I spoke earlier of how US graduates are experiencing the highest level of unemployment after graduation in modern history and student loan debt has placed many in the hands of a Department of Education run by Wall Street credit collection businesses making these loans as predatory as credit cards. We know global corporations and their pols are deliberately keeping the US economy stagnant because high unemployment moves Americans deeper into poverty and keeps them desperate for jobs. This entire industry of internships with VISTA and Teach for America is designed to steer youth from starting careers and gaining wealth to doing the job of what was the public sector. This is killing the middle-class and it creates a system of indenture for our children. Remember, the US had a strong economy before Reagan/Clinton neo-liberalism because our economy was driven by domestically with small and regional businesses and strong wages and benefits that allowed families to have disposable income-----THE OPPOSITE OF WHERE NEO-LIBERALISM TAKES US.
I want to talk more about our children and college grads with student loans. First, let's look to how the 1% actually marketed college students into college debt at the same time privatizing student loans from Federal loans to Wall Street loans. Remember, the students feeling this loan debt are the working/middle class and poor. The cost for college is going up for these students as the cost for the affluent goes down. The goal in education reform in America right now is a tiered system that keeps the working/middle class and poor out of strong 4 year universities and tracked into the cheapest higher education opportunities like community college and online degrees. After all, education is wasted on 90% of Americans say the 1%!
Below you see how student loan debt worked just as subprime loan debt.....a complete relaxing of terms for loans when loans were made private. Mind you, student loans when Federal were a well-run and public interest. George Bush and public media pushed the idea last decade that your child must get a masters degree or above to land a job at the same time they were building the global structures that would crash the economy and hand off power to global corporations everyone knew would create this stagnant job market. IT WAS DELIBERATE. So, loading people with debt knowing the economy will crash---sound like the subprime mortgage fraud? You betcha. Meanwhile they were raising the price of tuition to build the corporate structures that took universities from academics for US students to being corporations marketing and recruiting students from around the world.
So, once again, it is the working/middle class desperate for financial relief falling into the hands of predatory lending because there is no public justice or oversight and accountability protecting the American people.
The poor are being used simply to funnel public money to for-profit higher education with high tuition mostly paid by taxpayer money and no receiving no benefit in employment for the most part. Same as subprime mortgage loans. In both the subprime mortgage scam and this for-profit mortgage scam the goal is simply to move public money to the same people at the top while loading debt onto citizens.
This is happening because all of the public sector designed to protect the public and provide stability have been dismantled.
Of course it is the TV stations geared toward low-income audiences loaded with these loan predators. I called the Maryland Attorney General about the level of fraud and predatory advertizement on media in America and was told they did not get involved until millions of dollars were lost to these frauds.
- Student loan debtors targeted by fraudsters- MSN Moneymoney.msn.com/...student-loan-debtors-targeted-by-fraudsters CachedThose shackled with student loan debt are increasingly being targeted by scams and shady companies promising relief.
Remember, a corporate nation seeks revenue from its citizens to be used to maximize profits for corporations. That's why trillions of dollars in corporate subsidy and corporate fraud are making profits soar as neo-liberals pretend there is a government debt and deficit---tens of trillions of dollars in corporate fraud recovery would pay all government debt.
We know in Baltimore the government has now become predatory on its citizens for revenue as massive amounts of corporate subsidy take all public revenue. That's what is happening with our children and student loans. Corporate bankruptcy allows corporations to shed almost all debt-----no bankruptcy for a social good---student loans. Ideally, higher education should be free for goodness sake.
STOP VOTING FOR CORPORATE POLITICIANS IN PRIMARIES----WE MUST REBUILD THE DEMOCRATIC PARTY WITH LABOR AND JUSTICE CANDIDATES!
We are being led to believe that Congressional democrats are doing all they can and are thwarted at every turn by republicans on these issues. The problem is who the President appoints as head of Department of Education----in this case Arne Duncan who is privatizing the heck out of this agency-------and the failure to pursue massive for-profit education fraud. Doing just that would greatly reduce pressure on students and families.
DO YOU HEAR YOUR POLS SHOUTING THIS? IN MARYLAND ALL POLS ARE CORPORATE AND WORK FOR WEALTH AND PROFIT AND NOT PUBLIC JUSTICE.
Posted: 05/14/2013 11:18 pm EDT | Updated: 05/15/2013 3:49 pm EDT Huffington Post
Figures made public Tuesday by the Congressional Budget Office show that the nonpartisan agency increased its 2013 fiscal year profit forecast for the Department of Education by 43 percent to $50.6 billion from its February estimate of $35.5 billion.
Exxon Mobil Corp., the nation's most profitable company, reported $44.9 billion in net income last year. Apple Inc. recorded a $41.7 billion profit in its 2012 fiscal year, which ended in September, while Chevron Corp. reported $26.2 billion in earnings last year. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported a combined $51.9 billion in profit last year.
The estimated increase in the Education Department's earnings from student borrowers and their families may cause a political firestorm in Washington, where members of Congress and Obama administration officials thus far have appeared content to allow students to line government coffers.
The Education Department has generated nearly $120 billion in profit off student borrowers over the last five fiscal years, budget documents show, thanks to record relative interest rates on loans as well as the agency's aggressive efforts to collect defaulted debt. Representatives of the Education Department and Congressional Budget Office could not be reached for comment after normal business hours.
The new profit prediction comes as Washington policymakers increasingly focus on soaring student debt levels and the record relative interest rates that borrowers pay as a potential impediment to economic growth. Regulators and officials at agencies that include the Federal Reserve, Treasury Department, Consumer Financial Protection Bureau and Federal Reserve Bank of New York have all warned that student borrowing may dampen consumption, depress the economy, limit credit creation or pose a threat to financial stability.
At $1.1 trillion, student debt eclipses all other forms of household debt, except for home mortgages. It's also the only kind of consumer debt that has increased since the onset of the financial crisis, according to the New York Fed. Officials in Washington are worried that overly indebted student borrowers are unable to save enough to purchase a home, take out loans for new cars, start a business or save enough for their retirement.
Policymakers also are worried about the effect that high interest rates on outstanding student debt may have on the broader economy. Congress sets interest rates on federal student loans, with rates fixed on the majority of loans at 6.8 and 7.9 percent.
But as the Federal Reserve attempts to lower borrowing costs for everyone from households and small businesses to large corporations and Wall Street banks, student borrowers have not been able to benefit.
Compared to a benchmark interest rate -- what the U.S. government pays to borrow for 10 years -- student borrowers have never paid more, increasing the burden of their student debt as wage increases and yields on investments and bank accounts fail to keep up with the relative increase in student loan interest payments.
President Barack Obama recently asked Congress to tie federal student loan interest rates to the U.S. government's borrowing costs. In a possible sign of congressional intent, leading Democratic senators on Tuesday proposed legislation that would keep existing interest rates on some student loans for the neediest households fixed at 3.4 percent, rather than allowing them to revert back to their original 6.8 percent rate.
The legislation, dubbed the "Student Loan Affordability Act" and proposed by Senate Majority Leader Harry Reid (D-Nev.), Sen. Patty Murray (D-Wash.), Sen. Jack Reed (D-R.I.), and Sen. Tom Harkin (D-Iowa), aims to help a small subset of future student borrowers who take out loans over the next two years. The bill does nothing for existing student debtors.
"Today's figures from the CBO underscore the urgent need for Congress to prevent the July 1 interest rate hike and address the crushing debt placed on students," said Tiffany Edwards, spokeswoman for Democrats on the House Education and Workforce Committee.
Rohit Chopra, the Consumer Financial Protection Bureau official overseeing the regulator's student debt efforts, has warned policymakers to not focus solely on future borrowers.
“The whole student loan problem is a problem that should be of deep concern to this body,” said Richard Cordray, CFPB director, during testimony last month before the Senate Banking Committee. “These are young people that we should care a great deal about.”
“They’re the ones with the ambition, aspirations and dreams, and they're getting saddled with debt that they don't understand,” Cordray said of student borrowers. “It's holding them back and it's making them unable to rise and succeed and become leaders in our society.”
He added: “It's a significant problem and we're going to be doing everything that we can to address it at the bureau.”
The CFPB has been focusing on helping existing borrowers refinance high-rate debt or modify the terms of their loans. In a report earlier this month, the CFPB lamented that borrowers are unable to refinance their obligations after they have graduated from college and secured well-paying jobs.
"Corporate entities, homeowners, and many others have been able to refinance debt at quite low rates, and student loan borrowers are wondering why they can't do the same," Chopra said.
The CFPB suggests that increased concentration in the student loan market may inhibit refinancings and debt workouts. Lenders and the Education Department profit when borrowers pay higher rates than they otherwise would in a normally-functioning market.
Unlike traditional lenders, though, the Education Department's profits are barely dented by loan defaults. For loans made in 2013 that eventually default, the department estimates it will recover between 76 cents and 82 cents on the dollar. Bankruptcy rarely discharges student debt.
The Education Department's collection efforts are aided by loan default specialists, including NCO Group Inc., a company owned by JPMorgan.
- The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers, a sum greater than the earnings of the nation's most profitable companies and roughly equal to the combined net income of the four largest U.S. banks by assets.
We all know that the massive frauds of last decade were centered in large extent in neo-liberal states----from New York to California, from Maryland to Illinois. Nancy Pelosi's district in California is ground zero for for-profit education fraud and the subprime mortgage fraud for instance. Maryland has record subprime mortgage frauds and foreclosures and for-profit education frauds because it allows these corporations to come to Maryland and openly prey on the public. Republicans of course do the same, but the democratic party is the people's party and tasked with protecting labor and justice.
Insider Trading by Congress throughout these massive corporate frauds was exposed and Congressional response was----to pass a law that Congress cannot be charged with Insider Trading and to make sure Rule of Law remains suspended with no public justice.....which by the way is itself illegal in a Equal Protection/Rule of Law nation.
THIS IS THE PROBLEM FOR STUDENT LOAN DEBT AND REINSTATING RULE OF LAW AND REBUILDING PUBLIC JUSTICE IS THE SOLUTION. SEE WHY CINDY WALSH FOR GOVERNOR OF MARYLAND AND HER JUSTICE PLATFORM CANNOT GET MEDIA AIRTIME IN MARYLAND AND ESPECIALLY BALTIMORE WHERE ALL THIS FRAUD RUNS RAMPANT?
Keep in mind this one corporation mentioned in this article is the very tip of a massive iceberg in fraud in the education/financial industry and NOT ONE WORD IS MENTIONED OF THE NEED FOR JUSTICE FOR THE PUBLIC.
For-Profit Education Fraud Tied to Political Elite
A bipartisan group of the nation's political leaders have close ties to for-profit college scams. Now, an $11 billion lawsuit is forcing some of them into the spotlight.
On Friday, April 13, 2012,
The lead plaintiff in the class-action suit, Chinea Washington, claims The Art Institute of California, Hollywood, led her to believe that federal grants and loans would cover the entire $89,000 cost for a bachelor's degree in interior design.
In November 2011, after three years of study, Washington was provided notice by the "college" that she had reached the federal loan/grant aggregate limit of $52,340 and that it would cost $37,000 to complete the degree. Washington dropped out with $52,160 in debt. Because The Art Institute's credits are not transferable, Washington has been swindled out of $52,000 and three years of her life.
The only way to describe $89,000 for a four-year degree with non-transferable credits from a non-academic college is as a fraud and a swindle, and that characterization possibly fails to convey the frustration and downright victimization students like Washington must feel.
Like subprime mortgages, for-profit colleges are a scam driven by payment of commissions to sales staff known as recruiters. The payment of commissions to high-pressure salespeople is so central to the scam that the umbrella trade group for for-profits, the Association of Private Sector Colleges and Universities (APSCU), has sued the federal government to overturn its ban on incentive pay.
It cannot be stated strongly enough: for-profit colleges could not engage in the ongoing exploitation of students and theft of federal money without the direct cooperation and assistance of the federal government in what can only be termed an immoral economy. The same forces that demonize everything government does or attempts to do are busy feeding from the government trough. The hypocrisy is untenable, the federal subsidies unfathomable and the lack of criminal prosecution unconscionable.
For-profit colleges are a kickback scheme where politicians enact favorable legislation and regulations that allow for-profit colleges to maintain access to student loans and grant money. The for-profit colleges then "give" a small cut of the federal money back to the politicians to enact favorable legislation.
In the cases of Senator Snowe and Sen. Dianne Feinstein (D-California), their husbands have operated under the cover of their wives as they directly benefited, and continue to benefit from, their positions as shareholders in for-profit college companies. Snowe and Feinstein are accomplices in the ongoing evisceration and defrauding of citizen taxpayers and students, which explains the pair's complete silence on this matter.
The so-called ruling class of government officials and elected politicians, to which Feinstein and Snowe clearly belong, is little more than a gaggle of white-collar criminals which facilitates and benefits from the diversion of taxpayer money into private coffers. It all takes on the appearance of legitimacy. Unfortunately, this is not a victimless crime. Like Washington, thousands of students who attend these subprime institutions are left with tens of thousands of dollars of nondischargeable debt which ends up ruining their lives.
There is a vast network of former and current government officials who actively participate in the for-profit college swindle. Some of the conspirators are well known, and include: Mitt Romney, Rep. Virginia Foxx (R-North Carolina), John Kline (R-Minnesota), Alcee Hastings(D-Florida), Trent Lott (R-Mississippi), Lamar Alexander (R-Tennessee), Steve Gunderson (R-Wisconsin), Virginia Democratic Party Chairman Brian Moran, Snowe, Feinstein, Nancy Pelosi (D-California), and John Boehner (R-Ohio). The group also includes Obama administration officials and supporters such as Lanny Davis, Anita Dunn, Hilary Rosen, Anthony Miller and Charles Rose.
- Courthouse News reported a class-action lawsuit by students filed in federal court against the Art Institute of California and its owner, Educational Management Corporation (EDMC). As reported in Truthout, Sen. Olympia Snowe's (R-Maine) husband, former governor of Maine John McKernan, is chairman of the board of EDMC and a former CEO of the company. The company also faces an $11 billion false claims lawsuit by the federal government and 11 states.
Not surprisingly we have solutions to student loan debt that work to maximize bank profits and protect education industry profits----and we have other policies that may work to the public's advantage. This is what needs to happen.
Bankruptcy needs to happen because this entire decade was about predatory lending---handing money out that should not have been given. Banks have a fiduciary responsibility to make sure loans will be repaid. So, discharge all private student loans in bankruptcy and make the banks take the losses. They can then go after the for-profit education industry for massive fraud.
There is a problem with bankruptcy if the Federal and state governments never try to address the fraud. The for-profit industry keeps the fraud and Wall Street comes back to hit the American people for their losses. So, we must have Rule of Law address the fraud while pursuing bankruptcy. You are hearing only the bankruptcy mantra.
The Loan Forgiveness policy pushed by Obama is yet another attempt to corner the student into a repayment program that will be bad for the student in the long run. It is also designed to hit the working/middle class with full debt payment----because $20,000 over 10 years would be paid in full while Ivy League school debt of $100,000 to $250,000 would be largely forgiven after ten years. It is not a coincidence that over the last decade Ivy League parents have largely used private student loans to pay tuition rather than cash.
Tying the working/middle-class to this Forgiveness policy that as this article shows is infused with restrictive requirements is not good for the public.
Inside Higher Ed
December 7, 2012 By Jenna Ashley Robinson
While many approaches have been taken to the problem (trying to cut university costs, for example), there seem to be just two proposals for lessening the burden on the students themselves. These are to allow the loans to be discharged in bankruptcy or to forgive the loans altogether. Both have been the subject of Congressional bills.
Only one of these has the proper long-term incentive effects, and even it should be hedged with some restrictions: restoring limited bankruptcy protection. That is, students should be allowed to get out of their student loan burden as part of bankruptcy proceedings, just as they are able to get out of car loans now. However, this option should be restricted to private loans and should be allowed only after a set amount of time, such as 5 or 7 years, as it was prior to 2005.
While Senator Dick Durbin (D-Ill.) has proposed the idea of restoring bankruptcy protection for borrowers of private student loans several times, it has gone nowhere. Instead, there’s a growing chorus in favor of loan forgiveness. U.S. Representative Hansen Clarke (D-Mich.) introduced H.R. 4170, the Student Loan Forgiveness Act of 2012, earlier this year.
The law would allow students to pay just 10 percent of their discretionary income for 10 years, whatever their total loan amount; then, the remaining debt would be canceled. This is the “10-10 standard.”
In addition, under this bill, the current 3.4 percent cap on undergraduate student loan interest rates (enacted by Congress as a temporary measure) would be made permanent. Private borrowers whose educational loan debt exceeded their income would be allowed to convert their private loan debt into federal Direct Loans, and then enroll in the “10-10” program.
A critical part of the bill is to reward graduates for entering public service professions -- like teaching and firefighting -- with even greater forgiveness. Already, under the Public Service Loan Forgiveness, some graduates can have their loans forgiven if they work in public service for ten years. Few students use the current programs, however, because the rules dictating structure of repayment are relatively restrictive, as Inside Higher Ed recently reported.
The Clarke bill would lower the public service requirement to five years. Similarly, medical graduates would be rewarded for working in underserved communities by reducing the service requirement to 5 years from its current 10 years.
While this bill would benefit the small proportion of students who have extremely high debt levels, it would enormously distort incentives for students and universities -- causing larger problems in the long run.
The problem is that loan repayments will be the same whether students borrow cautiously to attend a state school or borrow extravagantly to attend an exclusive private university. Their payments will be capped at 10 percent of discretionary income for ten years. Because future students will know about the option of loan forgiveness, it will destroy any incentive for them to borrow prudently. They will have no reason to consider the varying costs of higher education.
Their unfettered willingness to borrow will have a ripple effect. Because the federal government will ante up (until it runs out of money), more and more money will flow to the schools through these loans, spurring them to continue to raise tuition and minimizing pressure on cutting costs. (Greater demand typically leads to higher prices.) Students would be simply middlemen -- passing government largesse on to colleges and universities that can’t stop their habit of seeking revenue wherever possible.
Limited bankruptcy protections would send a better message to both graduates and lenders. In 2005, Congress prohibited private student debt from being discharged through bankruptcy, except in rare cases. Government student loans have not been subject to bankruptcy protection since 1976, when Congress exempted them following reports that new doctors and lawyers were filing for bankruptcy to avoid paying student loans.
Indeed, if bankruptcy were available, many young graduates -- who often have no major assets such as a house or a car -- would be tempted to walk away from loan obligations. The federal government lends money to any student who meets minimum standards; it does not evaluate whether the student is likely to pay the money back.
Thus, restrictions are needed to make bankruptcy “work.” First, there should be a waiting period before students become eligible for bankruptcy protection -- perhaps five years after beginning to make payments on student loans.
Second, only loans from private lenders would be dischargeable through bankruptcy. The famous cases of student debt in the $100,000-plus realm tend to include large amounts of private loans. Lenders were able to rely on federal laws preventing bankruptcy -- so the sky was the limit. Federal loans, on the other hand, are capped at $31,000 for dependent undergraduates and $57,500 for independent undergraduates.
By making private loans dischargeable in bankruptcy, there would also be a ripple effect -- a good one. Lenders would become much more cautious. They would actually consider the likelihood that the student would be able to pay back the loan. Instead of relying on government policy to guarantee their profits, banks would have to return to time-tested, responsible banking practices. In the end, fewer students would take private loans and total debt would decrease.
Current student loan policy has led young people down the wrong path -- away from frugality and prudence to profligacy. It’s time to start sending better signals.
December 7, 2012 By Jenna Ashley Robinson
Student loan debt is soaring.
Since 1999, average student loan debt has increased by more than 500 percent, and in 2010, it exceeded outstanding credit card debt for the first time in history. Total outstanding student loan debt, by some counts, exceeded $1 trillion this year.
We want to be clear----the target of people of color happened with this for-profit education scam as was the subprime loan scam. It is the middle-class who feels the brunt of inflated university tuitions created from corporatized universities. So, corporate pols are allowing the government coffers to be soaked with the frauds against the low-income families and then killing the middle-class with corporatized university tuition and unregulated loan amounts.
Again, this was not only a republican policy-----it is a neo-liberal policy. All of this began with Clinton and deregulation and global market building that allowed banks and corporations the power to become unaccountable and large enough to effect the entire nation. IT WAS DELIBERATE AND IT INVOLVES CONGRESSIONAL PROFITEERING.
So, Clinton teed the loaded golf ball, Bush took a huge whack sending that loaded ball all over the course and into the rough, and Obama came along and declared the loaded ball lost and simply dropped a new ball on the course as if the first ball was never loaded.
SUSPENDED RULE OF LAW AND DISMANTLING OF OUR PUBLIC JUSTICE SYSTEM HAS BEEN HAPPENING SINCE CLINTON-----AND IT ALL TIES TO TRANS PACIFIC TRADE PACT THAT ENDS OUR ABILITY AS CITIZENS TO PROTECTION UNDER LAW.
Keep in mind in Maryland, TV stations aimed at low-income are still saturated with for-profit education industry advertizements from the very institutions shown to be defrauding and offering little value to students and taxpayers. For-profit schools run continuous advertizement while receiving most of their money from taxpayer aid. It is not that we do not want low-income to have the aid-----we want to be sure these programs help them----that is what a democracy and democratic party does!
Below is a great article ====it is long, but try to glance through. Remember, Obama ran on holding the for-profit education industry accountable and this article refers to steps taken by Obama in addressing this-----
THAT NEVER HAPPENED. THEY WATERED DOWN THESE POLICIES TO HOLD THE INDUSTRY ACCOUNTABLE AND HAVE NEVER RECOVERED THE FRAUD.
The Subprime Student Loan Racket
With help from Washington, the for-profit college industry is loading up millions of low-income students with debt they'll never pay off.
By Stephen Burd Washington Monthly
At the age of forty-three, Martine Leveque decided it was time to start over. For several years, she had worked in the movie business, writing subtitles in Italian and French for English-language films, but her employer moved overseas. She then tried her hand at sales, but each time the economy dipped sales tumbled, along with her income, and as a single mother with a teenage son, she wanted a job that offered more security. She decided to pursue a career in nursing, a high-demand field where she could also do some good.
While researching her options online, Leveque stumbled on the Web site for Everest College, part of the Corinthian Colleges chain, which pictured students in lab coats and scrubs probing a replica of a human heart and a string of glowing testimonials from graduates. “Now I know exactly where I am going. And now I’m making very good money,” enthused a former student named Anjali B. The school, near Leveque’s home in Alhambra, California, offered a Licensed Vocational Nursing program that would take her just one year to complete. When Leveque contacted the admissions office, she was told she would receive hands-on training from experienced nurses in state-of-the-art labs with the most modern equipment—including a recently purchased $30,000 mannequin that could simulate the birthing process. She also says recruiters told her that she would be able to do rotations at the University of California, Los Angeles Medical Center, one of the nation’s best hospitals.
Leveque was intrigued, though she was initially put off by the $29,000 tuition. But the school’s recruiters assured her there was nothing to be concerned about: Everest had an exceptional track record of helping students find employment—they claimed the typical Everest College LVN graduates landed a job paying between $28 and $35 an hour straight out of school. And the school would arrange a financial aid package to cover her costs.
In the end, Leveque decided to enroll. The day she came in to fill out her paperwork, she says, the recruiters rushed her through the process and discouraged her from taking the forms home to look over. They told her that she would be taking out private loans in addition to federal loans that are traditionally used to pay educational expenses, but did not explain what the terms of those loans would be. “They just kept telling me that ‘we’re with you,’ and that they would try to get me the maximum amount of federal loans allowed,” she says. Only later did she learn that those private loans—which made up 42 percent of her “financial aid” package—carried double-digit interest rates and other onerous terms*.
To make matters worse, the program did not come close to delivering on the promises that had been made. The instructors had little recent medical experience. Instead of really teaching, she says, they usually just read textbooks aloud in class and sometimes offered students the answers on tests ahead of time. On the rare occasions when Leveque and her class were given time in the lab, she found that the equipment was broken down and shoddy—except for the expensive new mannequin, which no one knew how to use. Instead of the promised rotations at UCLA Medical Center, her clinical training consisted of helping pass out pills at a nursing home. (A spokeswoman for Corinthian Colleges denied many of Leveque’s allegations, insisting that the company does not condone cheating, that all LVN instructors at Everest College have “at least the minimum qualifications” set by the California Board of Vocational Nursing, and that UCLA Medical Center “is not and has never been” one of the school’s official clinical training sites.)
Since graduating in 2008, Leveque has been unable to find a nursing job, perhaps because she never learned how to perform basic tasks such as giving shots. Instead, she works as an occasional home health care aid earning at the most $1,200 a month—not enough to pay her rent on the cramped apartment she shares with her sister and son or keep gas in her car, much less pay off her student loans. As a result, her loan balance has ballooned to approximately $32,000, and she has no idea how she will ever pay it off*. “My credit is ruined,” Leveque says. “I made one mistake, and I will be paying for it for the rest of my life.”
Leveque’s story is far from unique. Each year, more than two million Americans enroll in for-profit colleges, also known as proprietary schools, and their popularity has only grown since the financial crisis. While traditional four-year colleges are struggling with dwindling student bodies and budget gaps, proprietary schools are reporting record enrollments as the newly unemployed try to retool their skills so they can wade back into the job market. Some of the largest for-profit chains say their numbers have doubled over the last year.
The students who are flocking to these schools are mostly poor and working class, and they rely heavily on student loans to cover tuition. According to a College Board analysis of Department of Education data, 60 percent of bachelor’s degree recipients at for-profit colleges graduate with $30,000 or more in student loans—one and a half times the percentage of those at traditional private colleges and three times more than those at four-year public colleges and universities. Similarly, those who earn two-year degrees from proprietary schools rack up nearly three times as much debt as those at community colleges, which serve a similar student population. Proprietary school students are also much more likely to take on private student loans, which, unlike their federal counterparts, are not guaranteed by the federal government, offer scant consumer protections, and tend to charge astronomical interest—in some cases as high as 20 percent.
These figures are all the more troubling in light of these schools’ spotty record of graduating students; the 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. Not surprisingly, students at proprietary schools are far more likely to default on their loans than those at other colleges.
The appalling treatment of disadvantaged students at the hands of proprietary schools ought to be a national scandal, especially at a time when America desperately needs more college graduates to stay competitive. But the problem has barely registered in Washington. That’s partly because the proprietary school lobby has enough clout among lawmakers on both sides of the aisle to keep the issue quiet. But Congress and the Obama administration have also had their hands full advancing other higher education reforms—in particular, legislation to kick private lenders out of the federally subsidized student loan program. This will create tens of billions of dollars in cost savings that will go toward larger Pell grants for low-income students. But that measure, vital as it is, affects only lending within the federal student loan program. It leaves untouched the private loans that are increasingly being foisted on students like Leveque and the loosely regulated schools that are profiting as a result.
The for-profit higher education sector is no stranger to scandal. In the 1980s and early ’90s, it came to light that hundreds of fly-by-night schools had been set up solely to reap profits from the federal student loan programs, in part by preying on poor people and minorities. The most unscrupulous of them enrolled people straight off the welfare lines, and got them to sign up for the maximum amount of federal student loans available—sometimes without their knowledge or consent.
The rampant abuses caught the attention of the news media, sent shockwaves through Capitol Hill, and led to a year-long, high-profile Senate investigation led by Senator Sam Nunn, the Georgia Democrat. The standing-room-only hearings had all the trappings of scandal, with trade school officials pleading the Fifth and a school owner, who had been convicted of defrauding the government, brought to the witness table in handcuffs and leg irons.
Key lawmakers considered kicking all trade schools out of the federal student aid programs—a virtual death sentence given the institutions’ heavy reliance on these funds. But Congress ultimately stepped back from the brink and instead strengthened the Department of Education’s authority to weed out problem institutions. Under the new rules, for-profit colleges had to get at least 15 percent of their tuition money from sources other than federal loans and financial aid. Also, if more than a quarter of a school’s students consistently defaulted on their loans within two years of graduating or dropping out, the school could be barred from participating in federal financial aid programs. The idea was to get rid of those schools that were set up solely to feed on federal funds and didn’t provide the meaningful training students needed to get jobs and pay off their debt. As a result, during the 1990s more than 1,500 proprietary schools were either kicked out of the government’s financial aid programs altogether or withdrew voluntarily. In an effort to rein in abusive recruiting tactics, in 1992 Congress also barred schools from compensating recruiters based on the number of students they brought in.
These changes shook up the industry. The old generation of trade schools gradually died off and were replaced by a new breed of for-profit colleges—mostly huge, publicly traded corporations. The largest, the Apollo Group, owns the University of Phoenix, which serves more than 400,000 students at some ninety campuses and 150 learning centers worldwide. Others include the Career Education Corporation, which serves 90,000 students at seventy-five campuses around the world, and Corinthian Colleges, which serves 69,000 students at more than 100 colleges in the United States and Canada.
Not only did these companies promise that their schools would be more responsive to the needs of students and employers than the previous generation, they also said they would be more accountable to the public because, as publicly traded companies, they were heavily regulated. “We’ve seen a fire across the prairie, and that fire has had a purifying effect,” Omer Waddles, then the president of the Career College Association, told the Chronicle of Higher Education in 1997. “As our sector has weathered the storms of recent years, a stronger group of schools is emerging to carry, at a high level of credibility, the mantle of training and career development.”
In reality, the new breed of schools had quite a bit in common with their predecessors; in some cases, they even operated out of the same buildings and employed the same personnel. What’s more, rather than making them more accountable, the fact that they were publicly traded created a powerful incentive for them to game the system. After all, to keep their stock prices up and investors happy, the schools had to show that they were constantly expanding, which meant there was intense pressure to get students in the door and signed up for classes and financial aid.
With so much at stake, these schools quickly found ways to skirt the new rules. To get around the caps on student loan default rates, for instance, many of them began hiring agencies to help former students get forbearances or offering lines of credit so alums could make their student-loan payments—but only during the initial two-year window, when defaults were counted against the school by the Department of Education. After that, students were left to wrestle with the debt on their own. As for the rule requiring schools to get at least 15 percent of tuition from nongovernment sources, it had some unintended consequences. Rather than, say, enrolling people who could afford to pay some tuition out of pocket, many schools started pushing students to take out private student loans.
Previously, this kind of loan had gone exclusively to graduate and professional students pursuing careers in high-paying fields like law and medicine. The financially needy students who attend for-profit institutions couldn’t qualify for them because of their less-than-stellar credit records, their lousy graduation rates, and their spotty record of finding work in their field. But this began to change around 2000. At the time, college tuition was skyrocketing—a trend that has only accelerated—and federal grants and loans weren’t keeping pace. To fill the gap, financial aid officers started cutting deals with lenders to bring in private loan money. In the case of proprietary colleges, most of the large publicly traded chains forged arrangements with Sallie Mae, the nation’s largest student loan company. (Once a quasi-government agency like Fannie Mae, it became entirely private in 2004.) In exchange for pots of private student loan funds that they could dole out at will—meaning without regard for students’ ability to repay the debt—the schools gave Sallie Mae the right to be the exclusive provider of federal student loans on their campuses. Lenders vie fiercely for this privilege because federal loans are guaranteed by the government, meaning the Treasury pays back nearly all the money if the borrower defaults. Thus lenders get to pocket generous fees and interest and bear almost no risk.
Sallie Mae clearly understood that these private loans were going mostly to subprime borrowers who might not be able to pay them back; in 2007, Senate investigators uncovered internal company documents showing that executives expected a staggering 70 percent of its private student loans at one for-profit school to end in default. Investigators concluded that Sallie Mae viewed these loans as a “marketing expense”—a token sum to be paid in exchange for the chance to gorge on federal funds.
From the schools’ perspective, it didn’t much matter whether students would be able to pay off their debt any more than it mattered if they stuck with the program or graduated with the skills they needed. As long as students were enrolled long enough to be considered a “start,” meaning that they attended classes for a week or two, the schools got to keep some of the money, and they got to include students in their official enrollment tally, which gave Wall Street the impression they were expanding. Having a cache of private loan funds to dole out also allowed the schools to clinch the deal right away—no need to grind through a stack of forms or wait for a third party to approve the loan application. Thus recruiters could lock students in before they experienced buyer’s remorse.
At best, the George W. Bush administration and the Republican-led Congress turned a blind eye to these schemes. At worst, they made it easier for the schools to carry them out. In his first term, Bush packed the Department of Education with allies of the proprietary colleges. Before becoming the assistant secretary for post-secondary education, for example, Sally Stroup worked as a lobbyist for the University of Phoenix. Under her leadership, the agency took the teeth out of regulations that were designed to rein in abuses of the 1990s, including the incentive-compensation ban for recruiters.
Not surprisingly, many schools began resorting to hard-sell tactics to bring students in. In 2004, the Department of Education found that corporate bosses at the University of Phoenix routinely pressured and intimidated their recruiters to put “asses in the classes.” At some of the campuses, enrollment counselors who didn’t meet their targets were sent to the “Red Room,” a glassed-in space where they worked the phones under intense management supervision. What’s more, in recent years dozens of former students have filed suits alleging they were misled about classes and programs proprietary schools offered, as well as about their prospects for graduating and getting jobs in their fields of study. While the seriousness of the abuses vary, in some cases they amount to outright fraud, with recruiters pressuring students to sign up for classes that don’t actually exist or to enroll in programs where the instructors lack even basic expertise in the field. The push to get students in the door also created more pressure to steer people into private loans.
The frenzy only intensified after Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005. This made it almost impossible for those who took out private student loans to discharge them in bankruptcy and, not surprisingly, turned the private student loan market into a much more appealing target for lenders.
s a result of these changes, private loan borrowing has skyrocketed. In the last decade alone, it has grown an astounding 674 percent at colleges overall, when adjusted for inflation. The growth has been most dramatic at for-profit colleges, where the percentage of students taking out private loans jumped from 16 percent to 43 percent between 2004 and 2008, according to Department of Education data.
The spike in private loan borrowing is dismal news for students. Unlike traditional student loans, which have low, fixed interest rates, private educational loans generally have uncapped variable rates that can climb as high as 20 percent—on par with the most predatory credit cards. Private loans also come with much less flexible repayment options. Borrowers can’t defer payments if they suffer economic hardship, for instance, and the size of their payment is not tied to income, as it sometimes is in the federal program. Private loans also lack basic consumer protections available to federal loan borrowers. With a traditional federal student loan, for example, if a borrower dies or becomes permanently disabled, the debt is forgiven, meaning they or their kin are no longer responsible for paying it off. The same goes if the school unexpectedly shuts down before a student graduates. But none of this is true of private loans. Also, because it is so difficult to discharge private student loans in bankruptcy, when students take them out to attend schools that provide no meaningful training or skills they can find themselves trapped in a spiral of debt that they have little prospect of escaping.
Theresa Sweet, a thirty-three-year-old California resident, took out about $100,000 in private loans between 2003 and 2006 to study photography at the Brooks Institute in Santa Barbara, which is owned by the Career Education Corporation. At the time, she says the Brooks recruiters—who have frequently been accused of misleading students—told her that graduates of their photography program typically made at least $60,000 straight out of school. In fact, since graduating three years ago she has been unable to find paid work in her field, and, while she has managed to get forbearances on her student loans, the interest has continued to stack up. She now owes more than $200,000.
Looking back, Sweet admits that she was naive in trusting the recruiters. But she can’t help but wonder how she ever qualified for the loans in the first place, especially given that when she applied she was unemployed. “If it were me, I never would have loaned me the money,” she says. “Who in their right mind would lend $100,000 in unsecured debt to an art major?”
Like Sweet, graduates of proprietary colleges often struggle to find jobs in their fields. This is because, in many cases, they don’t get the skills they need to compete. After all, it’s far easier and less expensive for schools to boost enrollment numbers through aggressive advertising and recruitment than to expend the resources to build quality schools. Corinthian and Career Education, which own the schools Leveque and Sweet attended, have faced the most damning allegations when it comes to educational quality and steering students into shady private loans. Other chains have better reputations on these fronts, among them the University of Phoenix and DeVry University. But even they have a spotty record of graduating students.
or awhile it looked like the meltdown on Wall Street, and the ensuing credit crunch, would put an end to predatory lending at for-profit schools. In 2008 Sallie Mae quit offering subprime private loans to students at for-profit colleges because the astronomical default rates had helped throw its stock price into a nosedive. But the proprietary college industry has found a way around this roadblock, namely making private loans directly to students, much the way used-car lots loan money to buyers rather than going through a third party. For example, in a recent earnings call with investors and analysts, Corinthian said that it plans to dole out roughly $130 million in “institutional loans” this year, while Career Education and ITT Educational Services Inc., another for-profit chain, have reported that they expect to lend a combined total of $125 million.
These loans could prove to be even more toxic than the private ones offered by Sallie Mae. This is because some schools are packaging them as ordinary consumer credit, which has even fewer built-in safeguards than private student loans, especially when it comes to disclosure requirements. This makes it easier for schools to mislead borrowers about the terms of the debt they are taking on. In one class-action lawsuit filed earlier this year, former students of Colorado-based Westwood Colleges allege they were duped into borrowing institutional loans at a staggering 18 percent interest. According to the complaint, the college’s corporate bosses advise their admissions officers to sign students up for these loans without revealing how costly they are going to be. Thus borrowers don’t learn about the steep interest until after they leave school and receive their first loan bill. Worse, the lawsuit alleges that some students have been signed up for loans without their permission.
Jillian L. Estes, a Florida lawyer who represents the plaintiffs in the case, says she has been approached by two dozen former Westwood admissions representatives who admit that they deliberately avoided telling students about the terms of these loans. “They knew they’d never be able to enroll these students if they were up front with them,” Estes explains. (In their written response to the lawsuit, Westwood College officials offered a “categorical rejection” of the allegations brought by Estes and her clients.)
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. Say a student gets a $60,000 federal financial aid package and supplements it with a $20,000 institutional loan. The school comes out $40,000 ahead even if the borrower ultimately defaults. Plus, getting students in the door pumps up enrollment numbers, which makes for happy shareholders.
Meanwhile, as the credit crunch eases, traditional lenders may well go back to making private loans to proprietary school students, especially given the changes afoot in the industry. President Obama aims to get rid of the program that allows lending companies to collect lucrative fees and interest for serving as the middleman on federal student loans and instead have the government offer the loans directly. Once forced out of the federal student loan program, traditional lenders will have a powerful incentive to seek profits by wading deeper into the private student loan market, and for-profit schools, with their exponential growth, could once again be an appealing target.
The good news is that the Obama administration seems more inclined than its predecessor to stand up against the abuses of proprietary schools. In May, the Department of Education revealed that it was considering reversing changes the Bush administration made to weaken the incentive-compensation ban. It is also thinking about adding teeth to the rules requiring proprietary colleges to show that graduates are finding “gainful employment” in their field and cracking down on schools that willfully mislead prospective students. “Our overall goal at the Department of Education in post-secondary education is to make sure that students … have the information they need to make good choices,” Robert Shireman, the deputy undersecretary of education, told financial analysts and investors during a conference call earlier this year.
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. But the impact would be far greater if Congress used this data, along with graduation rates, to weed out abusive institutions; ideally, any school that failed to meet a certain threshold should be kicked out of the federal financial aid programs.
At the same time, Congress should require companies that offer private student loans to give the same kinds of flexible repayment options and consumer protections as are available through the federal student loan program, including allowing borrowers to repay their loans as a percentage of their income. Lawmakers also need to revisit changes Congress made to the bankruptcy code in 2005, which make it exceeding difficult for financially distressed borrowers, including those with private student loans, to discharge their debt in bankruptcy.
These changes would go a long way toward helping people like Martine Leveque escape their mountains of debt and ensuring that future students don’t wind up in the same situation. It would also guarantee that taxpayers don’t go on bankrolling giant companies that profit by exploiting those who are struggling to build better lives.
I want to end by emphasizing----if you look at media you will think Obama and Congress tried to reform this industry-----it was the courts that stopped them for example. Yet, simply enforcing Rule of Law and recovering trillions of dollars in fraud from this industry would have put them all out of business! THAT IS HOW YOU TAKE CARE OF THIS PROBLEM.....WE DO NOT NEED NEW LAWS----WE NEED RULE OF LAW.
You will see the long list of for-profits that stole the trillions of dollars and they are still going strong in Maryland. What you do not hear is that they are killing union apprenticeship programs----the best in the world at training for all kinds of workplace employment -----being dismantled by these for-profit schools----which is the point. Both republicans and neo-liberals are trying to kill unions and labor and these privatizations do just that.
SEE WHY THE MEDIA CONTROLS SO COMPLETELY WHICH CANDIDATES FOR GOVERNOR GET AIRTIME? ALL CANDIDATES EXCEPT CINDY WALSH HAVE BEEN SILENT AND WILL CONTINUE TO IGNORE MASSIVE FRAUD AND CORRUPTION!