Update: For-profit schools, student debt, and worse

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For-profit educational institutions are ripping off students and taxpayers, according to an important report in Washington Monthly.

Yesterday (December 15), I wrote about recently-released federal numbers showing that for-profit schools have the highest default rate on student loans. I wrote that:

Harris Miller, president and CEO of the Career College Association, which represents for-profit colleges, told AP that part of the reason for their high default rate is that they accept so many low-income students. Funny, I’d guess that it has more to do with their high tuition, low graduation rates and consequent inability of indebted ex-students to find jobs that pay enough to make the loan payments.

The Washington Monthly has an article that confirms my guess, and then some, detailing the ways that for-profit schools rip off students and the federal scholarship/loan programs. Confirming Miller’s statement that most of their students are low-income, the article also finds that these students incur huge debts, with high-interest private loans in addition to federal grants and loans. The Subprime Student Loan Racket, should be required reading for anyone making laws about student loans and for anyone contemplating enrolling in one of these institutions. A few of its findings:

[T]he median graduation rate for proprietary schools is only 38 percent—by far the lowest rate in the higher education sector. What’s more, even those students who make it through often can’t find jobs. The reason for this is simple: while some proprietary schools offer a good education, many more are subpar at best. Thus large numbers of students leave with little to show for their effort other than a heap of debt. …
Significantly, many proprietary schools are pushing institutional loans even when they know students won’t be able to pay them off; Career Education and Corinthian Colleges only expect to recover roughly half of the money they distribute through their institutional lending programs, according to communications with shareholders. Why would they lend knowing they won’t get the money back? Because any loss is more than offset by federal loans and financial aid dollars, which, despite the surge in private educational lending, still fund the bulk of tuition at proprietary schools.

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