Student Loans. A review of Student loan Scams by For-Profit Colleges

According to a recent study by USA Today, more than 260 public, private, and for-profit colleges and universities in 40 states, the District of Columbia and Puerto Rico have students who have taken out student loans to complete their college education. The majority of these students taking out high-interest loans, however, attend a for-profit college.

As traditional public universities increase their admission’s requirements, and increase their tuition, and as the competition for the best students also increase, thousands of students are seeking the alternatives offered by for-profit colleges. Emboldened by the success of their parents, and even strong-armed to obtain a college education, thousands of students each year enroll into either a public, private, or for-profit college.

For students unable to attend a traditional Division I, NCAA, public unversity, either because of a lack of stellar academic performance in high-school, or lack of income, then attending a for-profit college is a final, last gasp, alternative unless they wish to pursue a community college.

Statistics indicate that the costs of attending a for-profit college are much higher than attending a public institution. This should be no surpise for any person with an ounce of common sense. Remember: the dominate purpose of a for-profit college is to make a profit first, and perhaps to educate second. Regardless of the ability of the student to pay back the student loan, the foremost object of the for-profit college is to produce a profit at all costs, and to obtain enrollment and/or tuition monies along the way.

Fuel Behind the $1 trillion dollar Student Loan Debt

In 2010 student-loan debt exceeded credit-card debt for the first time. In 2011 it surpassed auto loans. In March of 2012, both the Wall Street Journal and the Consumer Financial Protection Bureau, announced that student loan debt had passed $1 trillion. It grew by $300 billion from the third quarter of 2008 even as other forms of debt shrank by $1.6 trillion, according to a separate tabulation by the Federal Reserve Bank of New York.

It is typical that for-profit colleges’ student-loan defaults were about twice as high as among the alumni of public colleges, and three times the level of non-profit alumni — according to the government numbers on those who started repayment in 2007. More worrisome, the Education Department says defaults of the for-profits’ students get much worse over time, rising above 23% of individual loans after four years, compared with 10% for public college alumni and 7% for nonprofit alums.

In a snapshot, the fuel for rising student loan debt matches the spectacular growth of for-profit colleges. ITT-Tech, University of Phoenix, Kaplan Colleges, and the entire for-profit college sector has experienced extreme hyper-growth and sky-rocketing enrollment. a key ingredienat of their success relies upon student loans. For example, Trade-school students take out more loans than their community college peers; 97% of them borrow, compared with just 13% at community colleges.

However, these same Trade-School students have a statistical default rate on their student loans that is twice the rate of their non-profit peers. With more than 140 locations, ITT Technical Institute charges among the highest tuition in its industry. It also has the industry’s highest rate of student loans that go into default within just two-years of attendance. Those high tuition charges yield robust profits, and is considered normal for the for-profit college sector.

I have documented these factors that have helped fuel rising student loan debt:

1. The growth of for-profit colleges, and annual increase of the quantity of for-profit colleges nationwide, and weak regulatory controls that fail to dictate ethical paramters as to who and how they market their services to;
2. The unchecked marketing prowess of for-profit colleges that has yielded more student enrollment, and associated student loan debt;
3. A surge in Americans going to college in recent years to escape a bleak labor market;
4. Natural statistical increase in women and moms attending college;
5. Colleges and universities that are members of National Association of Student Financial-Aid Administrators (NASFAA) appear to have a lock-step policy of annual tuition increases;
6. State funding for education has decreased in many states and this has resulted in the need to take out student loans;
7. As the housing market recession took hold, and interest rates dipped to record lows, more and more students, moms, and women sought to refinance their high-interest student loan debts since the high interest student loan debt instruments led to a dramatic increase in student borrowers falling behind on payments;
8. Federal funding incentives provided to for-profit colleges that induce for-profit colleges to provide speculative student loans to students;
9. The apparent lack of cooperation from teachers and educators in promoting, or sharing resourceful information on private sources of scholarships, grants, and financial-aid.

Alternatives to High-Interest Student Loans

A great alternative to high-interest student loans is low-interest student loans, or the 0% interest student loans sponsored by National Academy of American Scholars. Student-loans are a fundamentally acceptable option for any financial-aid package. Student loans sponsored by National Academy of American Scholars are pre-screened end help ensure that moms, students, and working adults are offered the best options.

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