Consumer Fraud Lawyers | For-Profit Schools and Financial Aid: The new Predatory Lending Scheme?

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Stuart C. Talley

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Serving Sacramento, CA

  • Serving Sacramento, CA

  • Free initial consultation

Partner at firm Kershaw, Cook & Talley PC

Serving Sacramento, CA

Free initial consultation

Yesterday a Senate committee convened to discuss investigations the
U.S. Government Accountability Office conducted on 15 for-profit
colleges. As we’ve reported in previous posts,
a growing number of schools have been engaging in deceptive marketing
and fraudulent financial aid practices. The U.S. GAO report under girds
our own findings that the schools exploit prospective students’ economic
hardship and federal funding, while lying to students about their
accreditation and job placement opportunities to boost their bottom

According to Senator Michael Enzi (R-WY), “It is crystal clear that
some programs at for-profit schools are misleading students and possibly
defrauding taxpayers out of millions of dollars in student aid funds.”

As federal funding for financial aid is expected to total $145
billion this year alone, this is a potentially huge problem.  Are we
moving from one predatory lending scheme to another?  It may seem overly
sensational to compare our problems with subprime mortgage lending to
the student loan industry, but talk to former students struggling to pay
off their student loan debts while barely finding a job in their
field.  You may feel a sense of deja vu creep in while tent city images
return to your memory bank of televised tragedy.  Students who had to
take more than one loan find that most of their loans cannot be
consolidated, and when extreme hardship forces them into bankruptcy,
they often cannot be released from student loan debt.

According to the Bankruptcy Law Network, a blog about bankruptcy news:

The big difference between student loans and unwieldy
home loans is the inability of most borrowers to rid themselves of the
resulting debt. Federal student loans can follow the borrower to the
grave. They have no statute of limitations and can be collected from the
estate of the borrower even after death.

Statistics analyzed in 2003 by the Department of Education state that an average of 1 in every 3 students defaults his or her student loan.  Now
add into the equation how many for-profit schools encourage prospective
students to lie on  financial aid forms so that they can
attend their non-accredited or sub-standard program that does not lead
to the job opportunities they claim, and a bigger, and more
frightening, picture emerges. 

Director of policy and research for the National Association of
College Admissions Counseling, David Hawkins, testified at today’s
hearing. “In an unregulated environment,” he stated, “the potential for
misrepresentation and outright fraud is a clear and present threat,
which can result in harm to students and, in the case of federal aid and
loans, to the taxpayer.”

We should encourage our lawmakers to crack down on these unscrupulous
institutions and add consumer protections to student loans.  And
meanwhile, let’s spread the word to as many people as we can so others
don’t fall into the cycle of student loan debt and pervasive

To learn more about how to avoid deceptive recruiting tactics read our previous post “Tips to Avoid Trade School Fraud,” and follow our Fight Trade School Scams Facebook Page to contribute to the conversation.

For more information, contact Stuart Talley at Kershaw, Cutter & Ratinoff:  888.285.3333

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