Steven Eisman, a hedge-fund manager known for having anticipated the housing market crash… [says that] [w]ithout tighter government regulation, … students at for-profit colleges will default on $275 billion of student loans over the next decade.
The New York Times explains why the federal government is now proposing new rules under which “for-profit colleges would not be eligible to receive federal student aid if their graduates’ debt load was too high to be repaid, over 10 years, with 8 percent of their starting salary.”
“These programs overpromise, underdeliver and load vulnerable students up with way too much debt,” said Chris Lindstrom, higher education program director at the U.S. Public Interest Research Group, part of a coalition of education, consumer, student and public interest groups supporting the regulations.
In 2007, coalition members said, students at for-profit colleges made up only 7 percent of those in higher education but 44 percent of those defaulting on federal student loans.
Socially destructive? Morally bankrupt? The industry will tell you it’s taking the poorest Americans and giving them livelihoods. What the for-profits do is really more of a charitable vocation than a bottom-line business. Who else is going to care enough to drag homeless people off the streets and load them up with debt?
A surprising number of the people enrolled by these companies are homeless. According to Bloomberg, homeless people account for almost 5% of the students in the Newark, N.J., branch of Drake College of Business, a trainer of medical and dental assistants. In late 2008, Drake started offering $350 every two weeks to students who showed up for 80% of classes and held onto a C average. Carmella Hutson, a case manager at the Goodwill Rescue Mission in Newark told Bloomberg, “It’s basically known in the community: If you’re homeless, and you need some money, go to Drake.”
As someone once employed by one of these schools says, “The level of deception is disgusting — and wrong. When someone who can barely afford to live and feed kids as it is, and doesn’t even have the time or education to be able to email [enrolls], they drop out. Then what? Add $20,000 of debt to their problems — what are they gonna do now. They are officially screwed. We know most of these people will drop out, but again, we have quotas and we have no choice.”
And not only that, but almost all the money the companies pass on to these people as personal debt comes from us! It’s our taxes helping these people add tens of thousands of debt to their burdens!
A win-win situation…
June 6th, 2010 at 12:02PM
proposed rules under which “for-profit colleges would not be eligible to receive federal student aid if their graduates’ debt load was too high to be repaid, over 10 years, with 8 percent of their starting salary.”
If this is a reasonable rule…sounds like it is, at first blush…why not also apply it to “non-profit” colleges? If these institutions are mostlydoing much better at putting their students on a career track which pays back the loans…as suggested by the comparison “students at for-profit colleges made up only 7 percent of those in higher education but 44 percent of those defaulting on federal student loans”…then *most* of the traditional colleges should have no problem with it, and those that *would* have a problem with it probably have issues that need to be addressed.
(Though I have to note that the 7%/44% comparison is statistically invalid as it stands: a correct analysis would also have to consider the % of students having loans at each kind of institution)
June 7th, 2010 at 4:23PM
[…] of bubbles, hedge fund manager Steve Eisman, who is well-known for having anticipated the housing market crash, has some strong words about the […]