Yesterday a Senate committee convened to discuss investigations the U.S. Government Accountability Office conducted on 15 for-profit colleges. As we’ve reported in previous posts, a growing number of schools have been engaging in deceptive marketing and fraudulent financial aid practices. The U.S. GAO report undergirds our own findings that the schools exploit prospective students’ economic hardship and federal funding, while lying to students about their accreditation and job placement opportunities to boost their bottom lines.

According to Senator Michael Enzi (R-WY), “It is crystal clear that some programs at for-profit schools are misleading students and possibly defrauding taxpayers out of millions of dollars in student aid funds.”

As federal funding for financial aid is expected to total $145 billion this year alone, this is a potentially huge problem.  Are we moving from one predatory lending scheme to another?  It may seem overly sensational to compare our problems with subprime mortgage lending to the student loan industry, but talk to former students struggling to pay off their student loan debts while barely finding a job in their field.  You may feel a sense of déjà vu creep in while tent city images return to your memory bank of televised tragedy.  Students who had to take more than one loan find that most of their loans cannot be consolidated, and when extreme hardship forces them into bankruptcy, they often cannot be released from student loan debt.

According to the Bankruptcy Law Network, a blog about bankruptcy news:

The big difference between student loans and unwieldy home loans is the inability of most borrowers to rid themselves of the resulting debt. Federal student loans can follow the borrower to the grave. They have no statute of limitations and can be collected from the estate of the borrower even after death.

Statistics analyzed in 2003 by the Department of Education state that an average of 1 in every 3 students defaults his or her student loan.  Now add into the equation how many for-profit schools encourage prospective students to lie on  financial aid forms so that they can attend their non-accredited or sub-standard program that does not lead to the job opportunities they claim, and a bigger, and more frightening, picture emerges. 

Director of policy and research for the National Association of College Admissions Counseling, David Hawkins, testified at today’s hearing. “In an unregulated environment,” he stated, “the potential for misrepresentation and outright fraud is a clear and present threat, which can result in harm to students and, in the case of federal aid and loans, to the taxpayer.”

We should encourage our lawmakers to crack down on these unscrupulous institutions and add consumer protections to student loans.  And meanwhile, let’s spread the word to as many people as we can so others don’t fall into the cycle of student loan debt and pervasive joblessness.

To learn more about how to avoid deceptive recruiting tactics read our previous post “Tips to Avoid Trade School Fraud,” and follow our Fight Trade School Scams Facebook Page to contribute to the conversation.

For additional media coverage on this topic, see:

Consumerist.com: For-Profit Colleges Caught on Video Encouraging Financial Aid Fraud

Consumer Affairs: For-Profit Schools get More Scrutiny

NPR: For-Profit Colleges Encouraged Fraud, Used Deceptive Marketing, GAO Reports

Bloomberg: Harkin Seeks Data on For-Profit Schools After Hearing

New York Times Education Blog:  Commentary:  A Plea to Add Consumer Protections to Student Loans

For more information about the student loan industry, visit http://studentloanjustice.org/