It's great to see states taking action to rein in the widespread abuses in this sector – and let's hope Congress changes the insane law that treats student debt differently than every other kind of debt in bankruptcy.  I've long felt that there's a simple solution to the problems in this sector: make each school (whether for profit or nonprofit) pay the government a meaningful amount of any losses the government takes on defaults from any debts incurred at that school:

 

NYT editorial

March 23, 2012

www.nytimes.com/2012/03/24/opinion/for-profit-education-scams.html

For-Profit Education Scams

Attorneys general from more than 20 states have joined forces to investigate for-profit colleges that too often saddle students with crippling debt while furnishing them valueless degrees. The investigations have just begun. But it is already clear from testimony before a Senate committee that Congress must do more to rein in the schools and protect students.

For-profit colleges are typically more expensive than public colleges, which means students graduate owing more. They account for nearly half of student loan defaults, even though they enroll a little more than 10 percent of higher education students.

State prosecutors are uncovering unconscionable examples of fraud. Lisa Madigan, the attorney general of Illinois, testified this week that she had recently filed suit against a for-profit school that had saddled individual students with up to $80,000 in loans while promising employment with law enforcement agencies that do not recognize the school's credentials as valid.

Jack Conway, the attorney general of Kentucky who leads the multistate group, has identified two schools that went bankrupt, leaving students with loads of debt and worthless credits and still on the hook for those outstanding loans.

A bill introduced by Senator Richard Durbin, a Democrat of Illinois, would permit students to discharge their private student loans when they declare bankruptcy. Congress should also allow borrowers to have their private loans discharged when a school closes, preventing completion of the degree. (The federal loan program already allows this.) Lastly, Congress should require private lenders to make every effort to see whether students are eligible for affordable federal loans before trying to sell them more expensive private loans.