A New Niche in Paying for College Education

If you have bad credit and cannot get a car loan, then you might know that there are many car dealerships that offer “buy here, pay here programs.” In these cases, the dealer itself or a lending company that works directly with the dealer will provide the loan to you. In most cases however, the borrower gets hit with a higher interest rate and penalties. For profit colleges across the United States are starting to implement similar loan programs to help students pay for their college education. Only with colleges, they are implementing these programs because several banks have stopped funding student loans and this has left many students without a way to pay for college.

ITT and Career Education Corp. are two colleges that have started lending directly to their students in order to help cover the student’s tuition and fees. When students have more ways to pay for school, enrollment goes up and the school then receives more funding from the government.

Typically, students use federally backed loans to pay for portions of their college education that grants do not cover. As noted however, since banks have stopped a lot of their lending, this has left students without a way to pay for some or all of their tuition bill. This might seem like a nice thing for educational institutions to do, but it is causing a whole slew of problems.

For profit colleges are walking a very fine line with these types of loans. Some have even gone as far to label the loans as “consumer loans” so that they can charge student very high interest rates. Some interest rates are 18% percent or even higher. Compared to the 5 or 6 percent that students pay on federal Stafford loans, it is easy to see why more students are leaving college in an extreme amount of debt. If a student drops out of college, they might end up paying $10,000 to $20,000 thousand dollars just for one semester once the interest is tacked on. If a student defaults, they often cannot return or continue school, which means that students are being expelled for failure to pay. Most students do not have any means to pay back these loans when they are given the funds and that can lead to an easy default.

This lending niche that is being used by for profit colleges was developed with good intentions, but it may just end up leaving some students financial scarred for the rest of their lives. For more on the college lending problem, see http://www.theinternettimemachine.com.