• July 22, 2014

In Wake of Credit Crunch, More For-Profit Colleges Lend to Students

With private student loans harder to come by, for-profit colleges are making more loans to their students, even while acknowledging that many of the loans will go into default, according to a report released on Monday by the National Consumer Law Center, an advocacy group for borrowers.

After the 2008 market crash, many banks stopped making subprime private loans and ended relationships with for-profit colleges. Since then, all of the large for-profit higher-education companies, except the Apollo Group, parent company of the University of Phoenix, have expanded their institutional loan programs, according to the report.

ITT Technical Institute now derives 15 percent of its revenue from institutional loans, according to the report. Corinthian Colleges was expected to lend about $150-million to its students in the 2010 fiscal year. Some for-profit colleges have said they expect as many as half of their institutional loans to go into default.

Institutional loans serve a dual purpose for the for-profit colleges, the report says. The loans help the colleges comply with the "90/10 rule," which requires them to obtain at least 10 percent of their revenue from nonfederal sources, and the loans increase revenue so the companies remain attractive to investors. But the loans are riskier for borrowers, in part because they tend to carry higher interest rates than federal loans do.

The report recommends that Congress "put some teeth back in 90/10," by including all federal funds in the 90-percent category and prohibiting colleges from counting institutional loans in the 10-percent catetory, among other changes. It also calls on state and federal regulators to provide "aggressive oversight" of institutional loans, a product that it says has "generally fallen through regulatory cracks."

Comments

1. willynilly - January 31, 2011 at 04:19 pm

What is the interest rate the students are being charged?

2. billylclark - February 01, 2011 at 12:01 pm

As President of Delta College of Arts & Technology (and several other small proprietary schools) we use our Institutional Loan Program to replace the Unsubsidized Direct Loans for our students who can afford to make payments while in school. Out program carries 0% interest while the student is in school and carries only a 3% interest thereafter. Our tuition is much lower than the total amount of Title IV Aid available to nearly all of our students and so to meet 90/10, we were forced to either raise prices by over $6,000 per year or develop an in-house program that is more attractive that the Federal Direct Unsubsidized Loan program. If you really want to see tuition drop in the proprietary school sector, eliminate the 90/10 rule!

3. billylclark - February 01, 2011 at 12:03 pm

Oh, and by the way, our students repay their Institutional Loans. Most of them are grateful for the 0% interest instead of the capitalizing interest in the Unsub program. We only count the amount repaid back to us as part of our 90/10 calculation.

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