Kashia Campbell earned top grades from her patient care
technician program at Florida Career College. So she was shocked to find that,
upon graduation, she was blocked from the exam to get certified in the field.
اضافة اعلان
The problem was a $6,500 private loan she had taken out from the
college to help her cover tuition. Florida Career College demanded that she pay
more of her loan before it would release her transcript, something she said she
had not been told previously. The transcript was a prerequisite for the certification
exam, and she ended up in a lower-paying job earning $10 an hour. Four years
later, she can pay only $50 a month on her school loan.
Campbell’s loan is a tiny fraction of the more than $30 million
owed to Florida Career College’s parent company, the International Education
Corporation The company does not care whether she, and thousands of others,
ever fully pay it back. Its main reason for lending to people like her is so
the company can operate its other, much more lucrative business model — reaping
revenue from federal student aid. By law, one-tenth of a for-profit school’s
revenue must come from sources other than federal financial aid (loans, grants
and other programs students use to pay for college), and loans like Campbell’s
help them meet that quota.
These school-to-student loans have ensnared hundreds of
thousands of students at for-profit colleges. When students borrow directly
from a college, they are not protected by the same government safeguards they
would have if they took out federal loans. The colleges can demand payments
while students are still in school. They can withhold transcripts for
nonpayment. They can impose onerous interest rates, reaching into the double
digits.
Many students are unable to make their monthly payments, leaving
their credit ruined and their financial and professional futures in grave
doubt.
“The high default rates and low repayment rates — they factor
that in as the cost of doing business, and the students are the ones who lose
out,” said Ashley Harrington, federal advocacy director for the Center for
Responsible Lending. “We’re particularly worried that we’ll see more of this as
the economy gets worse.”
Loans by educational institutions became popular during the
Great Recession, when third-party lenders stopped or curtailed their private
student loan offerings. Since then, without government oversight, the practice
has spread, and for-profit colleges and universities have lent at least $4
billion, and potentially much more.
A few of the largest loan programs, such as those run by
Corinthian Colleges and International Telephone And Telegraph Corporation (ITT)
Technical Institutes, have shut down along with their schools, but many more
have quietly thrived without oversight. There are now dozens of companies and
colleges, which enroll tens of thousands of students, that offer direct loans,
according to federal audits, Securities and Exchange Commission filings and a
review of college marketing materials.
The International Education Corporation, the company that
operates Campbell’s school and 29 other campuses, was owed $33 million in
repayments in 2018, according to an independent audit submitted to the federal
Department of Education. (The department requires for-profit colleges to
provide these audits annually.) The company estimated that $13 million of that
— or 40 percent — would never be repaid.
In 2012, company officials acknowledged that collecting all
their money would be unlikely “due to the nature of the programs and credit
quality of the students,” according to another independent audit. Most former
students earn no more than $25,000 annually. In 2018, the International
Education Corporation brought in $9.7 million by selling unpaid loans to a debt
collector.
When Campbell, now 49, signed her enrollment paperwork, she
assumed she would quickly get a job after graduation and have no problem paying
back her loans. Instead, she said, she is now worse off. After she graduated
from Florida Career College in 2016, she said, she pleaded with the campus
director and bursar’s office to release her transcript but was told no. She
called the International Education Corporation but got the same answer.
“I was crying like crazy,” she said. “I don’t understand it. You’re
not letting me go out and get a good-paying job so I can pay you back.”
Joseph Cockrell, a spokesperson for the International Education
Corporation, said that while he could not comment on individual students’
financial accounts, “students must be current with their loan payments for
transcript requests.” He did not respond to follow-up questions about how much
a student needs to pay to be considered “current” on loan payments.
Whatever money that companies are able to recoup from the loans
they directly offer matters less than the fact that the loans themselves help
keep the colleges eligible to receive billions of dollars in federal financial
aid.
Under a federal law known as the 90/10 rule, for-profit schools
are allowed to derive a maximum of 90 percent of their total revenue from
federal student aid. The remaining 10 percent must come from elsewhere,
including students’ repayments on their direct loans from the college. Even if
a student pays back only a fraction of the money owed to a school, it helps the
institution keep the correct ratio and continue to receive federal aid. For
example, if a student’s federal aid totals $9,000 and the college loans the
student $1,000, the college still nets $8,000 of federal money, whether the
student repays the loan or not.
“In the case of these loans, it’s a pretty sure bet,” said Yan
Cao, a fellow at the Century Foundation, a progressive think tank, which
obtained several company audits through a public records request and shared
them with The New York Times and The Hechinger Report. That federal money “goes
straight into the school’s hands,” Cao said.
Some colleges increase the burden by imposing high interest
rates. Unlike federal loans, which currently have interest rates of 2.75
percent for undergraduate borrowers, loans directly from schools can far exceed
that. A 2020 report by the Student Borrower Protection Center uncovered
interest rates as high as 19 percent for loans offered by some schools.
Scrutiny of this practice remains low at both the state and
federal levels. A Hechinger Report survey of 75 agencies across all 50 states —
including higher education oversight agencies, attorneys general and
departments of finance or banking — found that few places tracked any
information about school-offered loans. In fact, in the vast majority of
states, higher education authorizers do not require colleges to report plans
for such programs.
Several state officials said that colleges would be subject to
state laws and could be investigated if abuses were reported but that otherwise
they had no oversight of these loans.
Since its creation in 2011, the Consumer Financial Protection
Bureau has taken action against just three for-profit education companies,
accusing them of predatory or deceitful loan practices, and announced one
additional investigation.
A spokesperson for the federal Department of Education said
loans offered directly from schools fell outside the department’s purview.
