Remember “subprime” mortgages? Those high-rate, variable interest home loans provided to borrowers with less than stellar credit? They played a significant role in blowing up the nation’s housing market, eventually helping plunge us into the worst financial crisis in nearly 80 years.
A troubling report from the PBS investigative reporting show Frontline last night called College Inc. left me worried about the future fallout what I’m tempted to call “subprime” college loans. The show profiles the fast-growing higher education sector of for-profit colleges, such as the University of Phoenix, DeVry University and others you often see advertised on TV. They tend to “cater to non-traditional students, often confer degrees over the Internet, and, along the way, successfully capture billions of federal financial aid dollars,” Frontline reports.
The idea behind for-profit colleges sounds like it should be a win-win for all involved. They provide a way for students who might not be able to go to a traditional college to develop job skills and prepare themselves for taking on higher-paying jobs. These colleges provide an important service to an underserved population and make money in the process.
But some of the firsthand accounts of students interviewed by Frontline showed how badly things can wrong in practice. Some students complain that they were encouraged to take on large federal loan burdens to pay for college degrees that failed to provide anywhere near the career benefits they say they were promised. There are even accusations that college recruiters have been to encouraged to sign up ever growing lists of students for classes, with little regard for the needs of the student.
Plus, for-profit colleges are a big business and a lot of their profits are being funded upfront by taxpayers. Frontline reports that although they enroll just 10 percent of all post-secondary students, for-profit schools receive almost a quarter of financial aid. The show goes on to report that according to the Department of Education figures for 2009, 44 percent of the students who defaulted within three years of graduation were from for-profit schools.
Federal student loans don’t suffer from the same sky-high rates and convoluted structures that made subprime mortgage loans such a time bomb for a number of homeowners. However, the end result of this situation appears to be that some of the students who can least afford it are being piled under large federal student-loan debt to pay for degrees that fail to markedly bolster their station in life. It makes me fear that more and more students will be unable to find jobs that can pay off their educations, leaving an increasing number of student-loan defaults in their wake. But what’s more troubling, perhaps, is that these students struggling to pay their loans could end up being stuck with them for decades of their lives. Federal student loans are notoriously difficult to get out from under and “cannot be discharged in bankruptcy in most cases,” according to the U.S. Department of Education.
Surely, there must be a place for for-profit colleges in our higher education system. But last night’s Frontline left me thinking that we need to be thinking a lot harder about what that place is and how to better protect the students to which these institutions cater.
Update: Trailer posted below.