For-profit colleges and the threat of a new bubble

In an op ed in the LA Times Senator Tom Harkin warns that massive defaults will result from for-profit colleges manipulating students into taking out loans that they cannot afford.

Harkin writes:

Haven't we heard this story before? It features a high-pressure sales force persuading consumers in search of the American dream to go deep into debt to purchase a product of often dubious value. Default rates are sky high. Taxpayer money is squandered. Top executives walk away with fortunes.

This sounds like a description of the subprime mortgage industry, which came crashing down two years ago. But what I just described is the reality at many for-profit colleges.

...serious questions have been raised about some of the major players in this rapidly growing industry. Critics charge that many for-profit colleges employ overly aggressive recruiting tactics targeting low-income students. Students take on excessive debt, and though dropout rates are not available, there is reason to believe that they are very high.

Critics say that the entire business model, especially in the case of publicly traded companies, is premised on a college's ability to churn through many thousands of students, whose federal Pell grants of up to $5,550 and Stafford loans are paid to the school, with no accountability for student learning or graduation. Even good actors in this industry are lured into the vortex of bad practices in order to compete and meet investors' expectations.

The entire article is linked.