After a series of hearings held 25 years ago on abuses in the higher education system, Congress created laws to protect undergraduates from risky student loans. The original investigation was held in the early 1990’s and revealed widespread fraud among for-profit colleges. Some trade schools had reportedly gone so far as to recruit people from welfare lines to sign up for student loans without their consent. In the end, the loans were never repaid and the colleges kept the money.
In response, Congress created a rule called the cohort default rate, which requires the Dept. of Education to calculate the percentage of borrowers who have recently left a given college and defaulted on their federal student loans. If the default rate is too high, the college is kicked out of the federal financial aid system.
However, two weeks ago the Education Department released new data suggesting the system has failed borrowers, and at some colleges, students are still being strapped with loans they will never be able to repay.
The loan crisis hits hardest at colleges enrolling large numbers of students from low-income backgrounds. These students oftentimes have to borrow all of the expenses needed to attend college and have trouble securing a job upon graduation- if they even graduate. The colleges reported to have the lowest student loan repayment rates include many for-profit colleges and a number of historically black colleges.
Research has found that student loan defaults are heavily concentrated among the “most economically marginalized students;” the new data suggests that debt is a major financial obstacle for people who already face barriers to opportunity. In light of the new data, hopefully Congress will revisit its system for ensuring that students who take on debt have a chance of actually paying it back.
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