Sep 11 2012
07:29 am

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.

bizgrrl's picture

Student debt does boggle the

Student debt does boggle the mind, especially for undergraduate degrees. I can understand it a little more for graduate degrees.

Who does the math for the students when they take out the loans showing how much they can potentially make annually, how much their student loan payments will be, and how long it will take to pay them off? Then there is the question of can you get a job making that potential salary? If not, do the student loan payments work out if the person is making minimum wage or a little more?

What are the repercussions if someone goes to school part-time and taking eight years or so to get their undergrad degree? Meaning they might be able to pay as they go, especially if they attend community college for the first two years. Does this hurt their job prospects?

I met a young lady the other day who was attending UT in the music department. She was very happy with the program. She had attended Pellissippi State for the first two years of her music education and was also very happy with their program. I did not ask her about her student loans.

Then there is the question of attending a for-profit college. Why? Is it because it is harder to get in the non-profits? Is it just better marketing by the for-profits? Are the for-profits better?

Many years ago I had an opportunity to attend a for-profit college, all fees paid by an individual I knew very well. I looked at the fees as compared to UT Knoxville, at the time, and decided against that option. I just couldn't see paying that much money (even though it wasn't even my money) for something I could get at UT (or other non-profit) even if it might take a little longer at UT (or other non-profit).

R. Neal's picture

One thing noted in the NYT

One thing noted in the NYT article is an option to pay X% of your income until the debt is paid off or forever. According to the article, students in default aren't being made aware of this option.

50 cents wasted's picture

Current UTK instate tuition and board just over $16,800

per year, exclusive of books, supplies, computer, additional fees or expenses unrelated to tuition or on campus room/board and prior to the application of any Tennessee Lottery Scholarship money, student loans/etc.

bizgrrl's picture

What's the tuition without

What's the tuition without room/board?

Dave Prince's picture

Yeah, but just counting

Yeah, but just counting "tuition" is a little misleading; the actual annual amount is more like $9000+. Looking at my latest billing statement, one semester at 13 credit hours for an in-state student not living on campus comes out to $4546, which includes all fees not directly tied to specific courses (add $65 if counting those, but YMMV depending on courses/major/etc). The line item corresponding to tuition itself is $3901. Facilities and programs/services fees might not directly go toward educational activities, but it's not like you can opt out of them, and even if you could, the difference would in all likelihood just be made up through further tuition increases.

Granted, these numbers are probably still good enough to get you in the top 100 of a few "best values in public colleges" lists.

Dave Prince's picture

There's probably something

There's probably something there about the cost to teach vs. the cost to be taught, but damn if I can be bothered to parse it right now. Sounds kinda navel-gazey, anyway.

gonzone's picture

Vulture Capitalism writ

Vulture Capitalism writ large.

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