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Student Loan Crisis Driven By For-Profit Colleges, Report Shows

A new report [PDF] by the Brookings Institution claims the recent increases in student loan defaults are tied to an increased use of for-profit colleges.

Through researching information from the Treasury Department and other sources, Brookings found that “most of the increase in default is because of an upsurge in the number of borrowers attending for-profit schools and, to a lesser-extent, community colleges and other non-selective institutions whose students had historically composed only a small share of student borrowing.”

During the Great Recession brought on by Wall Street’s fraudulent activity in the mortgage market, many Americans went back to school in hopes of gaining skills to improve their financial position. Unfortunately, some people got roped into attending shady for-profit “colleges” that not only cost a lot of money but do not provide an education many employers are looking for. Students who borrowed money to attend the for-profit colleges were often not able to gain the requisite employment needed to pay back the loans and, subsequently, defaulted.

According to Brookings, what is being called a student loan crisis is concentrated among students that went to for-profit colleges and other alternative schools. Those students, referred to as “non-traditional borrowers” in the report, make up a whopping 70% of all students who left school and began to repay loans in 2011 but were in default by 2013.

Criticism of for-profit colleges is widespread. A 2012 Congressional report from an investigation by Senator Tom Harkin criticized the industry for exorbitant prices and preying on its customers.

The Brookings report notes that many of those enrolling in for-profit colleges are from a lower socioeconomic background than those attending traditional four-year colleges. These students are less familiar with how college-based employment works and may be attracted to a school offering the prospective student flexible hours and a seemingly quicker route to a degree.

A 2014 investigation by Time magazine accused for-profits colleges of exploiting veterans, who are targeted for their access to the government funds they earned through their military service. The GI Bill can be used for 36 months of schooling but, once the funds are used up, the veterans have to pay for any future education out of pocket or through loans.

Though some for-profits have been shut down for their parasitic conduct, many others remain in operation. Given the evidence presented by Brookings, it seems time to cut for-profit colleges off from student loan money and find ways to get poorer students into more credible colleges.

Dan Wright

Dan Wright

Daniel Wright is a longtime blogger and currently writes for Shadowproof. He lives in New Jersey, by choice.