Student Loans

Obama Administration Choking Off Student Loans, Which Is Good News

For-profit schools get deserved flak, but the public universities lock kids into years of debt, too.


SACRAMENTO — Whenever educational issues are debated in the state Capitol, legislators operate from an unchallenged assumption: more government aid will lead to better opportunities for students. But the plight of a well-known Santa Ana-based private college system shows the reverse may often be true.

Corinthian Colleges, a for-profit company that owns Heald College and other career-oriented colleges, has announced that it is selling or closing its schools. This "swift crumbling," as the Bay Area News Group called it, is the result of the U.S. Department of Education's slashing of student aid to the colleges' 72,000 students.

The colleges have been controversial. California Attorney General Kamala Harris' office filed a complaint alleging that it "intentionally targeted low-income, vulnerable Californians through deceptive and false advertisements and aggressive marketing campaigns that misrepresented job placement rates and school programs."

That helped lead to federal action — a shut off of aid for three weeks unless the company provides information about student success rates. The Obama administration has softened its demand as officials figure out how to end Corinthian programs. California's legislature already banned new state aid to the schools for veterans.

And the attorney general's office this week complained the company is "failing to tell prospective students that the schools to which they apply will all be sold or closed." Corinthian executives have called Harris' latest allegations a publicity stunt.

The schools' defenders also allege elitism. Clearly, these schools aren't designed to compete with the University of California. "Career colleges do a better job of helping students graduate and enter rewarding careers than traditional, state-funded schools," argued one Heald official, in a Sacramento Bee column.

Nevertheless, there are plenty of allegations of high pressure sales techniques and overly expensive courses that offer few real world opportunities. Most critics focus on the profit motive, but the biggest problem may be the easy availability of government aid. The company cannot operate for very long once the spigot of federal dollars is turned off.

"Heald began in 1863 as a for-profit institution, and long before students turned to the federal government for student loans, it was formidable," wrote former Heald President Larry Barton in the San Francisco Chronicle. "To pay for tuition, most students worked full or part time or borrowed from their families."

Something changed. "As federal student loan program proliferated, especially in the 1970s, so too did the appetite of the private equity funds and private investors who saw broad opportunity by starting new 'colleges'," Barton added. Students needed to sign on the dotted line — and federal aid would flow toward the colleges.

State and federal officials can see the problem with some of these for-profit ventures (although many have fine reputations), but they don't see how this dynamic infects the entire higher education system.

A recent CNBC report pegs student loan debt at around $1.2 trillion nationwide — with those numbers increasing as students pay for "skyrocketing tuition" costs. It's inflationary. Most students take out loans to attend public and private universities, community colleges and non-profit schools, not these smaller for-profit ones.

Elite universities don't face allegations of high pressure sales tactics, but they, too, lock students into years of debt, and often offer degrees of questionable market value. And all types of schools are less rigorous in their spending when borrowed money keeps flowing, as news reports point to a nationwide spree by major universities of building luxury dormitories.

The Obama administration's approach of choking off the student aid dollars to Corinthian Colleges is sensible. But state and federal legislators need to learn a lesson that has a broad application beyond this one for-profit college system.

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  1. I still blame poor parenting as well.

    1. That’s pretty much the root of injustice in the world.

      1. don’t necessarily agree. With the sheer number and complexity of the government scams out there it is nearly impossible for the average person working and raising a family to keep up with it all.
        This one is particularly insidious. It plays upon parents desire for their children to be well educated and successful in life. They are told that the more they pay (or go into debt) the better the chances for success.

        the truth is that the more you pay, the higher the tuition goes up, and that money goes for higher pay for administrators and Professors not for better education.

        Nowadays the kids with hard skills such as plummbers, electricians computer programers and database administrators get paid much better and you don’t have to go to a traditional four year college to acquire these skills

  2. For-profit schools get deserved flak, but the public universities lock kids into years of debt, too.

    The government floods the market with cash, and deserved flak goes to the school for responding to perversed incentives? Just like it’s a market failure when the government compensates banks to give loans that can’t be paid back. Ergo, “greed caused the bubble”.

    1. The government floods the market with cash, and deserved flak goes to the school for responding to perversed incentives?

      For-profit schools have some of the worst graduation rates in the country, and it’s not because their curriculums are particularly difficult. Having a degree from one of these diploma mills is still considered to be a joke in most of the professional world, snazzy commercials to the contrary.

      Let’s not go out of our way to lionize these largely shitty institutions just because they aren’t directly affiliated with the state. They’re still guilty of chasing that sweet government sugar like a morphine addict.

      1. State schools are turning out large numbers of students with degrees in such areas as womens studies, gender studies and African-American studies. One college here in SC handed out comic books (or graphic novels as comic books are now known) relating to growing up gay to freshmen. If you have a pulse and a guaranteed student loan you can get into university with total disregard to ability. Pretty much all of our colleges and universities spend most of their time raking in federally guaranteed dollars.

    2. The government floods the market with cash, and deserved flak goes to the school for responding to perversed incentives? Just like it’s a market failure when the government compensates banks to give loans that can’t be paid back. Ergo, “greed caused the bubble”.

      I can’t stand the lack of understanding on this issue among the masses. People seem to have no grasp of the fact that when you pump any enterprise full of money, much (maybe most) will be wasted. No, they just assume that prices are fixed, and all the administrators are sitting in their offices pulling levers making rote decisions.

      It’s nothing but collectivist commie bullshit groupthink, and the pinnacle of economic illiteracy.

  3. They’re not students. They’re loan-proceeds conduits.

    1. More like pawns in a money transfer scam.

      Gamble your future debt that the education you receive will enable you to make enough income to service the debt and have some left over. All of this to raise the living standards of some “public servants” called university administrators and professors.

      You would probably do better in Vegas or Wall Street with that tuition money!

  4. There is absolutely nothing these schools do that isn’t happening at public universities, besides teaching useful skills.

    Universities don’t need high-pressure sales tactics anyway. They have a nation of high school guidance counselors doing that for them.

  5. Public universities have swelled their bureaucratic ranks with cheap money from an over large student loan program.

    1. substitute the word “public” with “Socialist” and you will be closer to the truth.

  6. This “swift crumbling,” as the Bay Area News Group called it, is the result of the U.S. Department of Education’s slashing of student aid to the colleges’ 72,000 students.

    Higher education death panels. The state giveth, and the state taketh away.

  7. It is a fact that over 200% of federal loans pay for rape kits and African-American Center administrator salaries.

  8. I don’t blame the for profit universities – after all that is why they are there – to make a profit.
    The public(socialist state run) universities are another matter altogether. Because of the fact that they get taxpayer funding they have little or no accountability for their actions. – sort of like the Public school systems on steroids. Not only do they run the colleges and universities like petty fiefdoms, they vote themselves raises that come on the backs of students and parents who are paying tuition.
    Libertarian and conservative ideas are either slandered or suppressed because they threaten the existence and money these people extort from the public.
    The student loan scam is a prime example. Students go into debt to pay the exorbitant compensation that professors and administrators make.

    If we privatize these state institutions and didn’t have government programs for student loans then they would be subject to market forces and the costs would go down.

  9. The subsidization of ivory towers is one of the oldest, stalest traditions–and one most vigorously deserving to go the way of the dodo. Subsidizing the lamestream intellectuals allows them to engage in their favorite pastime–escaping reality. Observe the historical record of carnage that follows.

    When lamestream intellectuals sneer at private education, they do so not out of genuine contempt, but out of fear. Private schools threaten their racket, which also threatens the state, since it has been long understood that the quid pro quo was protection in exchange for the rationalization and moral cheerleading of the actions of the state.

  10. Here’s the effect of student loans/subsidies:

    UPenn 1945 undergrad tuition (pre-GI Bill) – $450
    1945 average income for HS graduate – $1100 at age 20
    Tuition/income ratio – 41%
    There was no reason for anyone to go into much debt. Once could work their way through college or get married (second income) or scrimp. Not cheap but extremely doable. And the monetary benefits of a college education accrued to the graduate.

    UPenn 2014 undergrad tuition – $40,600
    2014 average income for HS graduate – $24,000 at age 20
    Tuition/income ratio – 169%
    There is no possibility to go to college without incurring huge debt. The more tuition rises relative to HS income, the more colleges can force students to mortgage their future lifetime income by proclaiming the ‘value’ of a college degree. The monetary benefits of most college degrees accrue now to the university itself (not the student).

    It is no surprise that colleges themselves avoid mentioning how much their rent-seeking has destroyed the future of young Americans.

  11. Where a sum of million 40 million people are found in these adverse situation, the federal government and private lenders need to consider the borrowers situation in which they have trapped by taking inspiration fund assistance for continuing education and to build their life. Must say that Hillary Clinton’s step can be an expensive one but it can bring huge benefits for suffering borrowers.

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