The for-profit college student loan nightmare

Over at Washington Monthly, Stephen Burd takes an extended look at one of the biggest -- and least reported on -- financial crises facing young people: unethical for-profit college foisting massive debt loads on their students. These debt loads often carry exorbitant interest rates and lack any consumer protections whatsoever.

The stories Burd tells are egregious: Slick, misleading advertising luring prospective suckers students into meetings with admissions officers -- glorified salespeople straight out of Glengarry Glen Ross. The admissions people then lie to students about the benefits of the program, and sign them up for high-interest student loans without explaining the terms.

Then the students get an education that has little if any value in terms of adding to earnings power, and their financial lives are literally ruined by the debt they took on.

One of Burd's solutions to the problem is right on: Give consumers more information:

These proposals are a good start, but more steps will be needed. For starters, the Department of Education should publish the data that it already collects on the number of students at each school who default over the lifetime of their loans. At the moment, it only releases the number who default during the first two years after leaving college, which is of limited value, not only because this is such a short time span, but also because the rates can be easily manipulated by schools. Just publishing lifetime default rates would give prospective students a clearer picture of the risks of enrolling in a particular school.

It's been a source of considerable amazement to me for quite some time that it's impossible to find out what the long-term default rate on student loans is. If I were considering borrowing money to pay for college, I would definitely want to know my chances of earning enough to pay it back.

For parents and prospective students, the best thing to remember about for-profit colleges is this: Don't enroll in them. Even if their intentions were great -- which they usually aren't -- the fact that they don't have endowments, must pay taxes, and don't receive state aid puts them at a huge competitive disadvantage, and you'll be able to find better value at local community colleges or public four-year colleges and universities.
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