Moral Outrage
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The Ponzi Scam of Student Loans

Student loans are a big business, with student debt now exceeding $895 billion which is more than the total Americans owe on their credit cards.

And most of these student loans are underwritten by the US government, which means that the taxpayer is on the hook when students can’t repay the debt. Many of the people taking out loans end up dropping out of school and defaulting on their loans putting themselves in long-term debt while passing the bill along to Uncle Sam.

But not everyone loses on the deal. In fact, the institutions that help unqualified applicants get loans, do quite well. After all, they’re paid in full by the government.

Recruiters find a credulous subject, bamboozle him into signing on the dotted line, and hold his hand for the first few weeks of the new semester. That’s all it takes to net a big government payout. Here’s a rundown of how it works from an article by Chris Kirkham at the Huffington Post: “The goal is getting students who fill out the paperwork for student loans and make it through at least four weeks of their first five-week course. That is the point at which the university is able to keep the student’s federal aid money, regardless of whether they continue their studies.”

The boom in for-profit education, driven by a political consensus that all Americans need more than a high school diploma, has intensified efforts to even recruit the homeless, Bloomberg Businessweek magazine reports. Such disadvantaged students are desirable because they qualify for federal grants and loans, which are largely responsible for the prosperity of for-profit colleges.

Keep in mind, in just a few years, enrollment in for-profit colleges went from 365,000 to 1.8 million students. In 2009, for-profit schools raked in $4 billion in Pell grants and $20 billion in student loans provided by the Department of Education. Over 80 percent of their revenue came from federal loans and grants.

Graduation rates for private colleges are about 65 percent, for state schools about 55 percent, and for the for-profit colleges 22 percent!

So, for-profit colleges are netting $24 billion from the government and only graduating 22% of their students? [As outlined in the article “Congress Should Put a Stop to For-Profit College Rip Offs”, Peter Fenn, US News]

And 43 percent default on these student loans! Good grief, at the peak of the subprime fiasco the loans were only blowing up at a 6 percent rate. This is 7-times bigger than subprime. There’s hundreds of billions involved in this Ponzi-scam.

[Excerpts of an article by Mike Whitney]

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3 Responses to “The Ponzi Scam of Student Loans”

  1. If you’re interested in further details, a great post on the subject:
    http://prof77.wordpress.com/2010/05/15/new-for-profit-colleges-yet-another-nothing-down-loan-scam/

  2. I don’t think you know what a ponzi scam is…

    • Please feel free to enlighten us, stupid.com.

      How would you choose to describe a 43 percent default on student loans at for-profit colleges, that costs tax payers billions?


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