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Even Federal Reserve Chairman Jerome Powell cast doubt on the need to exclude student-loan debt from bankruptcy protection

Even Federal Reserve Chairman Jerome Powell cast doubt on the need to exclude student-loan debt from bankruptcy protection

Alone among all kinds of debt, we don’t allow student-loan debt to be discharged in bankruptcy, he testified before the Senate Banking Committee in . I’d be at a loss to explain why that should be the case.

Federal grants and loans received under Title IV accounted for 74 percent of for-profit colleges’ revenue in 2011, report Harvard’s Deming, Goldin, and Katz. Under the law, these institutions can get as much as 90 percent of their revenue from government sources and still maintain their Title IV eligibility.

Veterans who get grants and loans to attend these schools don’t count as part of the 90 percent, which may be why for-profit colleges enroll so many of them. In 2016, six for-profit education companies enrolled 35 percent of all students using the GI Bill, which provides education benefits to veterans, reported Veterans Education Success, a nonprofit that offers legal advice to veterans.

The Obama administration demanded that for-profit colleges produce better outcomes for their graduates in exchange for the government largesse the schools receive. In 2014, the ED announced it would enforce a provision in the Higher Education Act that stated career-education programs must prepare students for gainful employment. If most of a program’s graduates didn’t earn enough income to repay their loans, the ED would deny Title IV federal student aid to that institution. It mandated that a program’s graduates have annual loan payments less than 8 percent of their total earnings, or 20 percent of discretionary income.

In 2015, the ED fined Corinthian Colleges $30 million for misrepresenting job-placement data and altering grades and attendance records, NBC News reported. Shortly afterward, the chain closed its doors, stranding 16,000 students. Another large for-profit operator, ITT Technical Institute, also went out of business. In all, since 2010, https://guaranteedinstallmentloans.com/payday-loans-ar/ nearly half of all US for-profit colleges and career programs have shut down, and student enrollment has dropped by 1.6 million, the New York Times reported in .

About half of all student-loan defaults

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During this time, the New York attorney general and plaintiffs in two class-action cases sued Donald Trump over misleading marketing claims for his Trump University, a for-profit real-estate training program that operated from 2005 to 2010. Trump agreed to settle the lawsuits for $25 million shortly after he was elected president, in .

That is just one of many cases brought by state attorneys general against the industry. In a settlement with 48 states announced in January, for-profit Career Education Corporation agreed to wipe away nearly $500 million in loans taken on by 180,000 students-but the settlement covers only debt owed directly to the company, not third-party loans. And for-profit schools continue to close. Another for-profit provider, Education Corporation of America, shut down in , affecting 20,000 students.

The future of for-profits

But for-profit colleges have been granted something of a reprieve. Under the Trump administration’s sweeping deregulatory agenda, Secretary DeVos rescinded the gainful employment rule and loosened accreditation standards, giving some former operators with poor track records a second chance.

Rapid reversals of fortune mark for-profit colleges’ entire history, which is characterized by surges in enrollment and openings, followed by periods of retrenchment. Yannelis and Looney studied three decades of expansions in student loans, driven by new players entering the for-profit arena. In the 1980s2000s, changes in federal education policy, such as increased eligibility for loan programs and higher borrowing limits, prompted entrepreneurs to jump into the market with new educational offerings.

These new institutions and the student borrowers they enrolled were substantially higher risk, and the change in the composition of borrowers led to a sharp increase in loan default rates, Yannelis and Looney write. The expansions were followed, predictably, by tightened federal credit standards and big increases in defaults. About half of the increase in student-loan defaults between 2000 and 2010 can be attributed directly to for-profit colleges entering the market, they conclude.

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