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For-profit college in trouble for handing out deceiving student loans

Altered picture from shutterstock.com
Bridgepoint Education, a publicly held, for-profit college, is being ordered to refund private student loans as well as forgive $18.5 million worth of outstanding student debt. Bridgepoint misled students into believing they would be paying $25 per month on the loans when in reality, the monthly payments were much higher. The Consumer Financial Protection Bureau has not only ordered the refunding and forgiving of loans and outstanding debt, but has also ordered the company to pay an additional $8 million as a civil penalty.


For-profit colleges are more expensive but are also more focused on career-training.
For-profit colleges and non-profit colleges differ in a couple of ways. For-profit colleges seek to maximize the profit earned from students and are usually owned by corporations. In fact, by 2009 76% of students in for-profit colleges were enrolled in colleges owned by publicly held corporations (which means it's held by investors) and private equity firms. In a report by Harvard, tuition and fees cost almost $20,000 more at for-profit colleges than community colleges. Non-profit colleges, like the University of Maryland, do not focus on profits and instead can better focus on a quality education. However, some students don't have the time to invest in a 4 year education, and for-profit colleges are better at training students for a specific career path, reducing the classes that aren't vocational.

Graph shown in report released by Senate
Students at for-profit colleges borrow more at higher rates only to default on their loans.
Students who do not receive aid from family generally leave for-profit schools with a median debt of $32,700 but leave public colleges with a median debt of $20,000. Not only do students borrow more money, they also borrow at higher interest rates with high interest intuitional loans. For example, in 2009 Corinthian Colleges lent out over $60 million to students at an average rate of 14.8%, while some were paying at 18%.  To compare, the Federal Reserve calculated average interest rate on credit card debt was 14.3% in the same year. Students are not only borrowing more at higher rates, they're also defaulting on their loans the most. Defaulting occurs when you cannot pay on your loan. As a result, your credit goes down and federal lawyers can actually come after you and legally enforce you to pay the amount due. According to government data released just this past Wednesday, loans taken out by students enrolled in for-profit colleges count for 35% of all federal loan defaults even though these students only make up 27% of borrowers.

Students at for-profit colleges unlikely to graduate and make more than $30k/yr
It's unsurprising at such high costs that many students enrolled in for profit colleges don't finish their education. According to the White House College Scorecard, 40% of students in for-profit schools don't graduate. And the students who do graduate make less than $30,000 per year. It's an unfortunate cycle of paying more to receive education that might not benefit you. If you want to look at for-profit colleges, make sure you do your research, and appropriately allocate your time and money.

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