REASON: Is the Student Loan Bubble Starting to Pop?

Career College Central Summary:

  • Have we heard the first pop in a bursting student-loan bubble? After Santa Ana, California-based Corinthian Colleges this month filed for bankruptcy and announced the closure of its remaining for-profit college campuses, talk in Congress and the Legislature has revolved around proposals to bail out student debt for as many as 16,000 students.
  • Financial analysts have for years warned about the parallels between easy student loan debt and the easy mortgages that led to anartificially inflated housing market in the mid-2000s, and the resulting price drops and foreclosure bonanza. Maybe it's time to reignite those discussions.
  • "Corinthian's meltdown began last year after the U.S. Education Department reduced its access to federal student aid," reported Bloomberg News. It sold half of its 107 campuses "amid allegations that it falsified grades, attendance and job-placement rates." The company denies allegations and blames state attorneys general — including California's — for legal action that made it tough to sell the other campuses.
  • Under federal loan rules, some students may be eligible for loan forgiveness — at a possible cost of more than $200 million to taxpayers. But the attorneys general, some U.S. senators and a group of protesting Corinthian students dubbed the "Corinthian 100" are pushing for a broader loan-forgiveness package that could cost as much as $1.5 billion.
  • Democratic and Republican leaders of the California Assembly in late April announced legislation that would waive community college fees for these students, provide them with legal assistance, offer "tuition recovery" to many online students, and create a "Closed Schools Task Force" to help them get back on their feet.
  • Some critics blame the for-profit nature of these colleges, but in other parts of the country some for-profit colleges are simply turning themselves into nonprofit colleges — and that allows them to get an even higher percentage of their revenues from the government (100 percent rather than 90 percent, according to a Miami Herald report).

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