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A Blog from New America's Higher Education Initiative

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Trade School Lobbyists' New Cause?

Published:  June 24, 2009

For-profit college lobbyists have suddenly become concerned about overborrowing by their institutions' students.

On Monday, a procession of career college lobbyists urged the U.S. Department of Education officials to give their schools more discretion to limit the amount of federal loans students can take out to cover their living expenses. The industry representatives made their remarks at a public hearing the Education Department held at the Community College of Philadelphia to gather ideas for strengthening federal student aid rules to improve the integrity of the programs.

"Schools are trying to limit borrowing," said Richard Dumaresq of the Pennsylvania Association of Private School Administrators, which advocates for proprietary institutions in the state. "But it's not enough to stem the tide of overborrowing, especially in a down economy." His comments were echoed by Harris Miller, the president of the Career College Association, and lobbyists for some of the largest publically traded chains of for-profit colleges, such as ITT Educational Services Inc.

At Higher Ed Watch, we would obviously be happy if students didn't have to take on such a heavy load of debt to attend for profit colleges and trade schools, many of which have had trouble graduating students. But it is hard to take the lobbyists' concerns too seriously, considering the recent conduct of many of these institutions.

As we have previously reported, some of the largest chains of for profit schools have, over the last decade, aggressively steered financially needy students to take out high-cost private loans from lenders like Sallie Mae, with annual interest rates as high as 20 percent. According to company disclosures last year, private loans made up 30 percent of the total revenue at ITT, 18 percent at Career Education Corporation, and 13 percent at Corinthian Colleges. Corinthian also revealed that 75 percent of its private loans were going to high-risk, subprime borrowers.

Overall, the percentage of students at proprietary institutions taking out private loans has skyrocketed over the past several years, from 13 percent in 2003-04 to 42 percent in 2007-08, according to recently released data by the Education Department's National Center for Education Statistics (NCES). In other words, more than 4 in 10 students took out these expensive loans last year to attend schools that have a spotty record of retaining students. In addition, the NCES data reveals that for-profit college students are borrowing private loans at rates that are extremely disproportionate to their numbers. While only 9 percent of all of this country's undergraduates attend these institutions, these students represent 27 percent of all private loan borrowers.

So why this sudden concern by the lobbyists?

Does it have to do with the fact that schools have to increasingly rely on the federal student loan programs because lenders are no longer willing to enter into sweetheart deals to provide subprime private loans to their students? And, as a result, are these schools in danger of violating a federal law requiring them to receive at least 10 percent of their revenue from sources other than federal student aid in order to continue to participate in the government's financial aid programs?

Now don't get us wrong. We're sure that many for-profit college officials are genuinely concerned about their students' debt load. But given the conduct of some of the largest chains of proprietary schools in the recent past, we'd urge the Education Department to not take the lobbyists' pleas at face value.

What do you think? Please send us your thoughts.

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