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For-profit colleges make costly loans, report says

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For-profit colleges are making “predatory” loans to students, knowing that more than half the debt won’t be repaid, a consumer group says.

Companies including ITT Educational Services Inc., DeVry Inc and Career Education Corp. are making loans that have fixed interest rates as high as 12 percent, according to a report released Monday by the Boston-based National Consumer Law Center. Many of the loans come with “high costs” and “predatory terms,” the group said.

The research follows calls in Congress and at the U.S. Education Department to boost regulation of government aid flowing to for-profit colleges, whose federal-loan default rates are three times those of private, not-for-profit institutions. Under U.S. rules, for-profit colleges must fund at least 10 percent of their operations from sources other than government financial aid programs. Companies are making these “institutional loans” to remain eligible for U.S. funds, the report said.

“Institutional loan programs are aimed at attracting investors and keeping the federal aid pipeline flowing,” Deanne Loonin, the report’s author and a center lawyer, said in a statement. “Each failed loan represents an individual who cannot repay a debt and who may be facing aggressive collection tactics and damaged credit ratings.”

Carmel-based ITT Educational charges origination fees up to 10 percent, with variable interest rates as high as the prime rate plus 11.5 percent and capped at 25 percent, according to the report.

For-profit colleges offer institutional loans when private financial companies aren’t willing to lend to their students, Harris Miller, president of the Association of Private Sector Colleges and Universities, a Washington-based industry group, said.

“When students can’t get enough to pay for their education through a combination of federal grants and loans, and appear to be good candidates for an education, the schools are willing to loan them money, even though there’s a risk,” Miller said.

The report said institutional loan programs “had high interest rates and origination fees, particularly for less creditworthy borrowers.” In some cases, for-profit colleges use third parties to make the loans and then guarantee the debt, the report said.

A loan program at Downers Grove, Ill.-based DeVry charges 12 percent interest, with no origination fees, the report said. Hoffman Estates, Ill.- based Career Education charges 8 percent interest on institutional loans for most students, the report said.

ITT Educational uses a third party for its private student loans, and rates and fees are based on market conditions, the borrower’s creditworthiness and other considerations, said Lauren Littlefield, a company spokeswoman.

DeVry’s loan program “is a valuable service for our students,” Joan Bates, a spokeswoman, said in an e-mail. “It is similar to installment plans offered by traditional colleges and universities.”

As of June 30, the end of DeVry’s fiscal year, less than a third of students carried a balance from the program into the next year, with an average of less than $1,000, Bates said.

Mark Spencer, a spokesman for Career Education, didn’t return a telephone call

DeVry shares rose $1.54, or 3 percent, to $53.65 each in Tuesday trading. ITT gained 58 cents, or less than 1 percent, to $66.42, while Career Education climbed 71 cents, or 3.2 percent, to $23.15

The Bloomberg U.S. For-Profit Education Index of 13 publicly traded companies has fallen 21 percent over the past 12 months.


 

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  • for-profit colleges
    Protecting students from graduating with heavy debt and few job prospects is something the U.S. Department of Education hopes to change. It recently released stricter gainful employment rules that would bar federal tuition funding to for-profit schools whose students graduate are not able to pay back hefty federal loans. Students at for-profit institutions represent just 12 percent of all higher education students but they account for 46 percent of all student loan dollars in default, according to the Department of Education.
    http://cashadvancesus.com/federal-aid-for-for-profit-colleges-are-being-delayed/
  • Just Like the Banks
    These outfits may very well charge "predatory" rates of 12% or more on their loans. How does this differ from what America's biggest banks do with credit cards? And, at least in the past, with some home mortgages.

    Once upon a time this would have been controlled by state usury statutes. But in the early 1980s, Citicorp got the law changed so states couldn't regulate interest rates on loans. That law remains on the books.

    What we need -- but what the Obama Administration won't do because it's in the pocket of big banks -- is to reestablish those usury statutes.
  • Duh!
    As a 19 year old kid looking at going into CAD design, I looked at ITT. Even as a young kid, I could see the costs and fees were outlandish. Checked out IVY Tech and it was a much better deal, plus credits would transfer to a 4 year school.

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  1. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

  2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

  3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

  4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

  5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim

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