Unlike other forms of consumer debt, student loans generally cannot be discharged in bankruptcy

Unlike other forms of consumer debt, student loans generally cannot be discharged in bankruptcy

The issue is of great concern to policy makers. Secretary of Education Betsy DeVos described this debt spiral as a crisis in higher education. Federal Reserve Chairman Jerome Powell testified before the Senate Committee on Banking, Housing, and Urban Affairs in ount of student debt absolutely could hold back growth.

In most cases, a federal student loan is considered to be in default when no payments have been made for 270 days. Once a loan is in default, the entire unpaid loan balance and any interest the borrower owes are due immediately, and the borrower may be subject to wage garnishment, meaning a court orders the borrower’s employer to divert a portion of paychecks to a creditor. Borrowers also may have their tax refunds and federal benefits withheld.

How for-profits target nontraditional students

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Nontraditional students tend to find their way to for-profit colleges by responding to advertising. Large national chains of for-profit colleges spend heavily on sales and marketing to recruit students-24 percent of revenue, according to a 2011 estimate by J. P. Morgan. These for-profit schools are spending much more on sales and marketing than nonprofit schools, says Yannelis. At the heart of this https://guaranteedinstallmentloans.com/payday-loans-ak/ is an incentive . . . to get people to sign up and pay tuition. It’s a very different business model from elite institutions, which, to a large extent, rely on their reputation and have a large endowment, which is in part driven by alumni donations.

For-profit colleges devote relatively more resources to signing up students. Private nonprofit colleges spent a median $2,357 to recruit each student in 2017, the educational consulting firm Ruffalo Noel Levitz estimates. Their study didn’t examine for-profit colleges, but J. P. Morgan’s 2011 report estimates for-profit schools spent a median $4,000 per student-almost twice as much. A study from the progressive think tank the Century Foundation finds that for-profit schools dominate the list of higher education’s biggest spenders in online search advertising.

For-profit schools spend big on marketing because it produces revenue. But paying to educate students and placing them in jobs after graduation cuts into profit margins. Their incentive is to minimize costs in terms of educating [students, and] it doesn’t really matter for the school’s bottom line if they don’t get a job, says Yannelis.

The association representing for-profit schools says they shouldn’t be judged by their past. Don’t look at yesterday’s data. Look at what is happening today, says Steve Gunderson, president and CEO of Career Education Colleges and Universities, the trade association of for-profit colleges, which have rebranded themselves as career colleges.

Today, schools have combined a focus on outcomes with the workplace demand for skilled professionals and the nation’s hope for equal opportunity in ways that rebuild our middle class, writes Gunderson, in an email response.

Reliant on student loans

But researchers find that students who attended these schools all too often end up jobless or underemployed and deep in debt. For-profits leave students with far larger student loan debt burdens as well as higher unemployment and idleness’ rates and lower earnings from employment six years after entering programs than do comparable students from other schools, write Deming, Goldin, and Katz, who analyzed data from the 2004 through 2009 Beginning Postsecondary Students Longitudinal Study, which includes about 1,950 students starting at for-profits, out of nearly 17,000 students in their main sample. They find that those who attended for-profit colleges had a much higher default rate than those who attended nonprofit schools, and that for-profit students reported lower satisfaction with their education and were less likely to consider it worth the cost. The researchers note that their data come from a boom time in for-profit education, and that many for-profit institutions have since closed or experienced declines in enrollment.

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