New Education Department data released last week revealed the shocking number of student loan defaults from borrowers who attended a for-profit college in 2008. A massive 46.3 percent of federal loans that were distributed to students at for-profit colleges would go into default, significantly larger than the rate of default on student loans overall, which is 15.8 percent in 2008. This isn’t surprising news. Just two weeks ago, Senator Tom Harkin (D-Iowa) and his Senate Health, Education, Labor and Pensions committee recently released information about for-profit college crisis. Comparing the colleges to the subprime mortgage collapse, the committee explained that for-profit colleges are using the lure of higher education to entice prospective students to take out huge student loan debts that they cannot afford. Schools used deceptive recruiting tactics to convince would be students that they will be able to afford the loan payments after graduation. No wonder these former students aren’t paying. They were tricked into taking out the loan and now cannot afford it.
The astounding percentage of defaulted loans at these for-profit colleges may help the Department of Education acquire support to regulate such colleges. The new study may also elicit more backing for the DoE’s proposed "gainful employment" rule, which would screen for-profit institutions according to their students’ ability to repay loans. If approved, "gainful employment" would order a two-part test for colleges, including an analysis of their students’ debt to income ratio and a determination of whether those students are paying down principals on loans. Colleges that fail the tests will not be allowed to receive tuition in the form of federal aid, which is the source of up to 90 percent of most institutions’ current revenue.
For-profit institutions have launched a lobbying campaign in order to block the rule from being passed and argued that "gainful employment" will limit access to education for low-earning minorities. Others have contended that the rule implies that an education’s value can be measured by the amount of money students earn after graduation. However, it seems unlikely that the “gainful employment” rule would pass. Many of the for-profit schools have close ties to the government and are almost fully supported by the federal government. According to Mother Jones, most of the for-profit institutions receive 75% or more of their revenue in federal loan funding. And at The University of Phoenix’s parent company, Apollo Group, federal dollars constitute more than 90% of revenue. It is clear that something needs to be done. Although not as publicized as the foreclosure crisis, the student loan debt in America is quickly becoming a large scale economic crisis that will saddle young adults with massive debts for their entire adult life.
As per LIC is concerned what is the need of loan.