One of the biggest offenders stoking the student debt problem is for-profit higher education institutions. They’re roundly criticized for taking their students’ government debt dollars to sell them degrees they know that they can’t use, will be unable to complete, or will default on. They engage in reckless, hard-sell enrollment practices.
For instance until recently they’ve referred to prospective students as “leads” like in telemarketing deals, which contrasts with how non-for-profit higher education treats them. To combat the high dropout rates and high default rates, the Department of Education (ED) promulgated what’s called the “Gainful Employment Rule” (34 C.F.R. §668.7), despite much pushback from for-profits. The rule curtails for-profits’ access to federal student loan dollars if they fail to meet one of three requirements in three out of four consecutive years:
- “Loan Repayment Rate: At least 35 percent of the program’s former students are repaying their loans;
- “Debt-to-Earnings Annual Ratio: The estimated annual loan payment of a typical graduate does not exceed 12 percent of his or her total earnings;
- “Debt-to-Discretionary-Earnings Ratio: The estimated annual loan payment of a typical graduate does not exceed 30 percent of his or her discretionary income.”
This comes from a recent press release on ED’s web site.
If you think the Gainful Employment Rule is easy to meet, you’re right. As of now, 95 percent of the 3,695 programs in 1,336 for-profit schools are meeting at least one of the three criteria, and even the ones that don’t still have two years to fix their programs before they risk losing their funding.
The bankruptcy connection is clear: Because these schools tend to load their students down with government student loan debt, they’ll undoubtedly encounter repayment problems. For instance, it’s not too hard for 35 percent of a school’s former students to be in repayment. That’s a really high default rate. It just means that a lot of the students will owe student loans without being given a whole lot of value. On the one hand, most government loans are eligible for income-based repayment, which is good, but the minimal use of that program and the difficulty of discharging student debt in bankruptcy suggest that a lot of people will be loaded down with student loan debt for a very long time.
If this describes your situation, Chapter 7 bankruptcy can help you free payments from other loans for your student loans, and Chapter 13 can help by reducing payments on other loans and halting collection activities until your income situation improves.
For more questions about student loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy law firm Bruce Weiner for a free initial consultation.