The Hechinger Report - When your college is your banker

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By Sarah Butrymowicz and Meredith Kolodner

There’s been no end of discussion recently about how to handle the staggering amount of federal student loan debt, especially with a new administration in Washington bringing the possibility of policy changes. But there’s another world of student debt that’s rarely talked about. In fact, most people don’t even know it exists.

We first waded into this sphere of hidden debt about a year ago, unsure what we’d find. We were looking at some records of for-profit college settlements with state and federal agencies and noticed that several involved colleges forgiving their own student loans. Their own loans? This made us curious. Colleges were making private loans directly to students? As we pursued this, we uncovered more questions: What is the nature of these loans? Are they harming students? Why do colleges do this? And who is watching?

The answers led us to our story published this week in partnership with The New York Times. Our investigation discovered that hundreds of thousands of students have been buried by this under-the-radar financial burden: loans offered directly to students by for-profit colleges, with little oversight. We combed through audits, financial statements and college marketing materials and found that this practice is remarkably common – and has added billions of dollars of student loan debt that is overlooked in the national conversation.

We learned that for-profit colleges often disburse these loans knowing full well that it’s unlikely many students will be able to pay them back. But the schools themselves still come out ahead. Whatever money they are able to recoup from the loans may not in itself be much, but the process helps boost their bottom line because it enables them to get millions of dollars in federal financial aid. It can keep them in compliance with a federal law known as the 90/10 rule; the loans can count toward the 10 percent of a college’s revenue that must come from sources other than federal financial aid.

And, as we discovered over the course of our reporting, this story is just a fraction of a hidden student debt crisis. Our colleague Jon Marcus found another piece in this puzzle: Unpaid balances at public colleges – some as little as $25 – block students from getting their transcripts, and therefore from transferring to another college or getting a job.

Withholding transcripts, a student in Ohio told Jon, “really does get people on the lower rungs of society stuck in a trap that keeps pushing forward cyclical poverty.”

Some community college presidents were surprised to learn of the huge numbers of people affected by this practice, leading them to question whether preventing their graduates from getting good jobs was the best way to help them pay off what they owe. One has now eliminated the policy in response to our reporting.

You can read and listen to this story, which was produced in partnership with the Boston public radio station GBH and their education reporter Kirk Carapezza.

There’s still much more to tell. That’s why we’re launching a new project: Hidden Debt Trap. For the next several months, we’ll be focusing on how students become indebted not to the federal government or to private banks but to their colleges and universities. We’ll be looking at several of these arrangements, with a focus on the ways they bring students financial harm and whether anyone is trying to protect students.

Do you have ideas about more questions we need to ask or areas we need to examine? Click the "reply" button on this email and you can talk directly with us. And save hiddendebt@hechingerreport.org to your email address book to send us tips and questions.

We created a free newsletter where you can get updates about this project. This email will be sent only when we have updates on the Hidden Debt Trap to share with you. You will be able to talk directly with us by replying to those emails. Use the button below to subscribe.

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