There was a report released by the Education Department last week. It showed that two thirds of students at for-profit schools are avoiding their federal student loan payments. ”Gainful employment” rules are rumored to come out because of federal aid needs. There is a common concern going around. College may not be an investment anymore for some. The rules for gainful employment would require that for-profit colleges have to have students prove their income within the future would be enough to pay off past debt.
New rules about gainful employment argued with student loan repayment rates
Federal student loan repayment rates are forcing the Education Department to write new gainful employment rules. Federal aid will soon be accessible to only some of the for-profit colleges. Any of the colleges that have less than 45 percent of students repaying federal aid will lose this funding. For-profit colleges had bad rates in 2009 already, says the Los Angeles Times. The rate was around 36 percent. Repayment rates at nonprofit private schools was higher. It was about 56 percent. 54 percent were paying their loans of those coming from state colleges. Losing federal aid would put numerous for-profit colleges out of business. Some rely on federal student loan funding for nearly 90 percent of their revenue.
Numerous wonder if for-profit schools could be able to prove themselves
Gainful employment rules also consider the total student loan debt and average earnings. Graduates have to have a debt to earnings ratio of less than 20 percent discretionary income or less than 8 for total income, reports the Center for College Affordability. Prospective students have to pick their debt to income ratios before entering the school if tests are failed.
Government losing money to for-profit colleges
The amount of federal aid for-profit colleges get has soared. NPR reports that in 2000, $ 4 billion in federal student aid went to for-profit colleges. There is a lot more today. $ 27 billion worth is given. Students are getting a hard sell from marketing companies branding themselves as colleges. They pay a premium to take courses and borrow money to pay the bill. The degree is typically not worth anything they’ve paid for it. They can’t get a job that would enable them to pay back the loan. Taxpayers take over. It is not very fair.
How do I invest in college then?
Rising college costs are making Americans battered by the economic downturn wonder if student loan debt for college is worth it. Allison Lynn at MSNBC writes that the issue isn’t really whether a person should go to college, but that college should be approached with caution like any investment. A philosophy degree may not translate into much future income. And experts say individuals should check out how much in student loans they absolutely need, much they can pay out of pocket with a part-time job, family help or savings. Personal finance pundit Suze Orman recommends not taking on more in loans than one expects to make in their first year out of school.
Additional reading
Los Angeles Times
articles.latimes.com/2010/aug/16/business/la-fi-for-profit-colleges-20100816
NPR
npr.org/templates/story/story.php?storyId=129259157
MSNBC
msnbc.msn.com/id/38561562/ns/business-personal_finance/
