Students Seek Loans for Cash, Not Degree

March 11, 2014

Some student loan recipients are simply interested in getting low-cost cash, says the Wall Street Journal.

Ray Selent, a 30 year old from Fort Lauderdale, Florida, found himself unemployed in 2012. Strapped for cash, he enrolled as a part-time student at a local community college, allowing him to take out thousands of dollars in loans.

  • By taking out the loan, Selent was able to suspend his $400 per month payments on some previous student debt, because federal law does not require student borrowers to pay back debt while enrolled in classes.
  • Federal student loans can be a lot easier to apply for than bank loans, as the government generally does not conduct credit checks.
  • Of the $1.1 trillion in student loan debt, it is not clear how much has gone toward living expenses. But last month, the Department of Education warned that, with the advent of online education more students have begun borrowing excess money for personal expenses.
  • Moreover, the Education Department reported that at eight colleges with online programs, more than 42,000 students who received no class credits received an average of $5,285 in loans.
  • The amount of student borrowers taking out the maximum amount of loans has risen since the recession. In the 2011-2012 school year, 68 percent of undergraduate borrowers reached the loan ceiling of $12,500 -- an increase from 60 percent in 2008.

Students are allowed to use some of their federal loans to cover living expenses, the idea being that students can then devote more time to studying and are more likely to graduate. However, schools that suspect students are over-borrowing are not allowed under federal law to deny funds.

Selent says that he recognizes that debt puts him into a hole, but he sees it as a preferable alternative to earning minimum wage. He earned a bachelor's degree in communications in his 20s but was unable to find a job in his field upon graduation. Now, he is enrolled in theater classes so that he can become an actor.

Source: Josh Mitchell, "Student Loans Entice Borrowers More for Cash Than a Degree," Wall Street Journal, March 2, 2014.

 

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