Looking back, Sweet admits that she was naive in trusting the recruiters. But she can’t help but wonder how she ever qualified for the loans in the first place, especially given that when she applied she was unemployed. If it were me, I never would have loaned me the money, she says. Who in their right mind would lend $100,000 in unsecured debt to an art major?
Like Sweet, graduates of proprietary colleges often struggle to find jobs in their fields. This is because, in many cases, they don’t get the skills they need to compete. After all, it’s far easier and less expensive for schools to boost enrollment numbers through aggressive advertising and recruitment than to expend the resources to build quality schools. Other chains have better reputations on these fronts, among them the University of Phoenix and DeVry University. But even they have a spotty record of graduating students.
For awhile it looked like the meltdown on Wall Street, and the ensuing credit crunch, would put an end to predatory lending at for-profit schools. In 2008 Sallie Mae quit offering subprime private loans to students at for-profit colleges because the astronomical default rates had helped throw its stock price into a nosedive. But the proprietary college industry has found a way around this roadblock, namely making private loans directly to students, much the way used-car lots loan money to buyers rather than going through a third party. For example, in a recent earnings call with investors and analysts, Corinthian said that it plans to dole out roughly $130 million in institutional loans this year, while Career Education and ITT Educational Services Inc., another for-profit chain, have reported that they expect to lend a combined total of $125 million.
Corinthian and Career Education, which own the schools Leveque and Sweet attended, have faced the most damning allegations when it comes to educational quality and steering students into shady private loans
This is because some schools are packaging them as ordinary consumer credit, which has even fewer built-in safeguards than private student payday loan companies in Montgomeryville PA loans, especially when it comes to disclosure requirements. This makes it easier for schools to mislead borrowers about the terms of the debt they are taking on. In one class-action lawsuit filed earlier this year, former students of Colorado-based Westwood Colleges allege they were duped into borrowing institutional loans at a staggering 18 percent interest. According to the complaint, the college’s corporate bosses advise their admissions officers to sign students up for these loans without revealing how costly they are going to be. Thus borrowers don’t learn about the steep interest until after they leave school and receive their first loan bill. Worse, the lawsuit alleges that some students have been signed up for loans without their permission.
Jillian L. They knew they’d never be able to enroll these students if they were up front with them, Estes explains. (In their written response to the lawsuit, Westwood College officials offered a categorical rejection of the allegations brought by Estes and her clients.)
Estes, a Florida lawyer who represents the plaintiffs in the case, says she has been approached by two dozen former Westwood admissions representatives who admit that they deliberately avoided telling students about the terms of these loans
Significantly, many proprietary schools are pushing institutional loans even when they know students won’t be able to pay them off; Career Education and Corinthian Colleges only expect to recover roughly half of the money they distribute through their institutional lending programs, according to communications with shareholders. Why would they lend knowing they won’t get the money back? Because any loss is more than offset by federal loans and financial aid dollars, which, despite the surge in private educational lending, still fund the bulk of tuition at proprietary schools. Say a student gets a $60,000 federal financial aid package and supplements it with a $20,000 institutional loan. The school comes out $40,000 ahead even if the borrower ultimately defaults. Plus, getting students in the door pumps up enrollment numbers, which makes for happy shareholders.