IBJNews

For-profit colleges make costly loans, report says

Back to TopCommentsE-mailPrintBookmark and Share

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.


 

ADVERTISEMENT

  • 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.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. The $104K to CRC would go toward debts service on $486M of existing debt they already have from other things outside this project. Keystone buys the bonds for 3.8M from CRC, and CRC in turn pays for the parking and site work, and some time later CRC buys them back (with interest) from the projected annual property tax revenue from the entire TIF district (est. $415K / yr. from just this property, plus more from all the other property in the TIF district), which in theory would be about a 10-year term, give-or-take. CRC is basically betting on the future, that property values will increase, driving up the tax revenue to the limit of the annual increase cap on commercial property (I think that's 3%). It should be noted that Keystone can't print money (unlike the Federal Treasury) so commercial property tax can only come from consumers, in this case the apartment renters and consumers of the goods and services offered by the ground floor retailers, and employees in the form of lower non-mandatory compensation items, such as bonuses, benefits, 401K match, etc.

  2. $3B would hurt Lilly's bottom line if there were no insurance or Indemnity Agreement, but there is no way that large an award will be upheld on appeal. What's surprising is that the trial judge refused to reduce it. She must have thought there was evidence of a flagrant, unconscionable coverup and wanted to send a message.

  3. As a self-employed individual, I always saw outrageous price increases every year in a health insurance plan with preexisting condition costs -- something most employed groups never had to worry about. With spouse, I saw ALL Indiana "free market answer" plans' premiums raise 25%-45% each year.

  4. It's not who you chose to build it's how they build it. Architects and engineers decide how and what to use to build. builders just do the work. Architects & engineers still think the tarp over the escalators out at airport will hold for third time when it snows, ice storms.

  5. http://www.abcactionnews.com/news/duke-energy-customers-angry-about-money-for-nothing

ADVERTISEMENT