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 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.

NEXT: Reason Writers Around Town: Shikha Dalmia on How ObamaCare Criminalizes Medicine

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37 responses to “Easy Money For College Can Mess You Up, Man.

  1. This is what you get when you Exempt the Big Education lobbyists from the rules other have to follow. The Big Ed lobbyists have the best goodies and therefore get the most favorable legislation.

  2. A Rorschach blot? It’s sounds like straightforward fraud.

  3. Have no fear though, United Federal Healthinsurance will be a paragon on integrity and infraudulity.

  4. If sending people to college made them somehow smarter, or better able to make decisions and fend for themselves….

    1. Higher Education Score Card:

      Education: 0
      Indoctrination: 7

  5. The blogs provide ample evidence of higher ed’s failure.

  6. You say:

    “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 revenue . . .” and yet are unable to discern a villain in that? Jeezus.

  7. 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.

    If that were actually the case (that they recognize and agree on the “problem”- not that the students are getting mercilessly screwed) I would expect certain parties affiliated with public education to STOP HAMMERING IT INTO THEIR STUDENTS’ HEADS THAT THEY HAFTA GO TO COLLEGE.

    And- if that “gainful employment” rule were applied to nonprofit schools, a large number of them would disappear completely (NTTAWWT).

  8. KMW…if you’ll be my girlfriend I’ll give you my Subway Melt.

    1. Smart and beautiful – irresistible.

  9. Should we have more uneducated cashiers and waitresses?

  10. I wonder if there is a relationship between the rise in college degrees cashiers and the omnipresent tip jar? Maybe they did learn some money earning skills in school after all.

    1. Maybe they did learn some money earning skills in school after all.

      “Depend on the generosity of others” is hardly an Earning Skill.

  11. The situation is beyond repair, and is about to collapse – students given billions in loans by an irresponsible finance industry/banks, the government complicit in the fraud. No way out – no discharge possible in bankruptcy, etc. The fault hingswith those who are expected to be the responsible stewards: the financial professionals, and the government – NOT the students, who were just trying to better themselves in the manner they were told was the right way to do so.

    Student debt is destroying lives, and is the next big thing to burst. The only genuinely *fair* solution I see is to allow discharge of student debt in bankruptcy, rather than ruining the lives of all the debtors who have been duped and defrauded.

    Otherwise, I advocate DEBTORS’ REVOLT! Mass refusal to pay the banks, and let this wretched system collapse. JPR

    1. Well, no, the people primarily responsible are not the financial institutions or even the government because both lack the means to determine which individuals could benefit from what education. In some cases, both the individual and society benefits from them assuming educational debt, in other cases not. The only people in a position to make that judgement was the educational institution itself.

      But they didn’t. Instead, they treated students just as a means of getting more money with a complete and utter indifference to how that would benefit the student or empower them to pay of the debt. In other words, colleges got students, so the students could get loans and grants, so the college could get money.

      It’s just like with broadcast media. Viewers are not the customers, viewers are the product. Broadcasters sell viewers attention to advertisers. With colleges, students are just a means of getting the money from grants and loans. They couldn’t care less what happens to students after they’ve paid.

  12. Debtors revolt? How much different would that be than what is already happening?

    Fortunately, I went through college in the 80’s and paid my way by working. Didn’t get that much from the degree other than the satisfaction of completing it. But at least I came out without any debt.

    Students have been begging for more loans and grants for as long as I can remember. Every time Uncle Sam ponies up a bunch of money for higher education, schools raise tuition. Then the cycle starts again.

    1. Why are people always saying, “I did that, I did that, etc etc” as if your own individual experience offers any insight into the larger question we are dealing with? So annoying, and ads nothing.

    2. Why are people always saying, “I did that, I did that, etc etc” as if your own individual experience offers any insight into the larger question we are dealing with? So annoying, and ads nothing.

      1. Kinda like double posts decrying a “meaningless post”…whoa, I just blew my own mind, dude.

  13. we just don’t have the proper regulations yet and we are not spending the people’s money in just the correct way yet, we’ll complete some new regulations and channel more of the people’s money to the new locations and get back to you on how that works out!

  14. Gosh, like the lamestream media, you “Libs” are a little slow – I’ve been calling it the next subprime at my place since summer 2009.

    1. Good for you!

  15. It should have been obvious that loans and federal grants were never going to make college more affordable. All that extra funding is always extracted by the provider in the form of higher fees, the student won’t see a dime of benefit. You see the same thing in, for example, energy-efficient air conditioner subsidies. Give people $2500 to install a new air conditioner, and air conditioner pricess will suddenly be $2500 higher than they were the day before.

  16. Graduate students in the table above have the lowest default rates, but they often walk onto the job market at the age of 30 (or higher) with enormous debt loads that burden them for years.

    Far too many people are finding themselves with nearly useless graduate degrees after wasting many of their prime earning years on a fool’s errand.

    Debt is reason #1 on the 100 reasons not to go to grad school blog:

  17. Maybe it’s just me, but I think Katherine looks like Karen Allen’s character Katy in “Animal House.”

  18. Just a reminder that Kaplan is a wholly-owned subsidiary of the Washington Post Company.

  19. I second the Debtors Revolt idea.

    They screwed us, and we have no obligation to them. We bailed them out once already. ChrisP

  20. What we need is more educational requirments for the judiciary and the legal profession: namely a knowledge of basic statistics. Those who do not demonstrate said knowledge in their pleadings or decisions are assumed not to have it.

    That would end “disparate impace” law suits. Then employers could test for what they wanted and needed, instead of having to use a degree as a proxy.

  21. This is what you get when the goverment spends OPM – other people’s money.

    Massive waste and fraud.

    As Katherine repeatedly points out, more regulations won’t help. The only fix would be less government involvement – less government spending of OPM.

  22. There is enough blame to go around:

    1. Sallie mae – a private company lobied to get market advantage in lending. They were able to write the rules for student loans and benefitted from it. Where else can a bank issue a non-dischargable loan at a rate the same as a car/home equity loan. Also, you can consolidate only once – i.e. lock your rate – why? – in benefits the banks – Imagine if you could never again refi your mortgage – never.

    2. Congress – received millions in lobbying dollars from the banks – and they got the benefit of the bargain.

    3. The Universities – Of course, every year tuition has to raise so much that tuition at my university was 20k per year in 1995 and now costs 50k per year. Luckily I had a scholarship.
    I won’t even start about Law School.
    In 15 years, the (private) school price went from what one of parents earned, to what both of my parents earned. Also, you might be able to earn 20k part time, but 50 no way.

    I have 2 kids – I will never recommend that they attend a “private” school.

  23. Perhaps it would help if the financing of higher education were turned on its head as it were.

    Consider: Various schools proclaim the value of their degrees using projections of increased earnings over one’s lifetime.

    If these schools are serious let them put their money where their mouth is and finance their students themselves! And if their degrees are worth s**t and the graduates can’t get a better than minimum wage job, we would have a self-correcting system.


    1. Just to elaborate a little:

      The schools themselves would borrow the educational funds and guarantee the pay-back to the financial institution.

      On the basis of the school’s belief in the value of its degrees the school would advance these funds to its students.

      Students would agree to pay back these loans provided they could obtain jobs that pay a wage commensurate with the academic degree achieved.

      This would certainly stop $100,000 loans for degrees in religion or woman’s studies.

  24. I have come to the conclusion that we do not live in an actual republic/democracy. It appears to be an oligarchy run by veiled feudalists; the illusion of self-government: a capture. It needs to come down, I think.

  25. While studies have repeatedly found no evidence that Pell Grants spur education price inflation (in part because, aside from at a community college, even the maximum available Pell Grant amount represents an irrelevant fraction of the dollar sticker price of postsecondary education), there is growing evidence that loan availability is an influence on increases in sticker price.

    Note also that the default rates are gross, not net. Most of the loans are eventually collected post-default, because the guaranty agencies and federal government possess unusually powerful collection tools. In addition, federal debts are generally non-dischargeable in bankruptcy. That said, it is much better, from the borrower’s viewpoint, to avoid default at all costs, due to damage to credit rating and other aspects of lifestyle and employability.

  26. So, we are to allow only the rich to get a college education? It’s okay to have the vast majority of the population “informed” by cable TV and AM radio demogogues?

  27. I use the referral program to make money while in college. They mail me free flyers that contain my referral code, and whenever someone uses my code to sell back and mail in their books, I get paid a 10% commission.

  28. While I agree that ‘easy money’ is partly to blame for the situation, I also think that the student and parents are also culpable. Folks have to weigh the risks and benefits of taking loans out to pay for school.

    I was a TA in grad school (chemistry) and I saw a lot of students whose parents were paying for the whole lot – books, tuition, housing, food, living, expenses, etc. Basically they bankrolled the whole experience. Some of these kids did not care to be there. There were kids who took loans out to pay for the whole nine yards and wound up graduating with gobs of debt.

    Loans can be helpful if the student and parents use their heads. Why is it so many students can’t work to pay for living expenses? That doesn’t then need to be paid for with loans if the student and parents couldn’t “afford” college otherwise without taking a loan to fill the gap.

    Many scholarships go unawarded! There is a lot of free money for college. I guess it’s easier to sign a loan paper than it is to apply for scholarships or to pay for some of school by working.

    Parents need to prepare their kids for reality. Perhaps the parents just decide to cut their kids loose to let them figure it out for themselves as well. The easy money is strangling these kids. I read a blog that this NYU grad in journalism had $75k in debt and wondered how she would pay for it. Journalism isn’t exactly a high paying gig. Who was counseling her on making a good decision about what that loan would cost her? Even if she had been counseled, she may still have taken it anyway. A good advisor can counsel what type of pay that a particular degree would pay on average.

    I took out student loans as did my step-daughter. We financed as little as possible. We both paid every bit of it back. Students and parents need to use their heads too when deciding to take loans out.

    Certainly the government doesn’t, first, need to be in the business of loan making and second, doesn’t need to make it so easy to get easy money.

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