By Jake Rossen
By Jesse Marx
By Michelle LeBow
By Alleen Brown
By Maggie LaMaack
By CP Staff
By Jesse Marx
Student loans are unlike virtually any other kind of debt in that they are almost impossible to erase. Even personal bankruptcy, which wipes the slate clean of other kinds of debt, can't put a dent in unpaid student loans. And if borrowers fail to pay, the government has the power to garnish wages, veteran's benefits, and social security payments.
"Student debt is one of the hardest things to come out from under," says Anne Hansen, a consumer rights attorney in St. Paul. "If you're not careful, it can ruin you."
As a congressional aide, Brittny McCarthy saw firsthand the way the for-profit industry worked the levers of power to escape oversight. Now she's writing a dissertation about it.
"A big part of the problem is that the patchwork of regulation is spotty," says McCarthy, a doctoral student at the University of Minnesota. "At the state level, some states have been aggressive about overseeing the for-profits. Many have not."
For decades, private and state schools used their control of the recognized accrediting bodies to keep the for-profits at bay. But the for-profits did an end-run around the problem, creating their own accrediting bodies and lobbying the federal government to recognize them. It worked. Now, for-profits can keep their accreditation for 10 years between evaluations by a friendly group of their peers.
Of course, the federal government still has some say—after all, it's shelling out $24 billion a year to this industry. But regulators' efforts to tighten the rules have been met with stiff resistance every step of the way.
In 1992, the government tried to institute a limit on just how much of a school's revenue could come from federal funding. Called the 85-15 rule, it required schools to get at least 15 percent of their money from somewhere besides federal coffers.
"The idea was that if you're really providing a service worth paying for, someone other than the government ought to be willing to pay for it," Nassirian says.
But the tighter leash was short-lived; today it is known as the 90-10 rule. National American gets 76 percent of its revenue from government loans, but other for-profits keep their toes right on the 90 percent line. And the industry has been pushing for more than a decade to abolish the rule altogether.
Last year, the senate finally opened hearings on the for-profit education industry. But the for-profit lobby launched a forceful counterattack, mobilizing demonstrations in Washington and delaying the Department of Education's efforts to stiffen requirements.
After two years of repaying their loans, National American's students default rate is 9.8 percent—five times worse than the public university average and significantly worse than community colleges too.
Things only get worse for graduates as time goes on: After three years of trying to pay back loans, National American's student default rates jump to nearly 16 percent. Many of the for-profit degree schools in Minnesota—including Brown College and Rasmussen College—have three-year default rates near or above 15 percent. At Duluth Business University, more than a third of students are in default on their loans after three years.
The rise of the for-profits is of particular concern to defenders of public higher education, because in a time of tightening budgets, education funding is often a zero-sum game.
"There are two main ways the public supports education: through public education and through loans," McCarthy explains. "As we spend more money on loans for students at for-profits, we're spending less on our state school systems, which makes their tuition go up, which drives more students to the for-profits. It's a vicious cycle. But from the perspective of the for-profit industry, it's a bonanza."