Last week, the Consumer Financial Protection Bureau filed suit against ITT Educational Services, a for-profit chain of colleges accused of enticing vulnerable students to take out significant debt for degrees of suspect value. Thirty-two state attorneys general are investigating ITT and similar companies for the same predatory lending policies. Growing concern over the student debt burden, particularly for low-income students who may not have even received a degree, indicates that the student loan industry may be heading for a crisis remarkably similar to the housing bubble. In both instances, federal programs that were implemented with good intentions were exploited by corrupt corporate interests, leaving taxpayers and particularly vulnerable individuals on the hook. We are heartened that federal regulators have given attention to this problem, and we are hopeful they will be able to put a stop to predatory practices before this becomes the next bubble to burst.
The CFPB is alleging that ITT schools pushed students into taking out private loans with exorbitantly high interest rates, even though they internally estimated that at least 64 percent of their students would go into default. They are also being charged with misleading students about their post-graduation employment prospects, and even lying to students about the transferability of their course credits. The lawsuit further alleges that the schools offered students sweetheart deals for the first year of their education and then forced them to take out high-interest loans to pay them back. ITT has charged students $44,000 for associate’s degrees, even though many of these credits did not transfer if students sought to further their education. For-profit bachelor’s degrees can be even more expensive, costing as much as two times the associate’s price.
Fortunately, the Department of Education has proposed recent reforms with which for-profit schools must comply if they want their students to have access to federal loans. These schools must give students the opportunity for “gainful employment in a recognized occupation” and keep their student loan default rate below 30 percent. Further, debt repayment cannot take up more than 8 percent of future earnings or 20 percent of disposable income.
Awareness of the problems with the for-profit industry has been growing for some time — last fall, President Obama decried “schools that are notorious for getting students in, getting a bunch of grant money, having those students take out a lot of loans, making big profits, but having really low graduation rates.” While it is promising that Obama is aware of the problem’s scope, it remains to be seen whether the administration’s reforms will have a measurable effect on the industry.
If students want to use their own money on questionable degrees, there is relatively little that regulation can solve, short of prosecuting blatant fraud. But these for-profit schools target students eligible for federal loan money, taking advantage of programs designed to help those who otherwise could not afford college. Thus, the federal government has both a legal and a moral obligation to ensure that money designed to help students get ahead doesn’t put them further behind.
Editorials are written by The Herald’s editorial page board: its editors, Matt Brundage ’15 and Rachel Occhiogrosso ’14, and its members, Hannah Loewentheil ’14 and Thomas Nath ’16. Send comments to editorials@browndailyherald.com.
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