Ms. Clark recalls college staff giving her instructions on how to obtain a loan directly from the school during the enrollment process. Colleges sometimes encourage students to sign up for loans, but students do not understand what they are taking on.
“It’s very helpful to think of this as an important part of the marketing process, as well as a student loan,” said Mike Pearce, policy director and managing advisor at the Student Borrower Advocacy Center, a nonprofit student advocacy group focused on student debt. …
Unlike Ms. Clark’s federal loans, which accrued interest only after she dropped out of school, her Lincoln Tech loan started payments from the start of her studies and accrued interest while she was still in school. The Lincoln Tech administration showed that “we are going to get our money, we are going to put it in debt, and they will have to return the money to us,” said Ms. Clark. “I just feel like this is a money pit.”
Peter Tahinos, senior vice president of marketing for Lincoln Educational Services, said in an email that he was unable to comment on individual students, but added that staff “provide them with advice on the best funding options for their education.” Lincoln charges 7% interest on its loans. Students can start payments immediately, with interest accruing immediately or upon graduation.
Some colleges increase the workload by charging high interest rates. Unlike federal loans, which currently have an interest rate of 2.75% for undergraduate borrowers, loans directly from schools can be much higher. A 2020 Student Borrower Advocacy Center report found interest rates of up to 19 percent on loans offered by some schools.
This practice remains low at both the state and federal levels. A survey of 75 agencies in all 50 states, including higher education supervisors, attorneys general, and finance and banking departments by the nonprofit educational news organization Hechinger Report, found that information on loans offered to schools can be found in few places. In fact, in the vast majority of states, higher education authorities do not require colleges to announce plans for such programs.
Universal Technical Institute, a public network of 12 campuses in eight states, told its investors in its 2020 annual report that “changes in laws or government policies could negatively impact the viability of our proprietary credit program and force us to postpone or suspend the program. … “