The Student Debt and Default Crisis

Empty Your Pockets by xJasonRogersx

Americans now owe more on their student loans than they do on their credit cards, $880 billion. The cost of a college education is rising faster than the cost of medical care, and almost three times faster than consumer prices. For the class of 2009, the average debt was $24,000. This does not include loans from parents and family, or the cost of graduate school, which can bring the total debt to $80,000 or more.

Alan Collinge, founder of StudentLoanJustice.org, says the student loan crisis is potentially far worse than the mortgage crisis. There is no walking away from student loans. They have almost no consumer protections and are difficult to refinance. By law, they can’t be wiped out in bankruptcy, a change that imposed in the wake of the last student loan crisis in the 1980s.

Not surprisingly, the debt and default crisis is worse for students at for-profit colleges and universities. In fiscal year 2008, the national default rate for student loans was 7%. The rate increased from 5.9 to 6% for public schools and from 11 to 11.6% for for-profit schools. In 2008-9, students at for-profit schools represented 26% of all borrowers, and 43% of all defaulters.

At Kaplan University, they used a sleazy technique dubbed “Guerrilla Registration” to enroll thousands of students in online classes they never took, without their consent, and sometimes even after they tried to withdraw from the university, and then charged them for the classes. As a result, some students incurred debts of thousands of dollars for classes they never took. The longer students are enrolled, the more financial aid dollars the university receives from the federal government.

A group representing for-profit colleges sued the Education Department on Friday to block new rules relating to how the schools pay recruiters and how they represent themselves to prospective students. The suit was filed by The Association of Private Sector Colleges and Universities and represents 1,400 for-profit schools, including Kaplan. The rules would prohibit schools from paying recruiters based solely on how many students they enroll and strengthen federal authority to punish schools that engage in deceptive marketing. The suit seeks to halt these regulations.