News

October 9, 2012

Misleading Advice for Student Borrowers

Federal student loan default rates are rising ever higher, with the worst rates among those who attended for-profit colleges. For-profit schools account for about 13 percent of higher education enrollment but nearly half of all defaults. New data from the Department of Education show that 22.7 percent of students from for-profit schools who began repayment in 2009 defaulted within three years. That’s twice the three-year default rate of public colleges and three times the rate at private, nonprofit institutions.

In 2014, the federal government will have the power to cut off federal student aid to colleges whose graduates have default rates of 30 percent or higher for three consecutive years or 40 percent in a single year. The aim is to root out colleges that saddle students with crippling debt while giving valueless degrees or often no degrees at all.

Now prompted by the threat of sanctions, some schools are urging students to enter “default management” programs that allow them to stop making payments temporarily. The problem is that, for many students, these plans can be costly and inappropriate. They can leave a student with even higher debt because interest continues to accumulate during the forbearance period and is added to the principal. According to a Senate committee report on for-profit schools, a former student with a debt of more than $18,000 who chose forbearance for a three-year period would end up paying about $5,000 more.

Far better are income-based repayment plans, under which struggling borrowers are allowed to pay an affordable amount based on earnings and family size. But the for-profit colleges appear to steer borrowers to the forbearance program because it requires less paperwork and only a signature on a form or a verbal commitment over the phone. Federal officials should look closely at schools that enroll large percentages of students in forbearance programs and require them to provide borrowers with all the options, including the income-based relief program. The government could also automatically enroll qualified borrowers in income-based repayment before they miss nine months of payments and default.

www.nytimes.com

The above statements do not represent those of Weston Legal or Michael Weston and they have not been reviewed for accuracy. The statements have been published by a third party and are being linked to by our website only because they contain information relating to debt. Nothing in this article should be construed as legal advice given by Weston Legal or Michael Weston. To view the source of the article, please following the link to the website that published the article. Articles written by Michael W. Weston can be viewed here: To report any problem with this article please email studentloan@westonlegal.com

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