Ms. Clarke remembers college staff giving her instructions on how to get a loan direct from school during the enrollment process. Colleges sometimes encourage students to sign up for loans without the students realizing what they are taking out.
“It’s really helpful to think of this as an important part of the marketing process, as well as a student loan,” said Mike Pierce, policy director and managing counsel at the Student Borrower Protection Center, a nonprofit advocacy group focused on student debt.
Unlike Ms. Clarke’s federal loans, which didn’t accrue interest until after graduation, her Lincoln Tech loan required payments when she started class, and the interest accumulated while she was still in school. Lincoln Tech administrators projected an attitude of “We’re going to get our money, and we’re going to be in debt, and they’re going to have to pay us back,” Ms. Clarke said. “I just feel like a money pit.”
Peter Tahinos, senior vice president of marketing at Lincoln Educational Services, said in an email that he was unable to comment on individual students but added that staff “provide guidance on the best ways to fund their education.” Lincoln charges 7 percent interest on its loans. Students can choose to start making payments immediately, with interest accruing immediately or after leaving school.
Some colleges increase the burden by introducing high interest rates. In contrast to federal loans, which currently have an interest rate of 2.75 percent for undergraduate borrowers, loans direct from schools can far exceed this. A 2020 report by the Student Borrower Protection Center revealed interest rates of up to 19 percent on loans offered by some schools.
The examination of this practice is still low at both state and federal level. A survey of 75 agencies in all 50 states – including college regulators, attorneys-general, and finance or banking departments – by The Hechinger Report, a nonprofit educational news organization, found that few places tracked information about school loans. In fact, in the vast majority of states, college authors do not require colleges to report plans for such programs.
The Universal Technical Institute, a publicly held chain of 12 locations in eight states, told investors in its 2020 annual report: “Changes in law or public order could adversely affect the profitability of our proprietary loan program and cause us to end the program delay or suspend. ”
