Monday, July 9, 2012

For Profit Colleges Free to Burden Students with Massive Student Loan Debt

Regulation to Prevent Abuse Fails in Court

One of the less publicized parts of the massive student debt issue is that a large portion of that debt is the result of students attending private, for profit colleges.  These colleges have the motivation to make money, and they make money by enrolling students.  Since many of the students cannot pay for that education, these colleges encourage and support the students taking out huge amounts of debt.  If the students get an education, get a job and pay back the loan, fine.  If not, as far as the colleges are concerned that’s okay too.

So the government is trying to regulate private colleges with respect to student loans and trying to rein in the abusive practices.  Here is what they modestly proposed.  To be eligible for student loans the colleges had to meet one, and only one of the following.

The rules would have required that a school meet one of three requirements for three of four years, or lose access to federal student aid: at least 35% of recent graduates are repaying their loans; loan payments eat up no more than 12% of graduates' average annual earnings; or payments consume no more than 30% of graduates' average discretionary income.

But these mild restrictions were too much for the industry.

Leaders of for-profit colleges are applauding a judge's ruling overturning a main component of federal regulations that would have penalized the schools for graduating students with substantial debt and little chance of getting a job in their field.

The rules, set up by the Department of Education, sought to rein in lending to students attending schools that had a history of graduates who failed to repay loans in large numbers or who faced debts they were unlikely to be able to repay. The judge found the thresholds to be arbitrary.

Yes, the percentages were arbitrary, they would have to be as there is no scientific study of how to set the percentages.  The issue the court should have decided was whether or not the percentages were reasonable and achievable, and whether or not it was an undue burden on schools to meet the rules.

If the court had looked at things that way the regulations would have stood.  But this judge apparently is hostile to the idea that young people should be protected from the avarice of private for profit colleges, and that if in order to make a profit the schools leave tens of thousands of students  in debt with no jobs and no way to repay the loans, well what’s the problem.? 

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