When Steve MacIntyre connected with a recruiter at the Art Institutes about enrolling in online classes to work toward a bachelor's degree, he told them he had no money to pay for school and would probably need assistance with any paperwork thrown his way. He says the for-profit art college chain told him no problem and it could help.
"I allowed them to represent me for filling out financial paperwork, so they were able to take out loans and grants in my name," MacIntyre told The Huffington Post. It was a choice that the 40-year-old now calls "foolish."
With only a high school diploma, MacIntyre had struggled to find work for a few years. In the 2004-05 term, he began taking Art Institutes classes. By the time he completed an associate's degree in graphic design, he owed $60,000 in private and government loans. He tried to finish the work for a bachelor's degree, but wasn't able to obtain all the needed loans and had to drop out a few classes shy. He's now spent most of a decade unemployed or underemployed.
He receives frequent calls from Sallie Mae, asking for more than $800 a month in payments, MacIntyre said. But he can't pay. "I'm sure I'm going into default soon," he said on Thursday.
MacIntrye is angry. He said he feels like he was "thrown to the wolves." Had he known the financial hole he would fall into, he would have searched for a cheaper means to obtain more training. He's continuing to look for full-time work and "trying to stay positive, but it's difficult," he said.
Now, some lawmakers and officials in Washington are arguing for more disclosure about student loans to prevent individuals like McIntyre from getting in over their heads, an idea that consumer and student advocates have been pushing for the past several years.
Speaking at Loyola University in Chicago on Monday, Sen. Dick Durbin (D-Ill.) said, "Most students just sign. They have no idea what they're getting into. They lack life experience. This is not an arms-length transaction between two parties who each understand the terms."
Along with Sen. Tom Harkin (D-Iowa), Durbin has introduced the Know Before You Owe Act, which would require schools to counsel students before they take out a private loan and inform them if they have any untapped federal loan eligibility.
Sen. Al Franken (D-Minn.) has put forward similar legislation, the Understanding the True Cost of College Act, which would require disclosure by higher education institutions and lenders that federal student loans offer generally more favorable terms and repayment options than private loans. It would also require the Education Department to detail interest rates, fees and expected monthly repayment amounts for federal loans. Franken's bill has attracted support from Sen. Chuck Grassley (R-Iowa) and several other Democrats.
Student finance experts like Mark Kantrowitz, publisher of FinAid.org, argue that such disclosures could help save students from taking on excessive financial burdens. Kantrowitz, who recently reviewed debt trends in a paper titled "Who Graduates With Six-Figure Student Loan Debt?," said students need to know what their repayments are going to look like.
"Colleges should tell students when they are borrowing excessively as compared with their peers and/or absolute standards concerning affordable debt," Kantrowitz wrote in his study's recommendations.
A recent report by the Consumer Financial Protection Bureau and the U.S. Department of Education found that during the past 10 years, many students took out private loans before low-cost federal loans. In the 2007-08 academic year, half of all students with loans from private lenders had not tapped all the federal aid available to them. The CFPB found that 42 percent of undergraduates at for-profit colleges, like the Art Institutes, took out private student loans in 2008 -- a significantly higher proportion than those at public and private nonprofit colleges.
The CFPB report concluded that too many students were taking on more debt than they could likely repay, similar to what happened with the subprime mortgage crisis.
Jacki Muller, a spokesperson for the Art Institutes' parent company Education Management Corporation, said its schools already go beyond current disclosure requirements. For instance, Muller said, they encourage students to "exhaust all other federal and state provided methods of financing their education before applying for private loans."
"We agree that the student debt crisis in our nation must be addressed," Muller said. "Current laws and regulations permit students to borrow well past the cost of tuition and fees up to the maximum loan limits set by Congress, and while we cannot limit the amount of debt a student incurs, we make every effort to provide access to resources that encourage responsible borrowing, repayment of loans and avoiding excessive debt."
There have been a few first steps toward more comprehensive student loan disclosure.
The Higher Education Opportunity Act of 2008 required better disclosure of fees on private loans. Earlier this year, the Obama administration launched the college cost "shopping sheet," meant to be a guide to the cost of attendance at and graduation rates for universities around the country. But colleges' provision of data for the shopping sheet is only voluntary at this point.
Moreover, a for-profit colleges trade group, the Association of Private Sector Colleges and Universities, is pushing back against the Education Department's latest attempts at securing better disclosures, particularly against the effort to make for-profit colleges reveal statistics indicating whether their students are taking on huge debts they likely cannot repay.
In the absence of new legislation anytime soon, Durbin hopes private lenders will begin to fully certify students' educational progress with their schools, as laid out in his bill, before issuing student loans. He sent letters to the Consumer Bankers Association, the Credit Union National Association, the National Association of Federal Credit Unions and the Education Finance Council in August.
The senator said in a statement, "The student loan debt bomb is no longer something we can ignore."
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