Predatory practices increase Mainers’ student debt and financial troubles

Mainers are carrying nearly $6 billion in education debt.

Large figures like that can be difficult to wrap our heads around, so think of it this way: If one dollar of our student loan debt was paid off every second of every day, it would take us more than 190 years to pay it off. It would be the year 2209 before we were education debt-free.

MECEP calculates that Mainers education debt payments could create 6,000 jobs and three-quarters of a billion dollars in consumer spending if they weren’t spent on loans. Polling shows that student loan payments are preventing Mainers from buying homes or saving for retirement and making it harder for many borrowers to afford necessities such as food, clothing or medical care.

Those are just a few of the findings in MECEP’s recent work to investigate the effects of education debt in Maine. Our research has included polling to determine how debt affects Mainers’ personal finances, as well as analysis of trends and student loan debt’s effect on our economy.

Over the next few weeks, we’ll dig into our research to reveal the ways education debt is holding Mainers down and holding our economy back. This post focuses on the way predatory for-profit colleges and student loan servicing companies exacerbate Mainers’ debt woes.

For-profit colleges: Often a bad deal — with interest

Students at for-profit colleges take on more debt, are less likely to graduate and face slimmer job prospects than students at public or private nonprofit colleges and universities. That makes for-profit colleges a primary driver of Mainers’ difficulties paying down education debt.

For-profit colleges target women, veterans, people of color, and other low-income students, and make money off the loans, Pell Grants and veterans education benefits those students use to cover their education costs.

Because they tend to be low-income, a greater share of students at for-profit colleges need to borrow than those who attend other education institutions, such as Maine’s community colleges. Because for-profit colleges are often more expensive, students attending them borrow more, and leave with substantially higher debt levels.

The value of some for-profit colleges is questionable at best. Their students are only half as likely to graduate as those going to public institutions. And those that do graduate are often disappointed to find out that the better job opportunities that sold them on the school was a false promise.

Some of the worst for-profit colleges have programs that don’t lead to credentials. Students get to the end of their two years and don’t have the right courses for the professional license they were working toward.

For more detail about for-profit colleges’ effect on Maine’s education debt, read our full report.

Student loan servicers make it harder to get out from under debt

Student loan servicers are private companies hired by the federal government to service government-backed student loans. These companies track and collect loan payments and enroll debt holders into payment plans like income-based repayment and loan forgiveness plans that the federal government set up to help borrowers discharge their debt.

In 2017, the federal Consumer Finance Protection Bureau sued Navient, the biggest one of these servicing companies, for illegal practices such as steering borrowers in ways that increased the amount of interest paid; unfairly allocating payments in a way that maximizes fees; obscuring deadlines so debt holders miss payments, and failing to tell education borrowers about repayment or forgiveness options available.

The fall, MECEP and the Center for Responsible Lending commissioned polling research to learn more about Maine education borrowers’ experiences. The findings are shocking:

  • One-third saw the cost of their loan increase from new fees or higher interest that resulted from problems with servicers.
  • 40 percent said they had a problem with servicers damaged their credit scores
  • One in three Maine student loan borrowers had servicing companies fail to tell them about their eligibility for repayment plans.

Click here to read the full polling memo.

It’s time to protect Mainers from predatory actors

Maine can stop for-profit colleges and loan servicers from cheating education borrowers to make a profit.

Along with efforts to make college more affordable, lawmakers can resurrect legislation that Gov. LePage vetoed last year that would have established guardrails and accountability for predatory actors and protected borrowers.

Prohibiting deceptive practices, holding for-profit colleges accountable to their students and the state, and protecting borrowers from abuse will go a long way toward making it easier for Mainers to pay down their debt.