think it was worth it.  There’s a lot of people that went to school there and there’s a lot of them that didn’t know how to even change oil.”

Marihugh is now an oil change technician, also called a lube tech.  That’s the most entry level position here.  He’ll work his way up.  And in ten years, he’ll have worked off his debt.

*This story was informed by the Public Insight Network. Add your story here.










“There’s something wrong” Wisconsin leads the nation in private sector job losses since last July, according to the Milwaukee Journal Sentinel. And it’s the only state that’s lost jobs for the last six months in a row.

Rolling the dice The Detroit Free Press revealed over the weekend that a whopping 22 new casinos are being proposed in the state of Michigan. The paper finds plenty of skepticism whether that many casinos could succeed.

Nuclear option Partner station Michigan Radio reports on the effort to save a planned nuclear research facility at Michigan State University.

Cleveland art Cleveland’s new Museum of Contemporary Art will open in October.

Importing workers CNN reports that some manufacturers who can’t find skilled workers in the U.S. have started importing them.

Police cuts Two Chicago police precincts closed yesterday. The Chicago Tribune says it’s part of a move that should save the city $10-12 million. Chicago is working to close a $636 million budget gap.

Recovery People in Ohio, Illinois and Indiana are starting the recovery process after this weekend’s deadly storms.

Kate Davidson
For $2, this little guy gets a “college boy” cut from barber student Tom Amundson

America’s student loan debt is now bigger than its credit card debt. It’s about a trillion dollars. Student loan default rates are rising. While many families struggle to afford traditional colleges, a lot of student debt comes from attending private, for-profit schools that focus on vocational training. These students default on their loans twice as often as students from public colleges. Today we’re looking at one small school battling big defaults.

“I guess I do what everyone else has been doing, dodging the phone calls.”

Mark Howell is on the verge of defaulting on his student loans. Actually, the school he went to has the highest student loan default rate in Michigan.  (For the moment.)

It’s not the University of Michigan. Not Kalamazoo College.

It’s barber college.

In Ohio and Wisconsin beauty schools top the list. Now, these are small schools so their default rates are volatile; a few defaults make a big difference. But this is a story about why these default rates matter to old-fashioned trade schools like the Flint Institute of Barbering.

So, picture an overgrown barber shop, bright and cheerful. In the morning, a crowd of people gathers for student haircuts — $2.50 for a beginning student, $5 for advanced.

Kate Davidson
The Flint Institute of Barbering doubles as a community barber shop

Tom Amundson is 50 and new to barber school. He was an automotive designer for 30 years but got laid off a few times. Then he caught up with a buddy who owns a barber shop.

“He talked to me about it and he said, ‘Why don’t you get into the business?’” he says. “And I said, ‘Kinda old.’ And he said, ‘No, you’re never too old to cut hair.’”

Kate Davidson
Like most of his classmates, Tom Amundson took out federal loans to attend barber school

So Amundson took out federal loans, just like three quarters of his class.  He’s hoping to make up to $35,000 as a barber — about half what he made as a designer.

Martha Poulos’s family has run the barber school since 1925. Tuition and fees are about $8,000 for a year. But Poulos says most of her students are low-income, from urban Flint; many come to school full-time while supporting children. She says that all plays into the default rates.

“The three year ago rate was 15.5%,” she says. “Our 2008 cohort was 29%. Our 2009 cohort – and these are the official rates – was 30.5%.”

That means almost a third of those who started repaying their loans in fiscal year 2009 had defaulted two years later.

“We were very alarmed,” Poulos says. “And not happy, and we’re trying to work as much as we can and do the best we can…”

Kate Davidson
Martha Poulos’s grandfather started Flint’s barber school in 1925

Now, Martha Poulos is dedicated to her students. This woman will dye their jeans black, by hand, if they can’t afford to meet the school’s dress code. But she didn’t have a DIY solution to the default problem.  So she hired a service to track students who are delinquent on their loans. She says she couldn’t risk it.

Schools with high default rates can lose access to federal student aid. While the Flint Institute of Barbering does bring in money through its barber shop, more than half its revenue comes from federal student aid.

Benjamin Blount has been getting his hair cut at the Flint Institute of Barbering for almost a decade

“They are so reliant on federal financial aid dollars,” says David Deming of Harvard’s Graduate School of Education. He’s talking about the wider for-profit sector of higher education, which he says gets almost 75% of its revenue from federal student aid.

Kate Davidson
Big default rates endanger financial aid, so the school hired a servicer to help with loan collection

According to the Department of Education, 15% of students who train at proprietary schools default on their federal loans. That’s compared to a national average of 8.8%, at last count.

(You can see the national trend on this graph. The big dip was due to a tightening of financial aid regulations in the early 90s.)

David Deming thinks for-profit students default more because they tend to pay more than students at public colleges. He adds that default statistics understate the extent to which people struggle to pay back loans.

“If you take out a five figure loan for a relatively short program,” he says, “if you don’t find employment relatively soon after that program it’s going to be very hard to pay back your loan.”

Of course, barber school is a small part of the for-profit training world. Changing Gears is going to look at student debt from bigger technical schools in the weeks ahead.

Kate Davidson
Mark Howell doesn’t want to default on his student loans, but he may be on the road

In the meantime, remember Mark Howell? He’s now a barber in a kindof hard to find corner of a mall in Flint. Cutting hair is his passion. But he says building clientele is slow in a town that’s full of barbers.

“You can’t make the payments,” he says, “but at the same time, you’re trying to find work to make the payments. And if you don’t make the payments, you gotta deal with the consequences behind that, which is your license at stake.”

He’s already gotten a couple loan deferments. He says he’s scratching and hustling to make ends meet. And he’s not the only one.

We admit it, we’ve been a little poll-obsessed lately. But last week, a poll caught our attention that had nothing to do with the upcoming GOP primaries in Michigan and Ohio. The poll was done by Public Policy Polling and it basically ranks U.S. states based on popularity.

Turns out, the Midwest didn’t do so hot. No Midwestern states were in the top 10, and Illinois had one of the lowest scores of all states. But buried deep in the data, we noticed that opinions of states varied hugely depending on who was being polled. And, since we spend a lot of time in the Midwest talking about how to attract young people, we wondered how the poll results would be different if you just looked at people aged 18-29. So we put together some charts. As you can see, the results are a little surprising. Tennessee? Really?


From "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," an MIT working paper. Click for a larger view

The surge Chinese manufacturing over the past two decades has gotten a lot of attention – and a lot of concern – in the industrial Midwest.

It’s easy enough to see what the effects have been here. We’ve seen it in the empty factories that no longer make things. We’ve seen the increase in products made in China. And it’s easy to think that the Midwest has suffered more than any other region from trade with China.

But a working paper released last year by MIT shows that isn’t true.

The researchers who wrote the paper looked at how increased Chinese imports have affected workers in different metropolitan areas (or “commuter zones” as they preferred to call them).

The paper itself is filled with complicated equations that may be difficult to confront on a Friday afternoon. But the MIT News service posted a story about the paper this week, including comments from economist David Autor, one of the study’s authors.

Here’s a Friday-friendly explanation of what they found:

In conducting the study, the researchers found more pronounced economic problems in cities most vulnerable to the rise of low-wage Chinese manufacturing; these include San Jose, Calif.; Providence, R.I.; Manchester, N.H.; and a raft of urban areas below the Mason-Dixon line — the leading example being Raleigh, N.C. “The areas that are most exposed to China trade are not the Rust Belt industries,” Autor says. “They are places like the South, where manufacturing was rising, not falling, through the 1980s.”

Researchers ranked each city based on its workers “exposure” to Chinese trade. From 1990-2000 no city in the Midwest made the top 10. From 2000-2007, only two did – Chicago and Milwaukee. Meanwhile, cities out West dominated the list, with San Jose, Cali. ranking first in exposure during both periods.

None of this means that the Midwest hasn’t been hit hard by trade with China. The paper says America lost a total of about a million jobs because of trade with China from 1991-2007. That included a quarter of all manufacturing jobs in the country. The Midwest certainly had its share of losses.

But, at least in terms of the impact per worker, the Midwest was far from the hardest hit.

About midway through Wednesday night’s Republican presidential debate in Mesa, Arizona, moderator John King of CNN turned to a topic that’s front and center in the Michigan primary: the auto bailout.

It momentarily turned into a free for all between Michigan’s native son, Mitt Romney, and Pennsylvania’s former U.S. senator, Rick Santorum, over what kind of help the federal government should have given the auto companies. You can read and see CNN’s coverage here.

On Thursday, President Barack Obama’s campaign jumped into the fray with a new television ad that began airing in Michigan, which holds its primary next Tuesday.

The ad, called Made in America, contends Republicans turned their back on the industry in 2008 and 2009, when the automakers went to Washington for federal assistance.

And, the campaign has a point. None of the Republican candidates supported the direct bailout of General Motors and Ford. And, Republicans in the Senate opposed legislation that would have provided Congressional assistance.

But Romney was the most vocal at the time, writing a now-famous op-ed in the New York Times in 2008 entitled, “Let Detroit Go Bankrupt,” and his answers have received the most scrutiny.

The new Obama campaign ad references that op-ed, and declares, “Now, a new, restructured industry is back because of the grit and sacrifice of Michigan workers.” It concludes: “Don’t bet against the American worker.”

As he explained Wednesday night, he felt the car companies should have gone through a “managed bankruptcy” or a more-conventional bankruptcy that would have been financed by banks, not the Treasury Department.

Banks, however, received their own bailout, and were not inclined to lend to the car companies. Plus, conventional bankruptcies could have taken years, not the quick trips that GM and Chrysler experienced.

United Auto Workers members are preparing to demonstrate on Friday, when Romney makes his highest-profile appearance ahead of the primary, a speech to the Economic Club of Detroit at Ford Field.

I talked about the Michigan race with Judy Woodruff of PBS NewsHour on Wednesday night. You can watch our interview here.

A new poll by NBC News shows Mitt Romney taking a narrow lead over Rick Santorum in the race to win Michigan’s Republican primary next Tuesday.

The NBC poll, out Wednesday, showed 37 percent of likely voters support the former Massachusetts governor, while 35 percent support the former Pennsylvania senator. To statisticians, that’s within the margin of error, meaning a statistical tie.

“Michigan is neck and neck,” said Lee Miringoff, director of the Marist College Institute for Public Opinion, which conducted the NBC survey.

That’s a big change from last week, when Santorum led Romney in two Michigan polls.

When it comes to the November election, President Barack Obama would defeat Romney by nearly 20 percentage points in Michigan, the poll found. He would defeat Santorum by 22 points.

Meanwhile, the Santorum campaign said a daily tracking poll  by the Gallup Organization showed the former senator maintaining a national lead of 36 percent to 26 percent among Republicans and Republican-leaning independents.

On Wednesday, Romney won the endorsement of the Detroit News, which said he had a “refreshing free market vision for restoring the nation’s prosperity.”

Romney, meanwhile, touched on one of the most-discussed issues in Midwest politics on Tuesday. He told an audience in Shelby Township, Mich., that he supports a Right to Work law for Michigan, according to our partner station Michigan Radio.

He hasn’t made any secret of his support for the legislation, which would prevent unions from charging mandatory dues if workers chose not to join. Indiana recently became the first Great Lakes state to enact Right to Work legislation, and the first in the U.S. to adopt it in a decade.

But his support of Right to Work puts him at odds with Michigan Gov. Rick Snyder, who endorsed him last week. Snyder has said Right to Work is not a priority for his administration, and thinks the measure could distract from the state’s economic agenda.

You can read all of Changing Gears’ coverage of the Michigan primary here.

Last year, Alabama enacted the country’s most restrictive laws against illegal immigration. One week later, Dayton, Ohio, set out a welcome mat for immigrants. And it’s not alone.

In the second part of our look at immigrants and the Midwest, we’ve found many local governments are trying to attract immigrants as an economic development strategy.

Tom Wahlrab from Welcome Dayton speaks to Global Detroit.

Dayton got attention from all over the world last fall when its city commission unanimously approved a plan called Welcome Dayton to make it an “immigrant-friendly city.” Since then, the town has been inundated.

“We have people calling us from South Africa that read about us in the local paper,” Tom Wahlrab, one of the plan’s architects, said recently in Detroit. “We have people from North China that want to immigrate here, they thought we could help them.”

All that attention so far is just for a plan. It’s a rebranding campaign for Dayton, as well as a framework for helping local government make it easier to integrate immigrants into life there, whether that’s buying a house, starting a business or learning English.

Wahlrab spoke at the invitation of Global Detroit, a network of organizations and individuals that describes itself as promoting immigration as an economic development strategy.

Dayton’s attention might have made a few other Midwestern cities a little envious. Global Detroit’s Steve Tobocman was quick to point out that Dayton isn’t the only one trying to get immigrants to relocate.

“We’ve been at it a lot longer, we’ve attracted a lot more money,” he said at the event. “But I believe there is a certain elegance and opportunity in the plan that Dayton has put together. They’ve done certain things so profoundly right that I think we have a lot to learn from it.”

Global Detroit recently received a $2.6 million grant from the Kellogg Foundation that it will use in part to fund small businesses in two predominantly Arab and Hispanic immigrant neighborhoods in Detroit. The money will also go to further fund its Detroit Welcome Mat initiative, which involves 75 local social service agencies that work with immigrants.

Audrey Singer, who studies immigration for the Brookings Institution in Washington, said modern waves of migrants into the U.S. have mostly gone to Chicago, the South or Southwestern United States. Those who relocate to the Midwest are different.

The Midwest attracts “a very strong, small group of immigrants who have higher education levels much higher than other parts of the country,” she said. Her research shows that in Cleveland, there are 169 immigrants with at least a bachelor’s degree for every 100 immigrants with a high school diploma or less. Pittsburgh has the highest ratio of any metropolitan area in the country – 391 high skilled immigrants for every 100 low-skilled immigrants.

In the U.S., those concentrations of high skilled immigrants are found only along the East Coast – and across the Great Lakes states.

Singer thinks that’s one reason why governments in this region tend to be more welcoming to immigrants.

Addison's Mayor, Larry Hartwig (Niala Boodhoo)

One such place is Addison, Illinois, about 20 miles west of Chicago. It’s a small town – technically, a village – and the type of place where the Mayor has his home phone listed on the town’s website. In the past fifteen years, the number of immigrants living in Addison has grown to almost half the town’s 40,000 residents.

Addison’s Mayor, Larry Hartwig, told me that 34 percent of the community is also foreign-born. While most of the immigrant population is Mexican, there’s also a growing Polish, Albanian and Southeast Asian population. A Hindu temple was recently built nearby.

I spoke with Hartwig at the Henry Hyde Community Resource Center. It was deliberately built in what used to be a tough neighborhood, in hopes of turning it into a more hospitable place.

Now, about one hundred local kids come here after school. There are 750 adults who use it in the morning and evenings for ESL classes – so many, in fact, that the center has a waiting list.

Hartwig says that integrating immigrants, some of whom have come directly from small towns in Mexico, has required adjustments for everyone. It’s something the town has worked hard at for the past 15 years. A few years ago, the village hired consultants who provided cross cultural training for key people in town. Those people, in turn, have trained others – even the local PTA groups at Addison’s schools.

Kids exercising in the afterschool program at Addison's neighborhood resource center (Niala Boodhoo)

“From village halls to the schools to the park district everyone’s making a concerted effort to see what can be done to integrate the community,” said Kiki Deluna, a first generation Mexican-American who is the executive director of the Resource Center.

Unlike Dayton or Detroit, Addison never promoted itself as a place for immigrants to move to – they came on their own. But Mayor Hartwig said that now the town realizes “the essential role immigrants play in our economic development”.

Hartwig wants to be clear that he doesn’t think Addison is doing things perfectly. But he knows that Addison has to be successful at integrating the entire community.

“Immigrants are going to be an important part of our workforce,” he said. “If we are out in front welcoming and integrating and making it work I think it’s going to give us a great competitive advantage, over other areas of the country, and probably other areas of the world.”

Built In Chicago

The non-profit group Built In Chicago analyzed data from 2011 and found that it was a big, big year for web-based startups in the city.

128 new companies launched last year, and the total amount of new capital raised by web-based companies in Chicago was up 431 percent.  A hefty chunk of that increase came from Groupon. But even excluding the coupon giant, funding of Chicago’s web startups was up 75.8 percent.

UPDATE: Maria Katris, Executive Director of Built In Chicago, estimates in an email to us that the the 128 businesses launched last year created 700-1,000 jobs. And the digital sector as a whole is responsible for 25,000 – 30,000+ jobs for the Chicago area. Built In Chicago also looks at the top 50 digital companies in the Windy City and finds that they’ve created more than 11,500 jobs.

And there are signs that Chicagoans are preparing for some long-term growth in this area. We told you last month about 1871, a new 50,000 square foot startup tech center in Chicago. And companies from other parts of the country are starting to take notice of Chicago’s tech talent, particularly in the sales and marketing world.

Katris says she expects further growth in the coming years. She tells us:

In 2011, a new startup launched every third day.  We predict you will see a new startup launching every other day in 2012, and every day in 2013.

Venture Capitalist, entrepreneur and blogger Brad Feld highlighted Chicago’s startup activity in a blog post yesterday.

Feld said what’s happening in Chicago “is a great example of what happens when entrepreneurs take a long term view to building their startup community.”

Steve Kline Jr., Gardner Publications Inc.

We love a good chart here at Changing Gears, and this is one that definitely caught our attention. The chart shows the rate of change for machine tool sales in the United States.

In a general sense, machine tools represent the base of the manufacturing chain. They’re usually not on the assembly line. They’re in the local mom-and-pop tool and die shops that dot the Midwestern landscape. Machine tools make the things that hold everything else together.

In 2010, investments in these tools exploded. As you can see in the chart, sales increased at a faster rate than at any time in the last four decades, at least.

We already knew that manufacturing is on the rebound in this country. But what can we learn from this explosive growth in machine tool sales?

First, the chart tells us more about where we’ve been than where we’re going.

The chart comes from Steve Kline Jr. at Gardner Publications. Gardner publishes a number of trade magazines, including Modern Machine Shop.

On the MMS blog, Kline writes:

On annual basis, unit sales were up 45.8 percent and real dollar sales were up 60.3 percent in 2011 compared to 2010. While the annual rate of change continues to show slower growth, the current rates of change are still historically high.

We called Kline for an explanation of why the change has been so dramatic. He says it’s because the recession of the past few years was the worst on record for sales of machine tools.

Machine tool sales (in January of 2009) were basically the lowest monthly unit total ever – at least since probably 1900. They were shockingly low. When you’re comparing those low unit levels to now, that’s what’s driving that rate of change so much higher than before.

It’s worth remembering that while GM and Chrysler were getting all the headlines for their bankruptcy process, thousands of small manufacturers were simply closing up shop. They weren’t buying new machines, and, for the companies that survived, there was suddenly a glut of used machines on the market. Combine that with the low orders from companies further up the chain, and you get the worst sales numbers ever for machine tools.

But Kline says there’s more to the story. The growth in machine tool sales may represent more than just a recovery from a historic downturn.

“There is a chance that we could see strong capital equipment sales for a long time,” he says.

Right now, a lot of factors are supporting manufacturing in America. One of the biggest is that the dollar continues to be relatively weak. When that happens, making things here is cheaper, and selling them overseas reaps a bigger profit.

Kline says manufacturers that once built things overseas are bringing some of that work home. Last decade, the big trend was to offshore work. Now, Kline says many companies are finding that the savings they hoped to get from offshoring haven’t really materialized, because:

  • Costs were never really that much lower overseas, once you factored in shipping and other logistics.
  • Quality control is a lot more difficult when the factory is overseas.
  • Labor costs in places like China have been rising.
  • The value of the dollar has been declining, so U.S. manufacturing is cheaper than it used to be.

Add it all up, and the future is starting to look pretty bright for small manufacturing businesses in the U.S. And for the people who sell them machines.

Now, if they could just find some skilled workers to run the machines.