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A new filing from the University of Phoenix (ticker: APOL) suggests that student default rates at the nation's largest university are surging to a level that could endanger the ongoing viability of the company.
The federal government will cease to offer Pell Grants and some loans to students at colleges and
The Federal Trade Commission says it is prepared to hold for-profit universities and vocational schools accountable to their students.
A new draft, not yet law, has emerged from discussions on the negotiated rulemaking on Program Integrity. The new rule is focusing on how to define "gainful employment," with the intent of making sure that consumers (students) are not given a false impression of the benefits of an education. With that is a concrete provision to link the income of graduates with debt loads. The FTC, along with the Department of Education, are working to make sure that people are not graduating with more debt than they can reasonably afford on the income earned from their new degrees.
The idea is that debt service for recent graduates should not exceed 8 percent of income. There are a few caveats:
Repayment is calculated based on average salary. If Shaquille O'Neal is among your graduates (Univ. of Phoenix, MBA, 2005), then his salary could be counted. I say could be, because it would only count if you had a major offering in basketball. Graduates must be working in the field that they studied. Culinary students working in record shops are not relevant. MBA's working in professional basketball - not relevant.
For example, if recent nurse assistant graduates earn an average of $30,000, then schools would be penalized if those graduates had an average debt load that was above $17,500 (assuming a 6.8 percent interest rate on unsubsidized Stafford loans) or $19,300 for subsidized Stafford loans (4.5 percent in 2010-11).
Schools were to demonstrate at least a 75 percent repayment rate on loans among graduates.
The rule only applies to graduates, and only to those students from a select set of institutions. Nonetheless, these for-profit and vocational schools are important. The University of Phoenix is the largest college in the United States. A recent estimates finds that it has approximately 500,000 students. Even so, most of
Obama's new budget contained an unexpected wrinkle. As written, the President's plan intends to shelve the guaranteed student loan program. In its place, students would apply for loans directly to the US Department of Education.
The announcement came after markets closed on Thursday.
This sets up a battle between lobbyists for some of the top for-profit names in education (Sallie Mae, Apollo/University of Phoenix, and First Marblehead against the Democrats.
Students generally can get a better deal through the US Department of Education. In spite of that opportunity, students still went to private loans because rising tuition often outpaced available grants and US Ed loan funds.
Obama believes that the new proposal would save taxpayers approximately $4 billion per year.