Easy Money For College Can Mess You Up, Man.


When the government subsidizes something, we wind up with more of it. When it subsidizes something heavily—and combines that subsidy with an aggressive campaign encouraging consumption of that thing from the presidential bully pulpit—we wind up with a lot more of it.

Oceans of federal money gush into higher education every day, and every administration promises more to come. That gush obscures the real demand for educated workers. The result is lots of cashiers and waitresses with B.A.s, and lots of people with student loan debt that's tough for them to repay. For most students, the federal subsides geared toward nudging them to consume more education actually result in the acquisition of more education debt.

On the corporate side (and the non-profit side, for that matter) the subsidy encourages institutions to shape their practices around grabbing as much of that "free" money as possible. As critics of for-profit education never fail to note:

Most colleges receive 75 percent of more of their revenue in federal loan funding; at others, like the University of Phoenix's parent company, Apollo Group, federal dollars comprise upwards of 90 percent of the revenue. (The legal limit is exactly 90 percent.)

The government makes the loan getting process easier and faster, and then the schools that live off loan money figure out ways to make the process smoother still. In fact, the getting of education loans has become so seamless that some of the less scrupulous actors out there have figured out ways for students take out and/or retain loans without realizing that they have done so:

Arlen Castillo had just begun an online associate's degree program at Kaplan University when a family emergency forced a change of plans. Her mother in Florida learned she needed extensive surgery that entailed months of recuperation. Only two weeks into her first term, Castillo promptly withdrew to lend her mother support.

As Castillo recalls, a Kaplan academic advisor told her she could simply fill out a withdrawal form and incur no additional expenses beyond the registration fees she had already paid. But a year and a half later, in 2006, collections agents began hounding her, she says, demanding that she pay some $10,000 in supposedly overdue tuition charges. Despite having attended only two online sessions, Castillo had remained officially enrolled at Kaplan for nearly a year after her withdrawal.

Far from an aberration, Castillo's experience typifies the results of a practice known informally inside Kaplan as "guerrilla registration": academic advisors have long enrolled students in classes they never take, without their consent and sometimes even after they have sought to withdraw from the university, in order to maximize the company's revenues, according to interviews with former employees.

Cases like the one described above serve as something of a Rorschach blot—is the villain the corporation that grabbed the loans or the government made them available? The same is true in the debate over repayment rates. Repayment rates are astonishingly low across the board, actually. Here's a chart with last year's Department of Education figures for lifetime default rates for various types of schools:

For-profit schools have low rates. But the new "gainful employment" rules—which are supposed to crack down on for-profit career-focused degree programs with low loan repayment rates—would scarcely make a dent in the record-low numbers above. Those rules dissolve programs that have repaymemt rates below 35 percent, a figure that falls conveniently between the abysmally low repayment rates for traditional two- and four-years schools and the abysmally low repayment rates for-profit two- and four-year schools. (Note that the time period in the chart above and time period on non-payment for those new standards aren't identical. Lots more detail and links here.)

When this many students aren't able to pay back their loans, there's something wrong with the overall system. Students of all kinds, at schools of all kinds, are getting loans they can't reasonably anticipate paying back.

And if there's one thing folks on both sides of the issue can agree on, it's that students themselves are often getting screwed. Below, David Halperin of Campus Progress and I try to find some points of agreement on who's to blame for the higher ed bubble at Bloggingheads.tv. We mostly fail to do so.

As usual, Reason saw this coming a long way off. In 1995, we wrote about how Clinton's increased higher ed budget would help schools, not students.