The wrong fix: Foolish college predatory loan reparations

Is the college loan debt problem primarily one of "ineffective" colleges? I think not.

Only a small percentage of the schools that fail to educate are outright predatory, but those that are well meaning but ineffective are just as bad from the point of view of the students and the economy.

This is hopeful rhetoric, not a fact. The fact that there is over $1.5 trillion in debt and a very high deferred or default rate and a president willing to forgive the loans suggests a high level of predatory loans. Even the author inadvertently acknowledges this problem.

A report last year by Third Way, a center-left think tank, found more than 500 schools where the average low-income student who enrolls earns less than an average high school graduate, even 10 years after enrolling. “It’s unlikely that low-income students who attend these institutions will ever be able to recoup their educational investment,” the study said.

Peter Coy, the author, blithely overlooks the fact that this ‘recent’ phenomenon is driven exclusively by the government giving schools cover to raise tuition, only to have the government express shock that the universities have gouged and preyed upon students, courtesy of a government guarantee if not outright encouragement to take on loans, regardless as to the ‘effectiveness’ of the college.

If he or those cited think forgiving loans is foolish, they need to acknowledge that giving and taking in these loans was both foolish and predatory. It should have been, “Before the government guaranteed these loans, the colleges needed to demonstrate that they were effective (in generating a return on investment).” It’s like the home mortgage guarantee crisis that produced 2008 collapse. Bad borrowers, bad investments, mean bad defaults.

And then Coy engages in woke income inequality rhetoric ("Since money talks...") to justify loaning money to people who can't earn a return on their investment, simplicity justifying subsidies for low income students -- low income before and after college -- to study poorly paid fields. He wants the government to subsidize bad investments, and rather than to pick winners, reaffirm and assist the losers.

Since money talks, the government has a right to steer students toward fields of study that are in demand. On the other hand, we don’t want only the independently wealthy to learn about art, history and philosophy. Striking a balance between career education and the liberal arts is tricky, but possible.

Here’s a simple solution: make colleges de facto co-signers; have schools pay off the loans of those they helped to place in unmanageable debt, ie, debt service unmanageable with the income they earn from their degree— if they even earned a degree. It would be interesting to see the racial differences in loans, repayments and defaults, and also those who borrowed and never completed their degree. And also interesting to compare a schools endowment with the debt owed by their students. Why not claw back those profits?

To "fix ineffective colleges" it would be best to find a measure of effectiveness, and not just the for-profit colleges that the Times finds suspect, as the real problem lies elsewhere.

In 2018, then-Education Secretary Betsy DeVos scrapped a regulation that would have forced for-profit colleges to prove that students they enroll are able to obtain decent-paying jobs. A 2018 New York Times story called the move “the most drastic in a series of policy shifts that will free the scandal-scarred, for-profit sector from safeguards put in effect during the Obama era.”

The Times is worse than disingenuous. "Proving" that students are able to obtain decent paying jobs" should not be the exclusive responsibility of for-profit colleges. Nor is scandal the exclusive domain of for-profit colleges. For ANY college enriching themselves off of federal guaranteed loans, the measure of effectiveness is already there, and it is not one that we need any college to "prove." Its simple: If grads of a college are either unwilling or unable to pay off their loans, the college has been ineffective, period. Ineffective in either providing a marketable education or in creating a sense of personal responsibility for their debts. So any debt in default or arrears should be assigned back to the college.