Tuesday, August 27, 2013

Taibbi: College loan system scam

Better late than never, I'm posting this exposé by Taibbi about the exorbitant cost of U.S. higher education.

Today's graduates leave college with have an average of $27,000 in student loan debt.

As Taibbi reveals, 

... the dirty secret of American higher education is that student-loan interest rates are almost irrelevant. It's not the cost of the loan that's the problem, it's the principal – the appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008.

Another dirty little secret is that the federal government, by its own estimates, stands to make $185 billion in profit on student loans over the next 10 years. Boosting the government's profits, borrowers cannot discharge their student loan debt through personal bankruptcy. The Department of Education can even garner federal disability checks!

So why is college so expensive in America?  The knee-jerk conservative response is: tenured ivory tower professors; and money for Democrats from the education lobby.

The former is untrue and the latter is only partly true.  But conservatives should note that the federal student loan system does cause a kind of market distortion, the so-called "Bennet hypothesis," named after conservative William Bennett: with any accredited college eligible to receive students with federal financial aid, there is really no incentive for colleges to cut costs, compete, or focus on degrees that give students a decent Return on Investment (ROI).  

"A degree in bullshit" does the job for both colleges and the government lender when the collection rate on student loans can exceed 100 percent.

And as we all know, the newer for-profit colleges have been gaming the student loan system -- as well as the education allowances given to members of the U.S. Military -- for several years now, even as students at for-profit colleges have a loan default rate as high as 40 percent.

Another reason colleges are so expensive is what Taibbi calls "gilding": the expensive administration buildings, sports stadiums and celebrity professors. These used to be paid for by nervous, eager parents... until they ran out of money. Now the federal government subsidizes colleges. So why shouldn't colleges go on a spending spree?

By Matt Taibbi
August 15, 2013 | Rolling Stone

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