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Regulators target lending practices at for-profit schools

Attorneys general in 32 states and the federal Consumer Financial Protection Bureau are all working to stop the predatory lending practices of for-profit colleges in the United States. In particular, ITT Educational Services has been the target of investigations and several lawsuits after charging students more than $44,000 for associate’s degrees and leading them towards costly private student loans to finance it.

One of the biggest problems with this system is that student loans are incredibly hard to discharge during a bankruptcy, so borrowers who attended for-profit colleges may be stuck with that portion of their debt indefinitely. To add to that problem, many students who enroll and pay tuition at for-profit colleges do not earn degrees or find that the education they received is not well received by employers, so the investment does not pay off as well as it would for students who attended traditional colleges or vocational schools.

Students who choose to leave the for-profit system and are able to be admitted to a public or private non-profit institution might have trouble transferring the credits they already earned and paid for, even though for-profit schools often promise or imply transferability.

All in all, the lawsuits and regulatory actions currently being taken against these types of schools paint a picture of schools being used as a method of inducing people to borrow money. All too often, schools are encouraging students to borrow money that they cannot afford to pay back through loans with high interest rates and tough penalties.

Borrowers who have been victimized by predatory lending practices and who are facing default and possible bankruptcy should know that they have options on resolving their debts in various ways and that some extreme cases do allow for discharge of student loans in bankruptcy.

Source: New York Times, “The Robber Barons of the For-Profit Sector,” Brent Staples, Feb. 27, 2014. 

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