Student Loans

Obama's College Scorecard is a Giant Student Welfare Scheme

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University presidents are deeply disturbed that not only is President Obama not backing off from his proposal to

Obama Socialist
SS&SS /Foter/Creative Commons

create a federal scorecard to rate colleges, but one of his deputies actually said that this was no more difficult than "rating a blender." Educating young minds is a such a lofty thing, you know, that comparing it to selling kitchen appliances  isn't just vulgar — it's blasphemous.

But, I note, in my Washington Examiner column this morning, the tears of university presidents are the only good thing that'll come out of the proposed scorecard. So enjoy them while you can. Because once they've dried their eyes, they'll start seeing all kinds of opportunities for shaking down taxpayers.

For starters, the scorecard wants to tie federal aid—all $150 billion of it—to the ratings colleges get on "affordability and accessibility" for underserved populations. "This sounds great, but in reality it means that existing federal aid will beget more federal aid," I note.

But this is not the only way that this scorecard will become a giant welfare scheme for universities and students. One of the little reported provisions in it is that it wants to expand a student loan repayment program called "Pay As You Earn." This program caps the loan repayment of students at 10 percent of their income for 20 years, after which the remainder is written off. (For professions such as nursing it takes only 10 years to get the write-off.)  Currently, only 2 million or so avail themselves of this program. The president wants to extend it to all 37 million federal loan borrowers, including many new borrowers. I note:

Setting aside the fiscal insanity of expanding an entitlement at a time when the country is already groaning under debts and deficits, what incentive would students have to be careful shoppers if they know that Uncle Sam will eventually write off all their debts?

One reason college costs have grown 27 percent beyond inflation over the last five years is that parents are picking up an ever smaller share of their kids' college costs and the government (and other) grants ever more, according to a report last year by Sallie Mae, a government-sponsored enterprise that manages student debt. Loan forgiveness will shift this equation even more toward the government, giving students even less reason to seek -- and colleges less reason to become -- more cost-effective institutions.

But colleges can get really creative in legally scamming taxpayers on behalf of their students through this program. Consider this story about what Georgetown University's law school has been doing that didn't make it into the final column for space reasons.

The New America Foundation, no right-wing nut-bag critic of generous welfare policies, exposed that Georgetown was using this program to pick up the entire law school tab for its students—not just some portion that they couldn't payback. This is how it works: The program forgives loans after 10 years for law graduates making less than $75,000 in government or non-profit jobs. Until then, however, they have to pay 10 percent of their income toward the loan.

So Georgetown calculates what 10 percent of $75,000 or so would add up to over 10 years. It hikes students' tuition by that amount because that's what they'd ultimately have to repay. The students finance their entire tuition—hike and all—from Uncle Sam. Georgetown uses the hike to pay off the feds and the students get to pocket the rest.

The Foundation estimated that Georgetown is able to extract close to $160,000 from Uncle Sam for students, basically their entire cost of law school.

Pretty neat, eh, to see how the nation's brainiacs are keeping themselves busy? Does Georgetown teach them how to spell crony socialism?

For a great explainer of the scam, check out The Washington Post's Dylan Matthews' piece.

Bobby Jindal on Georgetown's scam here.

My Washington Examiner column here.