(2009-11-24) Subprime Student Loan Racket

With help from Washington, the for-profit College Education industry is loading up millions of low-income students with Sub-Prime debt they'll never pay off... Similarly, those who earn two-year degrees from proprietary schools rack up nearly three times as much debt as those at community colleges, which serve a similar student population. Proprietary school students are also much more likely to take on private Student Loan-s, which, unlike their federal counterparts, are not guaranteed by the federal government, offer scant consumer protections, and tend to charge astronomical interest--in some cases as high as 20 percent. These figures are all the more troubling in light of these schools' spotty record of graduating students; the median Graduation Rate for proprietary schools is only 38 percent--by far the lowest rate in the higher education sector. What's more, even those students who make it through often can't find jobs. The reason for this is simple: while some proprietary schools offer a good education, many more are subpar at best... In the case of proprietary colleges, most of the large publicly traded chains forged arrangements with SallieMae, the nation's largest student loan company. (Once a quasi-government agency like FannieMae, it became entirely private in 2004.) In exchange for pots of private student loan funds that they could dole out at will--meaning without regard for students' ability to repay the debt--the schools gave SallieMae the right to be the exclusive provider of federal student loans on their campuses... SallieMae clearly understood that these private loans were going mostly to subprime borrowers who might not be able to pay them back; in 2007, Senate investigators uncovered internal company documents showing that executives expected a staggering 70 percent of its private student loans at one for-profit school to end in default. Investigators concluded that Sallie Mae viewed these loans as a "marketing expense"--a token sum to be paid in exchange for the chance to gorge on federal funds... The frenzy only intensified after Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005. This made it almost impossible for those who took out private student loans to discharge them in bankruptcy and, not surprisingly, turned the private student loan market into a much more appealing target for lenders.