Student Loans

Biden's Latest Round of Student Loan Debt Forgiveness Is an Indictment of Federal Higher Education Subsidies

Thirty-five years after Bill Bennett sounded the alarm about student loan defaults, we still haven't learned a damn thing.

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President Joe Biden announced Wednesday that the Department of Education is forgiving $500 million in Federal Direct Loan debt owed by 18,000 former students of the for-profit higher education chain ITT Technical Institute. The chain closed all 140 of its locations and fired most of its 8,000 employees in 2016, following a legal battle with various state attorneys general and the U.S. Department of Education.

"These borrowers will receive 100 percent loan discharges," according to a Department of Education press release. "This brings total loan cancellation under borrower defense by the Biden-Harris Administration to $1.5 billion for approximately 90,000 borrowers." In March, the Education Department forgave $1 billion in student loan debt held by 73,000 other borrowers who attended for-profit colleges found to have engaged in deceptive marketing practices.

This latest announcement is yet another expensive reminder that federal subsidies for higher education creates incentives for garbage people to start garbage programs for clueless borrowers who stand little chance of ever repaying their student loans.

The "borrower defense" concept says that students are able to apply for loan forgiveness of their Federal Direct Loans if the students "were misled" by the schools they attended or if their "schools engaged in other misconduct in violation of certain laws." In this case, the Education Department says its investigation "found that ITT made repeated and significant misrepresentations to students related to how much they could expect to earn and the jobs they could obtain after graduation between 2005 and the institution's closure in 2016. In reality, borrowers repeatedly stated that including ITT attendance on resumes made it harder for them to find employment, and their job prospects were not improved by attending ITT."

In the last administration, the federal government had much stricter rules about who could benefit from the borrower defense rule and how much forgiveness they could receive. A major sticking point with loan forgiveness advocates was then–Education Secretary Betsy DeVos' use of a formula that granted borrower defense applicants only partial forgiveness of Federal Direct Loans. Education Secretary Miguel Cardona has tossed that formula and replaced it with 100 percent forgiveness, which will be retroactively available to anyone who previously qualified for partial forgiveness.

Is the new borrower defense policy a roundabout way of executing mass student loan forgiveness without going through Congress? Probably. Do many of the criteria for borrower defense also apply to nonprofit liberal arts colleges? Absolutely. Is it troubling that the new application for borrower defense loan forgiveness does not require applicants to submit a W-2? It absolutely should be.

But what I find most concerning is that American policy makers continue to ignore a larger lesson of the last 40 years: Federal lending for higher education has been a disaster for many low-income borrowers.

A lot of journalism about for-profit higher education shenanigans—which are real and heinous—dates back to Occupy Wall Street. It tends to imply that President Barack Obama's Education Department was the first to stand up to the worst grifters, and that this is a relatively recent problem. But it was William Bennett, President Ronald Reagan's education secretary, who first sounded the alarm, way back in 1985.

Congress had loosened lending criteria in the 1970s, which allowed unprepared students to borrow federally guaranteed money to attend fly-by-night schools. As a result, the student loan default rate skyrocketed in the 1980s. Bennett called for and secured a tightening of the higher ed credit market, which reduced the number of these schools and also the student loan default rate. A few years later, these restrictions were lifted, and the process repeated itself two more times: Defaults went up, lending tightened, defaults went down, lending loosened, etc. Wash the argument, rinse the taxpayers, repeat.

While inducing low-income people to borrow money they can't repay for an education they can't use is likely the worst consequence of federal higher ed subsidies, we also know now that easy lending has inflated the cost of "good" colleges and universities, which compete with each other by upping costs in order to suck up subsidies that they can invest in prestige points rather than workforce preparation: nicer buildings, fancier dining services, more extracurriculars, and an abundance of non-academic staff to make attendees—particularly those at nonprofit liberal arts colleges, which progressives seldom criticize for their ever-increasing sticker prices—feel like they're staying at a resort with the occasional class.

Despite the most recent spat between DeVos and progressives, the history of this cycle is not entirely partisan. The late Rep. Alcee Hastings (D–Fla.) stanned hard for this awful system while raising campaign funds from crappy schools that mooched off taxpayers and ripped off poor students of color. His partners across the aisle were conservatives like Rep. John Kline (R–Minn.)*, who claimed funneling taxpayer money to unaccountable firms was a form of "deregulation" that advanced "academic freedom."

None of this comports with the original intent of federally subsidized student loans, which was that students would borrow money to attend good schools, graduate to good jobs, and repay their loans in full—with interest—so that future students could then do the same. Whether that was ever a reasonable expectation (I submit that it was not) is almost moot. Today, the Education Department uses pretzel logic to spend money that was never appropriated while Congress repeats the worst mistakes of the previous decade, all while ignoring promising (but undertested) models like income share agreements.

There is so much else we should be doing differently. Many for-profit programs would likely not exist without occupational licensing requirements, such as those for the cosmetology industry; other for-profit programs, such as those that train students for administrative roles in medicine, are the result of the American health care system's metastatic need for paper-pushers who can manage labyrinthine billing operations and regulatory compliance.

Instead of confronting any of these issues, federal lawmakers have created an increasingly large and disillusioned population of student borrowers and paved the way for endless cycles of unpayable debt followed by occasional bursts of loan forgiveness.

*Correction: This story originally misidentified the state in which former Rep. Kline was elected. It has been updated. 

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38 responses to “Biden's Latest Round of Student Loan Debt Forgiveness Is an Indictment of Federal Higher Education Subsidies

  1. “While inducing low-income people to borrow money they can’t repay for an education they can’t use is likely the worst consequence of federal higher ed subsidies…”

    Replace education with housing and higher ed with mortgage and you begin to see how badly the feds mistreat the population. Same thing, just 12 years later.

    I’m sure jeff will be by shortly to explain how student loans are great or something.

    1. Don’t you people understand that keeping homes/condos inflated through subsidies, and the property taxes that go along with that, goes into all of our wonderful teachers and public school administration unions…dammit

      1. Don’t worry, a few interest rate bumps will help ease those inflated home prices.

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        2. Don’t worry, a few interest rate bumps will help ease those inflated home prices

          We’ve been subsidizing interest rates for over a generation now to keep home prices ramped up. It has completely killed off all pricing signals there and has turned much of the economy into one based on increasing home prices. And what do libertarians say? don’t worry. Eventually blahblahblahbullshit.

          1. Not eventually blahblahblahbullshit.
            That’s the sum total of your posts, you cowardly piece of lefty shit. Stuff your PANIC flag up your ass, stick first, and sit on it.

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    3. Thirty-five years after Bill Bennett sounded the alarm about student loan defaults, we still haven’t learned a damn thing.more detail open this link…….VISIT HERE.

    4. Replace education with housing and higher ed with mortgage and you begin to see how badly the feds mistreat the population. Same thing, just 12 years later.more detail open this link…….VISIT HERE.

  2. For what it’s worth, probably in excess of half of all non-profit colleges and universities are passing out worthless diplomas too. For many, a college education is a total waste of time and money.

    1. Not to mention that you have to damn near be mentally impaired to flunk out these days. Don’t want to chase away that federal money. Top students are usually still good, but to land a C at most state and private liberal arts colleges means you only need to be one step above a serious closed head injury. And if you can play ball, we can waive that requirement.

  3. I know people who got Ed. loans just for the money. Don’t forget that helpful middlemen can find little grants here and there. Some people got in trouble because they failed to notify schools that they quit the program.

  4. “…Thirty-five years after Bill Bennett sounded the alarm about student loan defaults, we still haven’t learned a damn thing…”

    We certainly have!
    We’ve learned that those with the stated preference for smaller government and lower taxes are TDS-addled assholes with the revealed fan-boi preference for some dimwit barely capable of wiping his chin so long has his tweets didn’t offend the oh, so sensitive fans of ‘Life in the Hospital’ or other day-time TV shows.

  5. “Many for-profit programs would likely not exist without occupational licensing requirements”

    I understood that these for profit programs wouldn’t exist without the government subsidized education on offer to veterans. That’s their bread and butter, the post secondary gravy train. Not occupational licensing. Reason has yet to indict these outrageous subsidies.

    1. Veterans aren’t subsidized. They receive program money that was part of their enlistment contract. That makes it compensation. You can argue the merit of that compensation, but you can’t legitimately call it a subsidy.

      1. “Veterans aren’t subsidized.”

        They certainly are, Their medical care is subsidized as well as their education. Same with their food and housing, clothing, childcare, entertainment, sex change operations etc. Veterans enjoy the most communistic lifestyle in the US second only to congress persons and other high ranking officials.

        1. Hmm. I wonder what he trade in for this ‘communistic’ lifestyle’ is? Having minimal or no input in their ‘subsidized’ medical care, education, food and housing, clothing, childcare, entertainment? Your arguments are always dishonest, and this one is a great example. As MT,SR states, there is no subsidy, care is provided for Veterans wounded or injured as delineated in enlistment or Commission contract. The other examples you bring up are the typical litany of lies. Yes, housing is is provided in the form of billeting or in some cases of base housing. Yes, there are dining facilities. Yes, there are uniforms provided. Yes, and I disagree with the policy as I disagree with all treatments for non-life threatening issues, sex change operations can be performed by military doctors on military personnel. None of these is a subsidy, they are part of the daily living arrangements for a very small culture expected to ‘do something’ up to and including killing and dying each time the pathetic congress gets the mind to send them to another hellhole. And , yes, as an enticement to enlistment, education funds can be gained -if you argue this is a subsidy, you are an idiot, this is a pure business transaction. If you want to look at subsidies, look at public sector unions and teacher’s unions;

          1. ” look at public sector unions and teacher’s unions”

            They have contracts too. The uncomfortable fact remains that a very large portion of money given to veterans to further their education is shamelessly wasted on dubious degree mills. It’s their bread and butter.

        2. Really? Since when?

  6. I know folks who took out Ed. loans only for the purpose of getting money. Don’t forget that a good intermediary can help you get small grants. Some people went into difficulties since they didn’t tell their schools that they were dropping out of the program.
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  7. Democracy was a mistake. As soon as the masses realize they can vote themselves money from the public account it’s all over.

  8. I love how these assholes go after “for profit” colleges. Like, the state schools aren’t making buckets of cash off tuition and fees.

    1. They go after them because they are the “colleges” that saddle students with the largest debt and have the lowest job placement.

      1. That’s demonstrably false, they had higher placement and higher employment than community collages, which they were drawing from the same group of people. If for profit (only difference is what tax form you fill out) collages got shut down, then just about every community collage should be closed down also.

  9. I think we need some proof-reading.

    “The late Rep. Alcee Hastings (D–Fla.) stanned hard for this awful system while raising campaign funds from crappy schools that mooched off taxpayers and ripped off poor students of color.”

    I don’t know what word “stanned” is supposed to be, but it’s not a word.

    “Many for-profit programs would likely not exist without occupational licensing requirements, such as those for the cosmology industry;”

    Cosmology occupational licensing? I want a cosmology license! (Cosmetology?)

    1. In Gen Z speak, a “stan” is someone who is an irrational and zealous defender/apologist of someone else. Pretty much always has a negative connotation. It is possibly a portmanteau of stalker and fan.

      It can also be used as a verb. In which case it pretty means “acting like a stan.”

      Whether or not you approve of such modern colloquialisms in the august pages of Reason, it is not a typo.

  10. The government needs to get completely out of competing with the private sector in doing business. The government is incompetent at business. The government fritters away a full third of its income through waste, fraud, and abuse of resources. Much of our government is performing no needed function. The student loan debacle is one of them. If the government simply quit guaranteeing student loans the first thing would be about half of higher education students would not be students any more. Then as business adapts and the institutions of higher education adapt, the students of merit would find ways to get the financial support they need. The junior colleges would get a lot more students. Trade schools would become much more desirable. And institutions of higher learning would be forced to drop their tuition and fees to much more reasonable levels. The entire business of institutions of higher learning would no longer be able to offer degrees that would not be usable for any purpose other than just having one. And a whole lot of people would go back to pay as you go taking courses as they could pay for them. I did that for 13 years. It worked. I chose courses that my employer would pay for, and focused on taking courses that would improve my skill set.

    1. Agreed.

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  13. The Federal student loan program has been a train wreck for decades. Colleges have increased their tuitions every time the loan ceiling rises but without improving their product. The myth that everyone should go to college is also a contributing factor. News flash: They shouldn’t. Many people, including family members who shall remain nameless, start college in marketable programs (engineering, the sciences, etc.) only to find out math and science are hard. They love the college lifestyle so the transfer to easier programs like sociology, journalism, fine arts, etc. but with no corresponding drop in tuition to match their earnings potential. You end up with the best educated (on paper at least) baristas and waiters in the world trying to live and pay of $100,000 of debt on $15/hour. College is a business decision and should be treated as such. No one should get a college loan without filling out a realistic worksheet on how they intend to pay it off. (‘Becoming a movie star’ or ‘winning the lottery’ are not correct answers.) If you change majors, you have to reapply. This would fix a lot of it. But making those who did not go to college pay the tuition of those who did is unconscionable.

    1. Your missing the whole point of the grift: Make a shitload of money siphoning off these loans while putting as many people in to debt as we can, keeping them dumb enough that we can teach them how to run our machines and fill out our forms, and then we have a ready supply of debt serfs for our job market, willing to work for less, lest we hire imported workers who will work for even less (so we keep ’em scared with that.)

      Makes so much sense when you connect the dots.

    2. “making those who did not go to college pay the tuition of those who did”
      deserves a repeat

  14. The very first step in “fixing” this problem is ending ALL student loan programs.

    Without that, no matter what we do, the problem will re-emerge.

Comments are closed.