College loans gouging graduates

belushi-collegeJune 24, 2013

By Steven Greenhut

SACRAMENTO — Americans are still focused on the bubble in housing prices, which, after inflating and bursting in the 2000s, is inflating again. But the wreckage that collapse caused in real estate and financial markets could be eclipsed by the economic harm inflicted when today’s bubble in student loan debt bursts.

The Federal Reserve’s Board of Governors recently warned that soaring student loan debt has “parallels to the housing crisis,” according to a report in Bloomberg News. As with housing, free-flowing cash will lead to widespread defaults. Of course, it’s easier to repossess a tract house than to take back a potentially worthless college degree.

Federal Reserve Chairman Ben Bernanke dismissed these concerns, saying that most of the money in the student loan sector is federal money, which simply means taxpayers — rather than lending institutions — will take the initial hit. But the Fed governors make a salient point as student loan balances soar to $1 trillion, exceeding Americans’ collective credit card debt.

“The bankers said student lending shares features of the housing crisis including ‘significant growth of subsidized lending in pursuit of a social good,’ in this case, higher education instead of expanded homeownership,” according to that Bloomberg report. “The lending has put upward pressure on tuition, just as the mortgage lending boom led to rising home prices, they said, calling both examples of a ‘lack of underwriting discipline.'”

Funding

For my entire life, I’ve heard policy makers insist that there is insufficient funding for education and that getting a college degree is the pathway to a better life. But, as the bankers noted, the sea of student loan money artificially boosts tuition, which creates a new cycle of indebtedness by students. Higher tuition makes “pay-as-you-go” a less-likely option.

Lax lending standards make it easier for colleges to spend money poorly. If the federal government provides a loan to virtually every applicant, then university administrations can spend foolishly. There’s so much money, why not hike faculty salaries and pensions? Why not offer programs and majors of questionable intellectual or economic merit?

I know people with six-figure loan debt, multiple degrees and few job prospects. There were few lending constraints — hey, it’s only government money — so they racked up loan after loan. Others use loans to gain useful degrees with lucrative job potential, but these graduates come out of school with a crushing load of debt that will take decades to repay.

In 2012, Congress debated a controversy surrounding for-profit colleges, which receive about a quarter of total federal Title IV student aid. The impetus was the latest iteration of the GI Bill for active military and veterans, who often choose for-profit education programs.

“These colleges use high-pressure sales tactics to ensnare veterans, promising them a high-quality education and a ‘guaranteed job,’ and urging them to sign up on the spot,” Jerome Kohlberg wrote in an opinion piece for the Pittsburgh Post-Gazette. “They lock themselves into long-term commitments, turn over their GI education benefits and sign up for student loans to cover the difference.”

The alleged abuses at some for-profit colleges have reminded some critics of abuses by the subprime mortgage industry. But these problems are almost solely the result of easy access to government dollars. Indeed, public universities do the same thing — lure students into long-term debt commitments based on freely flowing federal dollars, even if they don’t use the high-pressure tactics used by some recruiters in the private educational business. For-profit and non-profit universities rely heavily on government tuition subsidies.

Many government employees, by the way, receive automatic pay boosts for additional educational attainment, so this government-funded system ratchets up government spending throughout the entire taxpayer-funded universe.

Six years of college

When I attended college, only the rarest student stayed on campus beyond four years. Many received degrees in less than four years. Now, it’s typical for students to take six years to get through a California State University degree program. The education establishment claims the problem is the result of too little money, but the real cause is just the opposite. With so much money available, there are too many students on campus and not enough classes for them.

Look at the large portion of students taking remedial courses, which reminds us that more college doesn’t always equal a better education.

Given that students who get themselves in financial trouble can’t unload their debt through bankruptcy, easy college tuition money can mean a lifetime of financial struggles. These problems are the result of government officials pushing a social good — i.e., broader college attendance, or, in the case of real estate, broader homeownership.

The housing bubble was inflated in part by government-dictated lending policies designed to expand homeownership by requiring banks to make loans to people who couldn’t meet traditional down-payment, income and credit standards. And government policies designed to expand educational opportunities have inflated the cost of tuition, cheapened the value of education and burdened new generations with crushing debt loads.

Yet those of us who call for less government meddling and more private-sector discipline are the ones considered heartless.

 

Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity. Write to him at [email protected]

15 comments

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  1. Donkey
    Donkey 24 June, 2013, 16:56

    The dog has returned!! 🙂

    You are correct steven!! 🙂

    Reply this comment
  2. Hondo
    Hondo 24 June, 2013, 21:08

    REEEEEXXXXXXXXXXXXXXXX!!!!!!!!!!!!
    Enough cheering. Back to the point.
    As a landlord I see kids taking advantage of the system. I have a tenant now who is majoring in philosophy. And is living on school loans, paying rent with them. I pushed him a little on what kinda job he expects to get and how he expects to pay off that school loan. He hems and haws. He is young and the govt throws this money in his face and how can he not turn it down. If he wasn’t going to school, he maybe can get a job at Starbucks of 7-11 or bartending. He has no WORK SKILLS after 15 years of public education (k thru sophomore in collage). He isn’t qualified for more than a bit more than minimum wage. I know. I was in his shoes 35 years ago. Only I didn’t have school loans to pay off.
    They said to me, not so many years ago ” Study computers. They are the future”. Then the USSA (As demanded by bill gates) started importing thousands of programers from India who went to work for half of what an Amerikan collage graduate graduate was getting.
    I blame not the students. They haven’t been told better by their elders. The counselors who advised them are part of the industrial education complex. Ike warned us about the military industrial complex. He was partially right. It was the govt industrial complex. The republicans have been cowed by the dems on this issue. To object to the insane spending in collage loans is to object to SSI. Another 3rd rail.
    So the Amerikan school train screams down the track towards another coming right at them. The train of school loan default. A train of debt so huge that it defies all attempts to derail it.
    Young pretty collage girls can’t get married because the men would be insane to take on the girls huge school loans. Instead of looking for a house to buy, they would be living in one of my crappy apartments for decades while paying off the loans.
    I don’t see any solution. No one has the balls to say no to their little darlings. There is no free lunch.
    Hondo…..

    Reply this comment
  3. BobA
    BobA 25 June, 2013, 08:38

    Hondo:

    Apparently there is a free lunch as longer as someone else is paying for it.

    I have a brother who is a year younger than me. After graduating from high school, I enlisted in the US Navy and didn’t enroll in college until I was 22 and earned an electrical engineering degree before I turned 26. My brother, on the other hand, went to college straight out of high school and got a BA in US history and has been working for the US Post office every since.

    By the time I was 35, I was making a 6 figure income. By the time my brother was 35 he was making a 3rd of my income. By the time I was 45 I had more money in my bank account than my brother had make in his entire career working at the post office.

    My point here is that college is only worthwhile if you go for a degree that has a tangible and long term value in the market place. Degrees in philosophy, history, english lit, women studies, ethnic studies, etc., are nice but they have no tangible value in the real world and are a waste of time and money in my opinion. It’s also a waste of tax payers money for the government to subsidize what I would characterize as “worthless” degrees.

    And lastly, college is not for everyone. Bill Gate, Steve Jobs, et al, were not college graduates. Thomas Edison wasn’t even a high school graduate and look what he did!!

    Reply this comment
  4. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 June, 2013, 11:41

    Bob, Bill Gates was admitted and attended Harvard. I would not point to him as a person who made it w/o college. In fact I think the entire tech boom millionaires and billionaires got to where they are more by luck from new technology thank anything they did personally. Especially MS and Apple.

    Reply this comment
  5. Donkey
    Donkey 25 June, 2013, 13:06

    BobA, you are right on the money. The logic of the PC crowd dictates that diversity run through everything we do, even worthless jobs and professions. 🙂

    Reply this comment
  6. Debra
    Debra 25 June, 2013, 17:20

    Greenhut is dead wrong when he blames higher tuition costs on foolish spending “There’s so much money, why not hike faculty salaries and pensions?” Faculty salaries have been flat for many years. The real reason tuitions have risen so high so fast is indeed because of government policy – but not government policy to make student loans more available. It is the policies of governments that have slashed state support and federal grants for students and Universities. Costs have not risen, but tuition has gone up to make up for the decrease in support for higher education (which was once recognized as being good for the overall economy – and still is in may countries). With tuition so high students have no choice but to take out loans.

    Reply this comment
  7. Ulysses Uhaul
    Ulysses Uhaul 25 June, 2013, 20:17

    Too many urban pets….no idea how to work….we do not hire em for our rental yard…

    Sad story. When your young and dumber listening to dope smoking professors and parents.

    Only way out…ballcap and apron job…..

    Reply this comment
  8. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 June, 2013, 22:42

    Costs have not risen, but tuition has gone up to make up for the decrease in support for higher education (which was once recognized as being good for the overall economy – and still is in may countries).
    ==
    You miss his POINT-Without loans costs would NOT have gone up, they go up b/c of easy cheap money and the schools have no skin in the game, if they carried their own paper, or a portion of it, they would keep an eye on costs and whom they allowed to get an education on credit.

    Reply this comment
  9. Steve Mehlman
    Steve Mehlman 26 June, 2013, 09:40

    Answer a simple question: Why should college students have to pay a higher interest rate on their college loans than the big banks pay to borrow money?

    Reply this comment
  10. Rex the Wonder Dog!
    Rex the Wonder Dog! 26 June, 2013, 09:54

    B/c college students don’t give campaign contributions to Politicians.

    Reply this comment
  11. BobA.
    BobA. 26 June, 2013, 10:27

    Rex:

    In case you aren’t aware, there’s a difference between attending college and graduating from college. After completing a BS in electrical engineering, I completed one semester towards a masters degree in mathematics. By you standard, I can claim to be a mathematician.

    Reply this comment
  12. Rex the Wonder Dog!
    Rex the Wonder Dog! 26 June, 2013, 22:48

    I don’t understand what you mean Bob…….

    Reply this comment
  13. BobA
    BobA 26 June, 2013, 23:02

    Rex:

    In your first response to my comment you said: “Bob, Bill Gates was admitted and attended Harvard”.

    The fact is Bill Gates attended Harvard but never graduated. He dropped out after his freshman year.

    Reply this comment
  14. Rex the Wonder Dog!
    Rex the Wonder Dog! 28 June, 2013, 07:43

    Gates went to Harvard for 2 years, but I stand by my comment, he was admitted to the most selective undergrad school in the nation….

    Reply this comment

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