Colleges follow the 90-10 rule for financing. Ninety percent (90%) of a
student's expenses can come from FEDERAL grants and loans. The
other 10% is from the student, scholarships, state money or third-party
loans. Most for-profit schools rely more on Federal money than
traditional colleges do.
What an amazing business model - a for-profit business arrangement
with very little risk!!!! They get 90% of their income from FEDERAL
money whether the student pays the money back or not. When it
comes time to collect, it's entirely the taxpayers who are at risk!!
The default risk is huge. The schools set their own loan terms and
mostly loan to high-risk borrowers and charge very high interest
rates with payments due while the student is still in school!!!
Naturally, the school doesn't see a problem because they say they
serve a sector that would otherwise be unable to attend school.
The default rate in most for-profit schools remains low because
they give out very few loans and they have significant leverage
over collection.
It is amazing to note that the default risk on most of the loans for
for-profit and not-for-profit schools is almost entirely on the
FEDERAL government!!!!
