The Student Loan Racket


The student loan racket – For-profit enrollment growth surged by 225 percent in last decade.  For-profits live off the 85 percent of revenues they receive from the government and filter out to their Wall Street owners.

The loud commotion you hear rattling the global economy is the massive debt bubble imploding.  A few notable economists have stated that too much debt is reached simply when the public acknowledges that there is too much debt.  To this point the public is now waking up to the reality that too much debt is being taken on for higher education.  Where there is money to be made you now have Wall Street and the government walking hand and hand smiling to fleece the American student without producing any measurable increase in value.  With a web of connections and political pay for play we now have a giant bubble that is causing financially disastrous results for many young Americans walking out with diploma in hand and a massive albatross of debt securely wrapped around their bare wallets.  With youth unemployment rivaling those of third world nations we are starting to see cracks in the current system.  It seems that the $1 trillion mark with student debt might have been a tipping point.


The circle of student debt life

To understand the convoluted scheme of higher education it is useful to see the massive expansion in for-profit institutions:

for-profit enrollments

Source:  Senator Harkin

From 1998 to 2008 the growth of enrollments at for-profits has surged by 225 percent.  Many of these institutions are one step above paper mills and largely provide little value added to students that attend.  Many of the for-profits also market and target heavily lower income Americans.  So who is paying for this?  Step in the federal government:

federal dollars

The life blood running through the veins of the for-profits comes from you guessed it, the Federal Government.  In 2009 for-profits pulled in revenues from one source primarily.  Over 85 percent of revenues to these institutions derived from the government (aka the American taxpayer).  It would be one thing if these schools were producing solid results but they are doing everything but producing results.  Take a look at default rates:


The above chart only goes by generous measures of defaults.  If we look at longer term cohort default models we start seeing default rates soaring into the 40 to 50 percent range.  This student loan bubble is popping because of the lack of quality and infusion of for-profits merely ripping students off.  Yet someone is making money here.  The government is merely a funnel of taxpayer money into select Wall Street institutions……

Read the rest at My Budget 360