It's definitely a problem that needs to be addressed, though I'm not sure this will do the trick. As Spinner says, the for-profit schools are a huge part of it. If you look at what most of them offer, they're basically community colleges at 2-3x the cost (and with worse employment prospects in many cases). Maybe this legislation would put enough of a financial squeeze on for-profits to change the way they do business, but in the short term at least, I think it just raises costs across the board at schools with a high default rate in order to offset the penalties. These schools feed off of easily-obtained federal student loans, so I'd prefer a plan that reevaluates the criteria for federal student loan eligibility at these schools.
As it currently sits, a certain percentage of the cost of attendance for all students has to come from non-federal sources in order for schools to be eligible for federal loans under Dept. of Education requirements (whether that be students or their parents paying tuition, institutional grants in aid, scholarships, private loans, etc). Some of the worst offending for-profits will cover this gap with private loans issued by the school itself, on which they anticipate and plan for very high default rates (when I worked on research into this issue a little over a year ago, I think some expected default rates were over 50%). For these schools, it is worth it to cover the defaults on a high number of these institutional loans in order to keep the much more significant federal student aid flowing into their coffers. The [likely 18-22 year old, financially unsophisticated] student borrower takes the hit in order for the school to maintain its [taxpayer-funded] profitability, even though the school wasn't expecting to be paid back in the first place. If this doesn't sound like predatory, high-risk lending I don't know what does. Maybe this proposed bill will help change that practice if the penalties end up being too costly, but I think the underlying problem with for-profits likely goes deeper than that.
