Left in the Lurch by Private Loans From For-Profit Colleges

Ms. Clarke recalls college employees giving her instructions on how to take out a loan directly from the school during the enrollment process. Colleges sometimes encourage students to sign up for loans without the students realizing what they are taking on.

“It’s really helpful to think about this as an important part of the marketing process as much as it is 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 started accruing interest only after she left school, her Lincoln Tech loan began requiring payments when her classes started, and the interest accumulated while she was still in school. Lincoln Tech’s administrators projected an attitude of “we’re going to get our money and we’re going to put them in debt and they’re going to have to pay us back,” Ms. Clarke said. “I just feel like they’re a money pit.”

Peter Tahinos, senior vice president of marketing for Lincoln Educational Services, said in an email that he could not comment on individual students but added that employees “provide guidance on the best options for them to finance their education.” Lincoln charges 7 percent interest on its loans. Students can choose to begin payments immediately, with interest accruing right away, or after leaving school.

Some colleges increase the burden by imposing high interest rates. Unlike federal loans, which currently have interest rates of 2.75 percent for undergraduate borrowers, loans directly from schools can far exceed that. A 2020 report by the Student Borrower Protection Center uncovered interest rates as high as 19 percent for loans offered by some schools.

Scrutiny of this practice remains low at both the state and federal levels. A survey of 75 agencies across all 50 states — including higher-education oversight agencies, attorneys general and departments of finance or banking — by The Hechinger Report, a nonprofit education news organization, found that few places tracked any information about school-offered loans. In fact, in the vast majority of states, higher-education authorizers don’t require colleges to report plans for such programs.

Universal Technical Institute, a publicly held chain of 12 campuses across eight states, told its investors in its 2020 annual report that “changes in laws or public policy could negatively impact the viability of our proprietary loan program and cause us to delay or suspend the program.”