Kashia Campbell earned top grades from her patient care technician program at Florida Career College. So she was shocked to find that, upon graduation, she was blocked from the exam to get certified in the field.

The problem was a $6,500 private loan she had taken out from the college to help her cover tuition. Florida Career College demanded that she pay more of her loan before it would release her transcript, something she said she had not been told previously. The transcript was a prerequisite for the certification exam, and she ended up in a lower-paying job earning $10 an hour. Four years later, she can pay only $50 a month on her school loan.

Ms. Campbell’s loan is a tiny fraction of the more than $30 million owed to Florida Career College’s parent company, the International Education Corporation. The company doesn’t care whether she, and thousands of others, ever fully pay it back. Its main reason for lending to people like her is so the company can operate its other, much more lucrative business model — reaping revenue from federal student aid. By law, a tenth of a for-profit school’s revenue must come from sources other than federal financial aid (loans, grants and other programs students use to pay for college) and loans like Ms. Campbell’s help them meet that quota.

These school-to-student loans have ensnared hundreds of thousands of students at for-profit colleges. When students borrow directly from a college, they aren’t protected by the same government safeguards they would have if they took out federal loans. The colleges can demand payments while students are still in school. They can withhold transcripts for nonpayment. They can impose onerous interest rates, reaching into the double digits.

Many students are unable to make their monthly payments, leaving their credit ruined and their financial and professional futures in grave doubt.

“The high default rates and low repayment rates — they factor that in as the cost of doing business, and the students are the ones who lose out,” said Ashley Harrington, federal advocacy director for the Center for Responsible Lending. “We’re particularly worried that we’ll see more of this as the economy gets worse.”

Loans by educational institutions became popular during the Great Recession, when third-party lenders stopped or curtailed their private student loan offerings. Since then, without government oversight, the practice has spread, and for-profit colleges and universities have lent at least $4 billion, and potentially much more.

A few of the largest loan programs, such as those run by Corinthian Colleges and ITT Technical Institutes, have shut down along with their schools, but many more have quietly thrived without oversight. There are now dozens of companies and colleges, which enroll tens of thousands of students, that offer direct loans, according to federal audits, Securities and Exchange Commission filings and a review of college marketing materials.

The International Education Corporation, the company that operates Ms. Campbell’s school and 29 other campuses, was owed $33 million in repayments in 2018, according to an independent audit submitted to the federal Department of Education. (The department requires for-profit colleges to provide these audits annually.) The company estimated that $13 million of that — or 40 percent — would never be repaid.

In 2012, the company officials acknowledged that collecting all their money would be unlikely “due to the nature of the programs and credit quality of the students,” according to another independent audit. Most former students earn no more than $25,000 annually. In 2018, the International Education Corporation brought in $9.7 million by selling unpaid loans to a debt collector.

When Ms. Campbell, now 49, signed her enrollment paperwork, she assumed she’d quickly get a job after graduation and have no problem paying back her loans. Instead, she said, she’s now worse off. After she graduated from Florida Career College in 2016, she said, she pleaded with the campus director and bursar’s office to release her transcript but was told no. She called the International Education Corporation but got the same answer.

“I was crying like crazy,” she said. “I don’t understand it. You’re not letting me go out and get a good-paying job so I can pay you back.”

Joseph Cockrell, a spokesman for the International Education Corporation, said that while he could not comment on individual students’ financial accounts, “students must be current with their loan payments for transcript requests.” He did not respond to follow-up questions about how much a student needs to pay to be considered “current” on loan payments.

Whatever money companies are able to recoup from the loans they directly offer matters less than the fact that the loans themselves help keep the colleges eligible to receive billions of dollars in federal financial aid.

Under a federal law known as the 90/10 rule, for-profit schools are allowed to derive a maximum of 90 percent of their total revenue from federal student aid. The remaining 10 percent must come from elsewhere, including students’ repayments on their direct loans from the college. Even if a student pays back only a fraction of the money owed to a school, it helps the institution keep the correct ratio and continue to receive federal aid. For example, if a student’s federal aid totals $9,000 and the college loans the student $1,000, the college still nets $8,000 of federal money, whether the student repays the loan or not.

“In the case of these loans, it’s a pretty sure bet,” said Yan Cao, a fellow at the Century Foundation, a progressive think tank, which obtained several company audits through a public records request and shared them with The New York Times and The Hechinger Report. That federal money “goes straight into the school’s hands,” Ms. Cao said.

Over the years, Lincoln Educational Services has described the role school-to-student loans have played to help it meet this regulation. In 2012, the company explained that it had increased its lending after creating “higher financing gaps for our students” in order to better comply with the 90/10 rule. Over nine months, its loan commitments had grown more than $7 million, to $33.7 million from $26.4 million.

That year, when Jodi-Ann Clarke enrolled in the licensed practical nursing program at Lincoln Technical Institute’s campus (since closed) in Hamden, Conn., the full cost of attendance came to $32,189. That was far more than what federal financial aid would cover or what she could afford out of pocket.

Ms. Clarke recalls college employees giving her instructions on how to take out a loan directly from the school during the enrollment process. Colleges can use their loan programs as a way to expedite enrollments, sometimes encouraging students to sign up for loans without their realizing what they are taking on.

“It’s really helpful to think about this as an important part of the marketing process as much as it is a student loan,” said Mike Pierce, policy director and managing counsel at the Student Borrower Protection Center, a nonprofit advocacy group focused on student debt.

Unlike Ms. Clarke’s federal loans, which started accruing interest only after she left school, her Lincoln Tech loan began requiring payments when her classes started, and the interest accumulated while she was still in school. Lincoln Tech’s administrators projected an attitude of “we’re going to get our money and we’re going to put them in debt and they’re going to have to pay us back,” Ms. Clarke said. “I just feel like they’re a money pit.”

Peter Tahinos, senior vice president of marketing for Lincoln Educational Services, said in an email that he could not comment on individual students but added that employees “provide guidance on the best options for them to finance their education.” Lincoln charges 7 percent interest on its loans. Students can choose to begin payments immediately, with interest accruing right away, or after leaving school.

Some colleges increase the burden by imposing high interest rates. Unlike federal loans, which currently have interest rates of 2.75 percent for undergraduate borrowers, loans directly from schools can far exceed that. A 2020 report by the Student Borrower Protection Center uncovered interest rates as high as 19 percent for loans offered by some schools.

Scrutiny of this practice remains low at both the state and federal levels. A Hechinger Report survey of 75 agencies across all 50 states — including higher-education oversight agencies, attorneys general and departments of finance or banking — found that few places tracked any information about school-offered loans. In fact, in the vast majority of states, higher-education authorizers don’t require colleges to report plans for such programs.

Several state officials said that colleges would be subject to state laws and could be investigated if abuses were reported, but that otherwise they had no oversight of these loans.

Since its creation in 2011, the Consumer Financial Protection Bureau has taken action against just three for-profit education companies, accusing them of predatory or deceitful loan practices, and announced one additional investigation.

A spokesman for the federal Department of Education said loans offered directly from schools fell outside the department’s purview.

Increased monitoring of the industry could change the way for-profit colleges operate their loan programs. Universal Technical Institute, a publicly held chain of 12 campuses across eight states, told its investors in its 2020 annual report that “changes in laws or public policy could negatively impact the viability of our proprietary loan program and cause us to delay or suspend the program.”

Jody Kent, vice president for communications and public affairs at Universal Technical Institute, said in an emailed statement that the company’s loan program gave “students access to high-quality education.”

As of September 2017, Universal Technical Institute’s loan program had doled out more than $150 million to students, according to an audit submitted to the Department of Education. Like the International Education Corporation, though, the company planned on a significant number of students struggling to repay. In 2017, the company collected $8 million in loan repayments and wrote off $18.3 million.

This article was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

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