How For-Profit Colleges Contribute to the Student Loan Crisis

Posted on September 28, 2015 at 12:00pm by
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Students who have attended for-profit colleges are often chasing the American Dream – homes, cars and stable careers. However, many of these students will finish higher education with degrees from non-accredited universities and with tens of thousands of dollars in student loans. Many of these colleges also have astronomically high student loan default rates.

Department of Education statistics show students from for-profit universities account for half of all loan defaults. Additional research has shown the default rates at for-profit colleges are even higher. A report released by the Brookings Institution shows 70 percent of student loan defaults come from those who attended for-profit colleges. According to the Brookings Institution report, students who attended for-profit colleges make $23,000 a year after leaving, but have $14,255 in debt.

The University of Phoenix is a great example of how for-profits have contributed to high student loan default rates. Forty-five percent of students who left the institution in 2009 have defaulted on loans. In addition, former attendees of the University of Phoenix owe more in student loans than any other college in the country, about $35.5 billion total.

Federal Government Goes After For-Profit Colleges

Due to the high default rates, enormous amounts of debt and poor career prospects, the Obama Administration recently required for-profit schools to track graduates’ performance in the workforce. The “gainful employment” rule will take away federal funding from for-profit colleges with high student loan default rates and graduates who fail to meet performance standards.

For many former students of for-profit colleges that have defaulted, their loan balances have likely doubled due to capitalized interest and penalty fees. Some federal lawmakers have called for a restoration of normal bankruptcy protections on student loans.

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