Hundreds of thousands of students have borrowed directly from for-profit colleges, which have proliferated in the last decade, the New York Times reported. Unfortunately for the students, these direct-lending programs almost never come with the safeguards guaranteed by federal loans. The colleges can demand payments while students are still in school. They can withhold transcripts for nonpayment. They can impose onerous interest rates, reaching into the double digits. Schools often offer these loans because they’re required by law to have a small portion of their revenue come from sources other than federal financial aid. For-profit schools reap billions from financial aid — grants, loans and other programs that students use to help pay for college — and the legal provisions were put in place to ensure that in an industry mired by scandal and fraudulent behavior, the colleges don’t exist only to harvest federal dollars. Direct lending by for-profit schools boomed during the Great Recession, in part because private lenders stopped or curtailed what they offered, and it has spread steadily since. Without government oversight, for-profit colleges have lent at least $4 billion, and potentially much more that has gone untracked. The colleges plan for many of these loans to go unpaid — a core feature of their business models.
