Studen Loans By For-Profit Colleges As The Next Sub-Prime Mortgages

This article compares default rates on sub-prime mortgages with the default rates on student loans. The default rate on student loans made by for-profit colleges is 15% and compares with that of sub-prime defaults.

Several points can be made about these data. Its pretty clear that for-profit colleges are using government supported student loans to sell folks on getting a degree that may not be able to finish the degree, or may not get a job after they get the degree. The primary motivation of the for-profit colleges is to produce profits. They have little interest in what happens to their recruits who are stuck with loans that they cannot afford to repay. The government gets stuck with guarantees that it provided, and those with the loans will not be in a position to form households or lead a normal economic life. The effect is much like what happened with the sub-prime mortgages. Income is extracted by the for-profits from the disadvantaged who made bad decisions and the entire economy suffers from the result.