For-Profit College Collapse Could Cost Taxpayers Big Time

Photo (cc) by Jason Bache

Taxpayers could be left holding a bill for billions of dollars if tens of thousands of college students are allowed to walk away from federal student loans.

According to Federal Student Aid, an office of the U.S. Department of Education, there are certain circumstances that could qualify a student for federal student loan forgiveness, including employment in specific jobs, disability or the closure of a student’s school.

It’s that last example that has some people worried.

The for-profit college industry is in the midst of a collapse. Massive for-profit chains like Corinthian Colleges, Education Management Corp., and Career Education Corp. have significantly downsized or, in Corinthian’s case, completely shuttered its campuses, leaving thousands of displaced students who could potentially be eligible for student loan forgiveness by the federal government.

Students may be eligible for relief under federal law if they can show schools deceived them into enrolling, as well as when schools shut down and they can’t complete their studies, Bloomberg reported.

Although for-profit college students represent just 11 percent of all college students, they have more than $230 billion in federal student loans – a fifth of the total student loan debt in the United States. What’s worse, for-profit college students account for nearly half of all defaults on higher-education loans, according to Bloomberg.

If the thousands of displaced for-profit college students are excused from paying off their student loans, the unwinding may cost taxpayers billions, touching off debate in Washington about fairness and personal responsibility, Bloomberg reported.

In June, Education Secretary Arne Duncan announced that his agency would make it easier for for-profit college students to apply for loan forgiveness while still protecting taxpayers.

If all student borrowers from Corinthian, which closed its campuses and filed for bankruptcy earlier this year, were granted loan forgiveness by the federal government, the bill could top $3.5 billion, Bloomberg said.

Ouch.

Check out “Ask Stacy: Can I Have My Student Loans Forgiven?

Need some advice on paying your student loans? Try “13 Ways to Pay Off Student Loans Faster.”

What do you think about student loan forgiveness? Should eligible students’ loans be terminated, or should those students have to pay off their debts? Share your comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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