According to this New York Times article, collecting on delinquent student loans is big business. One sixth of student loans are in default, and the federal government paid $1.4 billion to collection agencies last year. And according to a recent Senate investigation, for-profit colleges account for half of all delinquent student loans.
With outstanding student loans exceeding $1 trillion, the staggering amount of debt some students take on boggles the mind. Many will never be able to pay it back. More troubling is the attitude among some who seem to feel that if they drop out or can't find a job they don't owe the money. It appears that student loan programs need to take a serious look at better counseling.
In a related controversy, for-profit colleges are coming under increased scrutiny. A recent Senate investigation found that 25% of Department of Education student aid funds, 37% of Post-9/11 GI Bill benefits, and 50% of Department of Defense Tuition Assistance funds are going to for-profit colleges, and that for-profit college companies get upwards of 80% of their revenues from student aid programs.
Unfortunately, half of the students at these schools drop out, and many are left with huge debt. For-profit colleges, which cost six times as much as community colleges and twice as much as four-year public schools, enroll only 10% of higher-ed students but account for half of all student loan defaults, with nearly one in four students defaulting on their loans.
The investigation also revealed that for-profit colleges spend huge amounts on marketing and executive salaries, which along with profits exceed the amount spent on instruction. The average CEO salary was $7.3 million in 2009, with one CEO raking in $41,489,800.
A 2010 GAO undercover investigation found that for-profit colleges encouraged fraud and engaged in "deceptive and questionable marketing practices." For example, an admissions representative at a Florida for-profit college told an undercover applicant that student loans were not like a car payment and that no one would "come after" the applicant if she did not pay back her loans.
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