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Comment by jmcgough | Hacker News Reader

Yes, these are problems that are present for some other schools, but ITT Tech is far worse. For-profit schools aren't even in the same ballpark as other types of schools, in terms of the default rate.

These are businesses where the "admissions counselors" are salespeople who are told to lie to people and strongarm them into attending, taking out massive government loans and effectively stealing money from the federal government when they inevitably default.

"In 2011, 22% of student loan borrowers from ITT Tech defaulted on their federal student loans. In contrast, the average default rate for 4-year public institutions was 8.9%. For private student loan borrowers, ITT’s projected default rate is a whopping 64%. This is primarily because of the high tuition, low graduation rates, and low job placement."

(http://higherednotdebt.org/blog/time-itt-tech-go)

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Comparing a 4-year college and a technical school is heavy-handed. Neither share demographics, nor business model. As one of 'We the People', it is also disturbing to read 'stealing money from the federal government'.

As someone who attended ITT Tech I feel that their recruitment practices were at least somewhat predatory. The same sort of practice whereby used care salesmen will tell you what you need to pay per month without ever making it clear what the total cost is. All the while of course they knew that most of the money would come from federal student loans. These happen to be loans that the students can never escape. Buyer beware for sure.

> The same sort of practice whereby used care salesmen will tell you what you need to pay per month without ever making it clear what the total cost is.

The instructor of my accounting class was a former used car salesman. He said that his customers didn't want to hear about total cost, they were only interested in the monthly payment. He'd try to explain, and they'd cut him off and go for whatever had the lowest monthly payment.

they'd cut him off and go for whatever had the lowest monthly payment

What if this were a rational decision? For a person with low disposable income and no savings choosing the lowest monthly payment is the most rational decision.

Well, it seems like the most rational decision. Whether or not it is, I guess, depends very much on the persons situation.

For example, if you need to buy a car now (eg because you rely on it for work or something and can't wait to buy), then sure, it might very well be. On the other hand, if that's not true, then saving the monthly payment until you can buy it outright is much more rational (and cheaper). I understand that many people can't do that, however.

I neglected to mention a key point. When he'd show them a plan with a much lower total cost, but a higher monthly payment, they'd accuse him of trying to trick them into a higher payment. No way were they going to fall for that one.

They certainly believed they were making the most rational decision. It didn't help that used car salesmen don't have a reputation for honest dealings.

Did you get anything out of your experience there?

I hate it when people would rather impeach sources than talk issues. At the same time, a casual look at the site you linked shows quite a few advocacy groups who obviously have an agenda to push. http://higherednotdebt.org/about/

So I would check those stats with a careful eye looking for bias.

Meta: I actually prefer opinion pieces to news articles. In an opinion piece, the author has to state a thesis, then defend it with facts and an argument. Makes for honest reading. What I don't like is the proliferation of persuasion pieces masquerading as news items -- and it is by no way limited to political action groups. Even the MSM gets in on the action.

So as far as I know these guys may have a point. But they also carefully choose what to present with an eye on influencing public opinion. This is not the site that would ever have an article saying "Ooops! Turns out ITT Tech wasn't so bad after all!"

22% vs 8% is not as big of a difference as I expected. It is plausible to explain that difference by the type of students likely to attend ITT vs a 4 year public university.

And 64% amongst those with loans to default on...

Nearly three times as likely to default on federal loans? And nearly six times as likely to default on private loans (I saw 11% as the rate). That's a pretty big difference.

The students who are likely to go to these trade schools are often better served by the Community College system, but often don't know/understand it as an option.

One interesting statistic, <20% of CC students take out loans for school (the cost is generally low enough they can pay out of pocket), but ~20% of those students also default.

why not allow them to operate instead of force them out--make them pay for all defaulted loans above 8% -- that might make them work harder to get their students gainfully employed so they can cover their loans. -- not that I like ITT, I abhor them, and think that Bootcamps are WAY better in terms of quality education and quality of job prospects.

Would they do that or just become more aggressive at debt collection?

Maybe? But I'm not sure what good it'll do them. When someone can't get a job they're not exactly going to be paying back debt faster, even if they wanted to. I can't see how them being more aggressive could really help the situation much if at all.

If most of their income is from guaranteed loans, then they are likely considerably less aggressive right now than they could be. Debt collection can also lead to wage garnishments. Never underestimate the desire to extract as much blood from a turnip as possible.

In economic policy, the Federal Reserve has as its mandate controlling inflation and unemployment. Inflation is exogenously measurable, but unemployment isn't. Rather than have the Fed measure unemployment, a seperate government agency, the Burea of Labor Statistics, does. Hence: the Fed doesn't measure what it manages.

Forbidding ITT from pursuing collections, leaving that to an industry which has experience with loans (banks), and instead, leaving it to modify what it can control -- the control, the recruitment of students and instruction standards -- might result in a successful incentives alignment.

You'd have to police and very heavily penalise any kickbacks or covert communications between ITT and lenders.

Yes this.

The problem here is with the government instead of ITT in my opinion. If you are lending money to someone who is taking significantly more risk it is your fault if the person fails to pay it back and not of the consumer or the business selling the service.

In fact it makes sense for the government to do better credit risk analysis for every college-course-student instead of providing loans for any student, college course. The private banking industry already has this system and it makes sense for government to just leverage that.

Why the downvotes? It seems perfectly sensible that the government should be selective about who it loans money to. Even more so than private industry, considering the money they're handing out is from a deficit that productive peoples' taxes pay for.

I'll entertain the notion, because I have questions and reservations of my own (powered by certain built-in and historical baisies as an American...infer if you will):

What would the criteria be to determine loan eligibility for a student fresh out of high school?

GPA, extra curricular activity, criminal record, intended major, savings, jobs worked and the duration they were held, etc.

Of course, none of this is as accurate an indicator as a FICO score which is why student loans are federally guaranteed, otherwise who would offer them?

All of this goes to underscore just how destructive the "college for everyone" concept is. The government is making junk loans so that naive young people can pursue useless degrees and graduate directly into crippling debt servitude. Consequently, colleges have transformed into bloated profit machines, happily ratcheting up tuition in response to this inflated demand.

Sadly, reform will only happen once this system collapses in on itself.

A FICO score is pretty meaningless for someone just graduating high school. They likely don't even have a credit card yet. And for those who do have a FICO score, what if the very reason they're applying to ITT tech is the same reason their score is bad? You also want to avoid "discrimination."

> colleges have transformed into bloated profit machines, happily ratcheting up tuition in response to this inflated demand

Colleges aren't really "profit machines" though, and growth in tuition hasn't paced enrollment increases, so it is more likely that aid levels are being increased in response to rising tuition, rather than tuition being raised due to increased aid. Interestingly, one of the dominant factors in the growth of personnel costs for colleges is healthcare for employees.

Between 1975-2004, enrollment increased by 65% in four-year colleges while cost increased by almost 200% over the same period. [1][2] It's not really a demand-driven phenomenon because colleges have capacity to support the number of students attending, so the marginal cost of accepting additional students is low. The more likely cause is that loans (private or public) turn students into consumers, forcing colleges to compete with each other to attract paying customers. Look at the facilities and amenities provided at German universities (which are 100% publicly funded) compared to public universities in the US. We spend tremendous amounts of money for health centers, gyms, sports, clubs, etc., that require increased spending on construction and administrative support staff. [3]

[1] http://nces.ed.gov/programs/digest/d15/tables/dt15_302.60.as...

[2] https://trends.collegeboard.org/college-pricing/figures-tabl...

[3] http://www.demos.org/publication/pulling-higher-ed-ladder-my...

It seems like a chicken or egg problem. If there were no student loans beyond what you could get from a bank or friends and families, fewer people could afford current tuition costs and colleges would be forced to lower them to attract new "customers".

It's Keynesian demand-side stimulus at its core. With the national dialogue focused on how college should be available to everyone, along with unlimited, federally guaranteed student loans, demand skyrockets and prices rise to meet them.

> ...colleges would be forced to lower them to attract new "customers".

This is categorically false. Schools would maintain whatever price point achieved equilibrium with the market's ability to pay. It would not necessarily require any school to reduce their prices.

> ...demand skyrockets and prices rise to meet them.

But that doesn't make any sense in the context of the higher education market..."supply" is neither fixed, nor constrained (within reason). Schools could easily expand their supply to accommodate additional students because there is actually an over-abundance of adjunct labor (rather than full-time faculty) in most fields that are trained and available to teach classes now, at much lower costs than traditional tenured faculty. The costs of providing education have actually fallen during the same period that the costs of running a college have risen. It's not being driven by "demand" from prospective students -- cost growth is being driven by competition between schools.

Schools also can't choose to compete on price because the availability of "free money" in the form of loans makes students less price sensitive. Instead, schools end up competing based on maximizing overall "quality of life" factors within a fixed price.

Any data on how good FICO scores are at predicting default rates? In my limited experience, my own credit report is rarely accurate... and from what I understand, that is quite common. So I wonder how a score calculated on inaccurate information could possibly be a great indicator of default rates?

No data except to postulate that if FICO scores had no correlation to default rates then the entire credit industry would fail.

What is inaccurate about your FICO score? Maybe it results in false negatives (meaning your score is low when it should be high), but if the opposite was true across the board (bad borrowers getting high scores) then the credit industry would collapse.

I'm not sure there is 'no correlation'. But I don't trust the credit industry to not do stupid things...

My credit report often has accounts that aren't mine listed. Balances can be wrong for months. Accounts occasionally show late payments that were on time. The dates are often wrong (sometimes by years) for items, and then little things that are used to verify my identity by many companies can be quite wrong, like past addresses.

> All of this goes to underscore just how destructive the "college for everyone" concept is.

No, it shows how destructive the US policy response to that concept is, not how destructive the concept itself is.

Neither difficult-to-discharge loans without substantial cost or quality controls, nor an extensive role for private, for-profit institutions are demanded by the "college for everyone" concept.

> Consequently, colleges have transformed into bloated profit machines, happily ratcheting up tuition in response to this inflated demand.

I don't think its true that "colleges have transformed into bloated profit machines", so much that "colleges that are bloated profit machines have expanded and taken a larger market share".

If the payment has no causal relation with the services acquired via the loan, yes. Unfortunately what we seem to have here is a company selling the means to pay the loan one needs to take to pay for those means and, considering the reports on the quality of the services rendered, those means are being fraudulently misrepresented.

Well, that's exactly what the Federal government did. "If you want a student loan, you can't enroll in ITT, as it's too high risk".

That's what the government of the state of California did, not the Federal government.

The federal government banned new students with federal financial aid from enrolling in any ITT program or campus.

Then, the California state government banned all new student enrollment at ITT campuses in California.

This is in part because the federal government has decided that student loans from private banks were too expensive and so the government themselves should offer them cheaper, for great justice.

As such, the private student-loan sector in the US is no longer a going concern, and no student loans accurately price risk - a neat little wealth transfer to buy votes from students. It's also a scary credit bubble; apparently we learned nothing from FMAE and FMAC and just blamed big evil banks for following the perverse incentives. Hilarity ensues.

Can you point out a country where a private student-loan sector is working well?

One thing the government does that the private sector won't is prioritise the needs of society over financial results. Say, for instance, that "teachers" and "nurses" were underperforming groups of student-loan takers. Private sector would say "OK, stricter controls on student-loans for those!" Meanwhile the government would say "OK, but we really need more teachers and nurses in society, so we'll keep giving them student loans like today." This is of course a fictional example, but you get the point.

Working well can also mean that the sector doesn't exist when it shouldn't.

But to give an example: lots of people in lots of countries traditionally get support from their families for education and are expected to help out their parents financially later in life. This kind of financing never even hits the markets---but on the other hand, parents are probably the people knowing their kids the best.

If we need these people in society, let their salaries increase. There is no reason to prefer debt ridden graduates paying higher interest rates at lower salaries with government soaking up the cost of defaults to the benefit of employers and their direct customers.

Yes, because everyone has that perfect negotiating power to do so. There are no school districts that are struggling or can only afford to pay so much for teachers, and hospitals that can't afford higher salaries for nurses.

The "invisible hand" is not what should be guiding society. The "invisible hand" has declared that it's more worthwhile to be a Kardashian than it is to be a teacher or nurse.

> The "invisible hand" has declared that it's more worthwhile to be a Kardashian than it is to be a teacher or nurse.

What you propose is to guide society by deliberately lowering the pay of teachers and nurses even more. So are you saying that the invisible hand is right? That a Kardashian should be expensive (which reduces how many are available) and that teachers should be cheap (meaning we can afford more of them)?

"What you propose is to guide society by deliberately lowering the pay of teachers and nurses "

No, I'm not. So your response has lost all credibility right there.

I proposed increasing their pay, or letting it increase, and you disagreed, so how are you not proposing to lower their pay?

If you want more teachers, you can either increase budgets to pay them more, or you can use some artifice to increase the supply of teachers so that wages get suppressed. You implied having more teachers would be nice, with your comment about Kardashian. So your own views here are self-contradictory.

No, you didn't. You proposed using the "invisible hand of the free market". I told you why most of us wouldn't trust that idea.

The text you're quoting is nowhere in this thread...

Look, teacher pay is in control of the government, not the market. And nurse pay and nursing demand has already had demonstrable impact on students' selection of what to study. (You can observe this by looking at the real world.)

Is there a particular hypothesis that you're arguing against? Is it that increasing pay won't attract students to the line of study? Do you disagree with the equation (Teaching Budget) = (Teacher Pay) * (Number Of Teachers) in a material way?

In fact I ... wait a second.

Me: > I proposed increasing their pay,

You: > No, you didn't.

Me (upthread): > let their salaries increase.

Well now, looks like I did. (You can observe this by looking at the real world.)

You two are talking past each other.

The response to your "let their salaries increase" pointed out that there are districts (and counties and states) where this simply does not and can not happen given how government policies are structured. Much of that the result of quite deliberate "starve-the-beast" anti-tax policies, but also frequently a simply quite inadequate economic base.

In the deep south of the US, say, the state of Mississippi, you have a de-facto segregated school system. Whites, even poor whites, attend private schools, largely religious, known as "Segregation Academies". Public schools are almost wholly the domain of blacks.

http://www.theatlantic.com/national/archive/2012/12/in-south...

https://en.wikipedia.org/wiki/Educational_segregation_in_Sun...

https://en.wikipedia.org/wiki/Segregation_academy

Markets don't exist independent of power constructs, a fact explicitly recognised by Adam Smith: "Wealth, as Mr Hobbes says, is power." Much of Smith's Wealth of Nations is about those dynamics.

This thread reads as if two ideological agendas are being pushed on the other, rather than some seeking of greater truth. I'm finding your line of argument the less pesuasive and less sincere.

You are basing your theory of ideological agendas on the other guy's histrionics. I don't think the question, "Should we pay teachers more, or should we instead trick more teenagers into taking loans," is one that involves debating whether or not you believe in capitalism, or that needs you posting a bunch of links about segregation all of the sudden.

Perhaps you might care to revisit your comments above then and clarify what it is you're arguing for, rather than simply against others' statements or views. Because I'm not getting that, and I'm apparently not the only one.

You said, "let their salaries increase". HOW? If the district doesn't have the budget, the salary isn't going to increase. Just like any business, they're not going to be able to pay out money they don't have. So no, you did not propose increasing their pay.

Invisible hand is something I trust far more than anything else to guide the society.

We need lot of teachers and nurses and that is possible only if they are cheap. If the teachers and nurses are expensive we will have few of them making education and healthcare more expensive.

The probability that some celebrity would earn disproportionately more than a conventional career will always be 1 in a fairly free society. Even in sports like say sprinting 1 player often is far better than rest of others.

"Invisible hand is something I trust far more than anything else to guide the society."

And I don't. The invisible hand has said that the Kardashians are more valuable than teachers. So to me, any argument that says the "invisible hand" should be used is completely invalid.

"One thing the government does that the private sector won't is prioritise the needs of society over financial results."

Getting young people into more debt does not prioritize the needs of society.

If you want to prioritize the needs of society, provide young people a tuition free, or at least very low cost, education. Current system only really benefits scam operations like ITT.

People who can get into uni already mostly made it into middle class. If you want to subsidize anything, do early childhood care.

India. A hell lot of Indians (29K last year) come to USA for their Masters degree. These kids borrow loans from Indian banks at 10% to 12% APR do their M.S. and then pay that loan back quickly.

Even though MS is significantly less risky you need to factor in the huge gap between value of that in money in USA v/s India.

Market signals works pretty strong here. Stanford can charge you whatever they want while the F1 visa factory college charge a modest 10K for a 2 year M.S.

That is an incredibly clever solution. Could you go a step further and reward schools who have a lower default rate as well? Having an institutions incentives aligned with the students sounds like the first step to solving this.

I wouldn't go as far as saying bootcamps are better.

My experience with Bootcamp grads has been pretty lackluster to say the least. They get taught the absolute basics with a "guarantee" for employment after, but not many tech companies will take someone with no education, no experience, and only a light grasp on the basics of programming.

My town has been getting a lot of Bootcamp grads lately applying for jobs in the tech sector. According to a friend, his company interviewed a bunch of them and didn't find any of them met their requirements in the least.

My opinion of bootcamps is that they are little better than something like ITT. High cost, very little reward. You'd be better off teaching yourself.

They've already had several chances to better themselves. They haven't, and so they don't deserve another chance.

Why do private lenders lend to ITT students?

Because student loans are guaranteed by the federal government. Student can default and the bank will still get their money.

And this arguably the real issue. I'm all for the government funding education as long as it's effective education and not overpriced.

In the case though they effectively put up a "Free Money" sign with nearly zero strings attached.

Like in UK? Where everyone gets a student loan from the government, but no university(and that includes Oxford and Cambridge) is allowed to charge more than 9k(roughly $12k) a year? You also don't start paying back until you have a job that pays more than a certain amount per year, and you have 40 years to pay it off - if you don't, it's forfeit.

To be fair, if you make your minimum payments on federal US loans for 25 years, the loan is forgiven (although you are taxed on the amount forgiven). The income based repayment or the public service option means that you may never even touch the principal and still have your loan forgive .

I love federal student loans for many reasons, but I don't get why there are so many people in these comments talking about federal loans as if they're representative! The max you can get from the feds is $5,500 the first year, $6,500 the second, etc. if you are a dependent. Your parents can get more through a PLUS loan (not eligible for income-based repayment) or you can get more in certain cases when your parent was denied a PLUS loan (weird).

So if you're at a place that costs $30,000 in tuition, as many do, when you max out your federal loan and your parents max out the PLUS loans you need to go into the private market. None of those loans offer public service options or IBR as part of a standard deal.

The post to which I'm responding explicitly mentions federal US loans -- thank you. Lots of other folks here are not making that crucial distinction.

Income based repayment plans are even better in the US- if you have low income, you don't pay anything the same as you describe, payments go up with income... and loans are forgiven after 10-25 years, not 40!

> Student can default

Um no. They can't. That's the problem with American student loans. It's the only contract you can enter into under 18 and you can never declare bankruptcy on them. It's the most bullshit type of loan there is.

In grad school I put part of my car on Student Loans because it was 0%. My car load was 5.2%. After I graduated, my student loans shot up to 6.8%! I quickly dumped all my savings onto them and squashed them in three months. Even if I hadn't been able to to that, I probably had the credit to get a cash loan for under that and pay them off. Most students don't have that option.

By "default," GP means simply not paying - not bankruptcy. If someone can't afford to pay their student loans, they probably don't have assets in excess of their debt anyway.

I'm not going to claim it is an epidemic, but I know a few people in this boat. Generally speaking they are able to get by with a few life hacks: Cohabitate rather than marry, work jobs under the table, and/or be the stay-at-home parent.

Why would they allow their student loans to default in such a situation instead of enrolling in an income based repayment plan? If they have 0 income, they would have a payment of 0 dollars, still get their tax refund, and have their loans forgiven after a some time on the plan.

Not all federal loans allow income-based repayment. For instance, parent PLUS loans aren't eligible, nor are other loans made to or through parents. Moreover, there are tons & tons of private loans (often with high interest rates) pushed at these places, and none of those need to offer income-based repayment.

PLUS loans are to the parents though, not the students- do they even count as "student" loans? They are more "parent" loans.

Technically illegal to use school loans for things like cars or houses.

From the way I understand it, you can use student loans for any expense related to going to school, including living expenses.

https://www.edvisors.com/ask/faq/use-stafford-for/

Highlights include

> Transportation (cost of travel to/from school, but not for purchase of a vehicle)

> Room and board costs can include one of four allowances, depending on where you live:

> On-campus in housing that is owned or operated by the college > At home with parents (only applies to students without dependents) > In housing on a military base or for which a basic housing allowance (BAH) is provided (allowance restricted to board; room is excluded because it is already paid for) > Off-campus

No "Durable" goods like houses or cars may be bought with student loan money in the US.

That is very interesting, in many years of dealing with student loans for myself and my wife, I have never heard sucha thing! For example, the Department of Education publications usually say somthing like:

"You may use the money you receive only to pay for education expenses at the school that awarded your loan. Education expenses include such school charges as tuition, room and board, fees, books, supplies, equipment, dependent child care expenses, transportation, and rental or purchase of a personal computer"

(see https://studentaid.ed.gov/sa/sites/default/files/your-federa...)

It would be interesting to find an official statement on this... I couldn't find anything on the Dept. of Ed website and my search for the actual laws didn't turn up anything...

Transportation means buss fairs not cars.

I was given paperwork when I got my undergrad student loans, and it was very clearly spelled out.

If the loans are private, I am not 100% if all of the same rules apply.

Not everyone lives in areas served by a bus system... none of the paperwork I have ever seen has spelled out any of this like that... it may depend on the school you are attending. I don't know, I haven't found the law or any official statement by the Dept of Ed. on it.

> Not everyone lives in areas served by a bus system..

Totally not related to the discussion. The rule does not say "If you live in a place served by busses, you cannot buy a car with student loan money"

My point is I'm not sure it is actually a rule- I can't find anything official that says that it is a rule. If it is a rule, it is a stupid one- but that is indeed a different discussion.

I agree with the rule. It's meant to discourage people from buying massive expenses with a loan that cant be discharged with bankruptcy.

>It's the only contract you can enter into under 18 and you can never declare bankruptcy on them. It's the most bullshit type of loan there is.

Students are offering up zero collateral and usually have minimal credit history for a loan in the tens of thousands of dollars. For better or worse, if students could default on their student loans, fewer banks could/would make those loans.

On the other side of it, they are the only loans I know of that offer income based repayment, and complete loan forgiveness after a certain amount of time while on such income based repayment plan.

> It's the only contract you can enter into under 18 and you can never declare bankruptcy on them.

Please stop repeating this myth. It is, in fact, possible to discharge student loans in bankruptcy. (It is particularly difficult to do so compared to other forms of debt, but there is an enormous difference between that and "you can never declare bankruptcy on them.")

See, e.g., http://www.studentloanborrowerassistance.org/bankruptcy/

Technically it's true. But reality says that it's highly unlikely, and so it's just as good to say that you can't declare bankruptcy on them. The odds that you will be able to discharge them are incredibly low.

They dont unless its a government backed student loan or unless you have a co-signer.

I cant imagine any private student loan for IIT that wasnt co-signed with massive interest rates.

What's the default rate for private student loans for a public 4-year school?

Roughly 8.9% it looks like.

(Last section of article mentions it...)

http://higherednotdebt.org/blog/time-itt-tech-go

A better comparison would be to a two-year community college.

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