For the past two years, the media has focused a tremendous amount of attention exclusively on for-profit colleges, in a campaign supported by short-selling investors, pushed by the established beltway advocacy groups, and blessed by the non-profit universities and community colleges. The various reports of disgruntled students, high default rates, and shady marketing practices by profit motivated colleges have raised a public furor, and led to legislation specifically designed to disqualify those with the highest default rates from participating in the federal student loan program.
The public discourse has essentially pitted the non-profits vs. the for-profits in this media showdown, and clearly, the for-profits have been chosen to wear the black hats, while the non-profit university crowd, safely above the din in the proverbial ivory tower, look down disapprovingly at how far their black sheep colleagues have fallen.
While there are indeed massive, jaw-dropping problems in the for-profit industry, the fact is that the default rates for the 4 year universities and community colleges are also outrageously high, and these schools are employing similarly deceptive marketing, lending, and lobbying practices that go against the interests of the students they should be looking out for.
A 2003 IG study found a lifetime default rate for 4-year, 2-year, and for-profit schools to be 25%, 35%, and 45% respectively. These rates, individually, are all higher than the subprime home mortgage default rate, higher than the default rate for credit cards, payday loans, and every other type of loan in the country for that matter. And since 2003, the debt loads of students, and their job prospects clearly indicate that the current default rates are significantly higher still. This has been the case for years, So clearly, the non-profit colleges are no shining exemplar. And like all the other players in this crisis, the non-profit universities failed to alert their students about the true risk that they and their families were assuming with these loans, an key point that hasn't yet been made publicly, but should be.
Clearly, the for-profits are being scapegoated while the "good-guy" , non-profit universities are free to continue abusing students and their families recklessly, and with impunity. And what's worse, the legislation targeting the for-profits, (passed recently), is toothless, worthless, and guarantees that this entire exercise will have zero impact on the default rates, and zero impact on the prices of tuition.
While this dramatization may play well with the public, make money for the short-sellers, and give Congress a nice story to tell their constituents, it is a faulty and misleading narrative, Congress and its experts need to come clean about how bad all the schools are, acknowledge the systemic failings that have caused college prices, and default rates to skyrocket across all schools, and deal with that. The American public, broadly defined, will no longer tolerate this brand of “pretend governance” as a substitute for real governance.
The core issue, here, is the lack of federal oversight at the Department of Education that has persisted for decades. The Department has turned a blind eye to the true default rate, when it should have been telling Congress to stop raising the federal loan limits because of the high default rate. Ask the question: why does the Department of Education not care that the true default rate is high? The answer to this question reveals the true problem, and I will leave that for another day.
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