Big Finance and Higher Education

Today, there are two stories worth reading on the nexus of big finance and education. The first, in The Chronicle of Higher Education, reports that Nelnet — a Nebraska-based lending conglomerate — Sallie Mae, and other lenders will pay fines for defrauding taxpayers out of $1 billion:

The settlement, which Nelnet announced late Friday, is the latest to result from a lawsuit brought by Jon H. Oberg, a former Education Department researcher, on behalf of the federal government. A federal judge ordered Nelnet and seven other student-loan companies to participate in a settlement conference last week after two of the other defendants in the case, Brazos Higher Education Service Corporation and Brazos Higher Education Authority, reached a tentative settlement agreement with Mr. Oberg.Among the other defendants in the case is Sallie Mae, the nation’s largest student-loan company. A year ago, the Education Department’s inspector general issued an audit concluding that Sallie Mae overbilled the Education Department for $22.3-million in student-loan subsidies and should be required to return the money to the department.

The second shows that for-profit universities have much lower rates of student loan repayment:

Although the department issued no analysis or comparison of repayment rates by sector, outside advocacy groups that analyzed the data found that in 2009, repayment rates were 54 percent at public colleges and universities, 56 percent at private nonprofit institutions, and 36 percent at for-profit colleges.

“I think it’s notable that the for-profits are the only type of school where the majority of students are unable to repay their loans,” said Debbie Frankle Cochrane, program director at the Institute for College Access and Success, which has called for tighter regulation of for-profit institutions.

At some for-profit colleges, the repayment rates were startlingly low. For example, 33 of the 86 Corinthian Colleges’ Everest locations had repayment rates of less than 20 percent — and at several, the rates were less than 10 percent.

At the headquarters of the University of Phoenix, the nation’s largest for-profit education company, the repayment rate was 44 percent, compared with 38 percent at DeVry and 27 percent at Kaplan University, a unit of the Washington Post Company.

“I think this data could have a powerful effect on institutions and students,” said Terry Hartle, senior vice president at the American Council on Education. “No reasonable person will want to go to a school where only one in five students can pay back their student loans.”

The second story sent education stocks lower on Wall Street: If students have a harder time repaying loans to for-profit universities, they might look to other options. But the first story sent Nelnet’s stock up, as the company, had it not come to a settlement, might have faced a much, much larger penalty — three times the $407 million it defrauded from the government, The New York Times says.