The Los Angeles Times recently provided a disturbing example of how some for-profit trade schools like Corinthian Colleges have been pushing subprime, high-risk students to assume heavy levels of debt that they may never be able to repay. In an article on the credit crunch, the LA Times quoted a 20 year old student, with a 10 month old baby, who is taking classes at Everest College in West Los Angeles to become a medical assistant. To pay for an eight week course at the Corinthian-owned school, this student has had to take out an $8,000 private loan with an 8 percent interest rate. The student, and several friends with similar loans, told the newspaper "that they knew that repayment would be difficult on the $9 an hour or so they expected to earn if they got jobs." The course, they said, gave them "75% to 90% of what they need to get and keep a job."
[slideshow] The students say the loans were worth taking because they gave them an opportunity to attend the school. But they probably won't be so happy when they go into repayment, particularly if those jobs don't materialize. They may be even more disappointed when they discover that they could have gotten the same training for a fraction of the cost at the nearby Pasadena City Colleges, which according to the LA Times, "charges $628 annually in tuition and fees to in-state residents."
If there is a silver lining to the credit crunch, it is that for-profit colleges and loan companies, like Sallie Mae, are being forced to think twice before pushing high-risk borrowers to take on expensive private loan debt that they have little hope of ever paying back.