for-profit college

for-profit college

Education Management to Revise For-Profit University Recruiters’ Pay

For-profit universities have come under a lot of fire lately. Not only are they being scrutinized because of the amount of federal student loans that have gone into default, but there have also been some suspicious recruitment tactics taking place. Most recruiters for these schools are compensated based on how many students they enroll. This has led to a spike in students being given unrealistic expectations about their education and future earning potential in order to increase enrollment numbers. These practices have also led to students taking out student loans they can’t repay after they graduate if they don’t receive a high enough paying job.

Due to a federal crackdown on for-profit colleges’ recruiting activities, changes are being made. Education Management Corporation, which is the nation’s second largest for-profit school operator, announced that they will be rolling out new incentive plans over the next year to change how they pay recruiters. The Department of Education has eliminated safe harbor guidelines which allowed recruiters to be paid based on the number of students they enrolled. The company does believe that these new rules will restrict some students from being able to receive a college education, however. Read the rest of this entry »

$50.8 Billion in Student Loans in Default

student-loan-defaultsThe rate of borrowers who will default on student loans is higher than short-term government estimates indicate, reports the The Chronicle of Higher Education. According to their data, 20 percent of government loans that started repayment in 1995 have gone into default. The rate is even higher for students attending two-year colleges.

Defaulting on student loans leads to serious personal and financial burdens. Borrowers become ineligible for additional federal aid and can have their wages and tax refunds seized by the government. It also ruins future credit ratings, making it difficult to obtain mortgages, car loans or credit cards.

Loan money that is not recovered by the government must come from taxes. At the end of the 2009 fiscal year, $50.8 billion of student loans were in default.
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Financial Institutions Refuse Loans to Community College Students

According to a recent article in the New York Times, some major financial institutions have been dealing with the credit crunch by refusing student loans to students at community colleges, for-profit online universities, and other schools that are considered less prestigious. In some cases, students at these schools have received student loans, but with higher interest rates and less favorable terms. Some banks are more eager to drop students loans than others. In California, Citibank has dropped its student loan program for all community colleges in the state.

Why are lending institutions doing this? It’s all about money, of course. Yes, many of the loans made to students at “less desirable” institutions are smaller—especially loans made to community college student, since these schools are less expensive and only require two years to get a degree. However, students at more elite schools are considered lower risk because these students are (according to the banks) more likely to earn more money in the long run.

Come again?

If this trend continues, the ramifications are quite troubling. It means that the people who need the loans most won’t be able to get them. Many of these people won’t go to school, which will further exacerbate the gap between the rich and the poor. And many of these students will go to school and either wind up deeply in debt or work long hours to be able to afford the expense. Long hours at a job may take away students’ ability to do well in school—and at the community college level, this may mean a student can’t transfer to a four year college.

It’s not illegal for banks to reject categories of students for student loans. But the ethics of this are, of course, questionable.


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