For-profit colleges now have to deal with federal aid troubles because of Gainful employment rules

There was a report released by the Education Department last week. It showed that two thirds of students at for-profit schools are avoiding their federal student loan payments. Federal aid needs might be changed because of “Gainful employment” rules that may come out. The investment of college is being challenged a growing number of. New gainful employment rules require for-profit colleges to prove that a graduate’s projected income makes student loan debt worthwhile.

Gainful employment rules and student loan repayment rates

Federal student loan repayment rates are forcing the Education Department to write new gainful employment rules. When students from for-profit schools have less than 45 percent of graduates repaying their loans, the schools will lose federal aid. In an article about the report, the Los Angeles Times said the federal student loan repayment rate at for-profit colleges was only 36 percent in 2009. Repayment rates at nonprofit private schools was higher. It was about 56 percent. State schools ended up having a poor rate too. Only 54 percent did pay their loans. Without federal aid, for-profit schools would lose a lot. They might even have to shut down. Some schools almost totally rely on federal student loan funding. 90 percent coming is from loans.

For-profit colleges must prove return on investment

Gainful employment rules also consider the total student loan debt and average earnings. The Center for College Affordability offers numbers on how the debt to income ratio has to be for students to get loans. Discretionary income has to be less than 20 percent when the total income has to be less than 8 percent. If the college fails these tests, it must disclose its graduates’ debt-to-earnings ratios to prospective students.

For-profit colleges take advantage of the government

Federal aid has gone up. This is especially true of for-profit colleges. For-profit colleges received quite a chunk of cash in just 2000. $ 4 billion was given in federal student aid, reports NPR. Now $ 27 billion is given. Students are getting a hard sell from marketing companies branding themselves as colleges. Cash is borrowed to pay for these classes they take but have to pay for. Many pay too much for this degree. The degree isn’t really worth hardly anything. They can’t get a job that would enable them to pay back the loan. The bill is paid by taxpayers.

Investing in college

Is it worth paying for college with student loans anymore? College costs are rising. MSNBC has Allison Lynn working for them who says that college is just an additional investment that needs to be cautiously looked at before making a decision. Future income won’t likely come from a degree in philosophy. And experts say individuals should look at how much in student loans they absolutely need, and how much they can pay out of pocket with a part-time job, family help or savings. Suze Orman works in finance and says that loans should never exceed what you want to make your first year of school.

Discover more information on this subject

Los Angeles Times

articles.latimes.com/2010/aug/16/business/la-fi-for-profit-colleges-20100816

NPR

npr.org/templates/story/story.php?storyId=129259157

MSNBC

msnbc.msn.com/id/38561562/ns/business-personal_finance/