Education

Why Graduates Of For-Profit Colleges Are Struggling To Pay Back Student Loans

CREDIT: Christine Armario, AP

Adriana Garay, 29, right, consults her niece, Haley Sandoval, 17, a student at the now-closed Everest College, Tuesday, April, 28, 2015 in Industry, Calif., hoping to get their transcriptions and information on loan forgiveness and transferring credits to other schools.

Jessica King, 33, is a single mother who works as a bartender and bookkeeper while she participates in the Debt Collective, on offshoot of Occupy Wall Street that is working on a process with the U.S. Department of Education to forgive debt for graduates of for-profit colleges. King has been working with them for several months and going to meetings with education officials in Washington D.C.

She has over $30,000 in student loan debt. King went to Everest to become a medical assistant, but after the students began using needles on each other, she began to have her doubts about the college’s legitimacy. King considered leaving the school, but a college counselor convinced her to stay.

“I didn’t want to feel like a failure by dropping out because they kept saying, ‘Are you going to quit this like you quit other things in life? Are you going to not make this a priority? Are you not going to take care of your child in the future?’” King recounted. “There were these manipulation tactics, and they bring you even further down from where you even where, with your self-esteem, like what am I going to do?”

King doesn’t remember taking out that much money. When she expressed anxiety over her financial situation, counselors assured her that as a low-income single mother, she would be taken care of through scholarships and grants. She only remembers taking out $1,200 for a private loan at the urging of a counselor. After she graduated Everest with honors and was advised by a potential employer that she should remove Everest from her resume and return to school, King attempted to get her associate’s degree. After being contacted by her prospective college’s financial aid office, she discovered that she owed Everest $32,000.

“The promissory note I signed was for a $1,200 loan but once you request all these documents from ECMC they send something that says ‘original promissory note missing lost or damaged.’ It doesn’t have my signature on it, and it doesn’t have the Sallie Mae representative’s signature on it. I think I have 12 different loans in total taken out in my name,” King said.

When people visualize the student debt crisis, they may imagine a 21-year-old graduate of a traditional four-year-college with $80,000 in student loan debt, but that isn’t representative of most delinquencies and defaults. Most of the rise in student loan defaults can be attributed to an increase in borrowers at for-profit colleges, as well as two-year colleges, according to a paper released by the Brookings Institution, a centrist think tank, last week. For-profit college students have a number of factors working against their ability to make payments on student loans that aren’t an issue for graduates of traditional colleges.

As the report explains, for-profit college students tend to be low-income and older than other college students. Because they are older, they are independent borrowers, which allows them to take out more money. Many traditional college graduates, although they may not have lucrative careers, are able to find decent jobs that allow them to make payments on their student loans. The problem is that for-profit college students, who are already low-income, they don’t reap the same benefits of a college education that would allow them to shoulder those debt burdens. Career outcomes for for-profit college students are poor, and often leave graduates in a worse economic state than before they attended college.

In 1999, 29 and 24 percent of for-profit and two-year colleges, both public and private, defaulted within five years, respectively. But in 2009, 47 and 38 percent of borrowers in those categories defaulted within the same time frame. When looking at nontraditional borrowers required to start repayment in 2011, 21 percent of those borrowers defaulted within two years, compared to 8 percent of traditional borrowers. Repayment rates were dismal for many of the for-profit colleges, such as the University of Phoenix, which only had 1 percent of its total debt balance repaid in 2014.

The recession exacerbated all of these factors, the report writes, and students with “poor labor market outcomes, few family resources, and high debt burdens” had high rates of default. When looking at students who left school and began repaying their federal loans in 2011 and defaulted in 2013, 70 percent were what the report calls “non-traditional borrowers,” a group that includes for-profit college graduates.

For-profit college debt can be more burdensome for students of color, since there is a large wealth gap between white families and black and Hispanic families, studies and surveys show.

Corinthian Colleges shut down its remaining campuses in May after being investigated by the U.S. Department of Education. The department stated it would fine the chain $30 million after finding it had falsified post-graduation data, such as job placements. The Education Management Corporation announced it would gradually shut down 15 of 52 campuses of The Art Institutes, another for-profit college chain during the same month. Other for-profit colleges, such as DeVry University and Kaplan College have also either closed or sold campuses. These closures come after declining enrollment and increased regulatory attention from the Consumer Financial Protection Bureau, state attorney generals, and the U.S. Department of Education escalated.

Graduates of for-profit schools owned by the for-profit chain, Corinthian Colleges, such as King, who was told her Everest degree was worthless by a potential employer, started organizing with the Debt Collective to bring attention to the borrower defense to repayment option. That option, created in 1994 but rarely acknowledged by department officials, would allow students who attended colleges that have committed fraud to submit a claim for debt relief. However, the process is complicated and doesn’t work well for for-profit college graduates.

Meetings between members of the Debt Collective and department officials began last year after the Debt Collective’s student debt movement gained media attention. Now the department has reached the stage where it is using progress reports to let the public know what it is doing to improve the defense to repayment option and investigate for-profit colleges. After choosing a “special master” to oversee the process, Joseph Smith, the department said it is still in the process of establishing “clear rules about what evidence of wrongdoing is sufficient to provide relief for borrowers” and will issue another report on November 15. Smith said the department hasn’t taken a close look at for-profit colleges other than Corinthian yet.

Former Corinthian students attended a public policy hearing in Washington D.C. at the U.S. Department of Education about establishing a negotiated rulemaking committee that would propose regulations for Federal Student Aid programs in relation to debt forgiveness. For-profit college students will also attend a public hearing held in San Francisco at the Courtyard San Francisco Downtown hotel on September 6. The committee would begin deliberating in January, according to Politico.

Sanders Fabares, who attended The Art Institute of San Diego, has organized with other for-profit college students and plans to speak at the hearing next week. He said he would like the U.S. Department of Education to acknowledge graduates of other for-profit college chains beside Corinthian.

“They are going to have to start hearing from the other for-profit chain [students], when those chains are already accused of massive fraud in multiple, pending whistle blower cases. The abuses of for-profit chains appear to be very similar, because the game was rigged against students in much the same way,” Fabares said.

Fabares and his wife, Jay Fabares, who met while attending AI-SD, have $25,000 and $71,000 in debt, respectively. The Fabares’ stories of how college counselors explained their payment options mirror King’s.

“I was absolutely shocked,” King said of her first meeting with department of education officials in Washington DC. “There were 15 other Corinthian students, and to hear how eerily similar all of our stories were … and mind you, we come from all across the country, California, Florida, everywhere.”

King attended the hearing on Thursday, and asked that the rulemaking committee have three student representatives instead of one student representative to match the number of institutional representatives on the rulemaking committee. King said she isn’t optimistic that the department will work in the best interest of for-profit college students, but she hopes that at the very least, other students have been warned.

“I was on the bankruptcy committee for Corinthian, so behind the scenes they were fighting tooth and nail against [borrower defense to repayment] … [For-profit colleges] were committing fraud, violation after violation after violation but they’re still allowing them to enroll students, still federally funding them, still letting criminal activity go on,” King said. “I don’t know where the ball got dropped, but I’m just grateful now that maybe other students thinking about this won’t make the same mistake.”

When asked if King plans to go back to college, despite her debt, she said she isn’t sure it’s possible anymore. Her daughter wants to attend the Parsons School of Design in New York, and she may have to forgo her own education in order to support her.

“That’s been her dream since she was pretty young so she has done amazing in school … My daughter will be going to college in three or four years and I have to weigh me taking on more debt or me putting my daughter through college,” King said. “At this point, I’d love to be able to go back to school and get a degree and my finish up my hopes and my dreams, but I think Everest robbed me of that but the department of education robbed me of that.”