Education, News

Colleges and Unethical Student Loan Practices

In 2007, it became apparent to the American Federal Department of Education that there were serious problems with the loan lending practices of certain education facilities. In fact, 55 colleges were faced with inquiries regarding questionable loan lending behavior. Forty-eight of these colleges had a single lender for more than 95% of their loans, while seven had a single lender who covered more than 80% of their entire student loans. It became obvious action was required.



In 2008, Margaret Spellings, the United States Secretary of Education, announced the coming of new regulations concerning student loans. The Higher Education Opportunity Act of 2008 (H.R. 4137), passed August 14, 2008, was intended to remove conflicts of interest, and ensure borrowers that the system can be trusted. The new act:

  • Required the lenders and the institutions to adopt a strict code of conduct.
  • Obliges institutions to provide a complete picture of their relationship with the lenders.
  • Bans both lending and educational institutions from exchanging gifts and creating revenue sharing agreements in regards to federal and private loans.
  • Disallows the lenders who provide private and federal student loans to suggest through any manner that indicates the educational facility endorses their loans.
  • Makes certain that all potential borrowers are aware of and have access to all prospective lenders and not those provided by the college as the “Preferred Lender Lists.”

In addition, the Act works to ensure that all students are informed clearly of their options for borrowing federal money as well as the specifics concerning loan repayment.

The problem with for-profit colleges

While the measures taken under the Act were intended to help prevent unethical student loan practices by colleges, issues continued to arise. In particular, for-profit colleges seem to have found ways to avoid the restraints of the act. The Department of Education has been working on a way to make these colleges accountable.

The issues with for-profit colleges stems from their very intent. Unlike other colleges, they need to make a profit to satisfy their stockholders and investors. In addition to making false promises about job opportunities while overcharging for courses, diplomas and degrees, one major issues is that the for-profit colleges receive approximately 90% of their revenue as a result of their students receiving federal aid. Another problem concerns their preying on the military and minority students.

This was the case with a for-profit college in Florida that operated from 2009 to 2012. It actively falsified grant documents and persuaded its students to adopt fraudulent behavior in order to obtain government grants. Unfortunately, it was not alone in these practices. Over the past several years, such colleges have been inspected and attacked for their practices and behavior by more than 37 state attorneys as well as several federal agencies, including the Securities and Exchange Commission and the Senate HELP committee.

Charges of fraud were brought in 2014 and 2015 against several for-profit colleges. The operator of the well-known and advertised educating company was charged with fraud by the Securities and Exchange Commission. Lawsuits against for-profit colleges have been described as “predatory,” and that institutions are pushing students into loans that are virtually unpayable.

The federal court put into place a ruling intended to prevent such instances of fraud. It requires colleges to ensure that the loan payments required by students do not exceed more than 20% of a student’s estimated earnings upon graduation.

What’s next for for-profit schools?

The attempt to rein for-profit colleges is viewed by many as a positive movement. It is also feared by some who see it as a threat to the colleges who operate within the guidelines. Even Congress has become aware of the capability of many for-profit schools to be aggressive and money-makers at the expense of their students.

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The Author

Mary Brown

Mary Brown

Mary Brown has enjoyed writing about education and finance related topics, such as scholarships, student loans, college, vocational degree choices, and adult education since the early 2000's. She also writes about school budgets, accreditation and fundraising.