Make Colleges Pay Loans If Their Graduates Can’t.

SKIN IN THE GAME:

Make Colleges Pay Loans If Their Graduates Can’t.

When the U.S. Education Department shut down ITT Technical Institute at the beginning of the fall semester, some people saw it as just desserts for the for-profit college. Given ITT’s relatively low graduation rates, alleged use of deceptive job placement figures in its recruiting efforts, and high numbers of loan defaults and delinquencies, the government may have seemed justified in refusing to fund more loans to ITT students.
Yet, now, 35,000 students are suddenly without a school and 8,000 faculty and staff are unemployed, and the entire episode shows that the government remains fixated on problems in the for-profit sector while virtually ignoring that all of U.S. higher education has long been guilty of what, in another business, might be called price gouging.
It will come as no surprise to most Americans that college tuition has been rising at about twice the rate of inflation for a quarter century. This has left student borrowers with increasingly heavy debt burdens, which in turn have led to rising delinquency and default rates. The fundamental problem is that a large portion of any college’s operating funds come from federal student loans, on which taxpayers take the loss if students fail to repay. Universities themselves have no skin in this game.
The solution is to require that colleges absorb some of the loss on delinquencies and defaults by their graduates and dropouts: say, the first 5 percent of losses. And 1 percent to 2 percent of loan amount should be deposited with the Education Department at origination, as collateral.
Only colleges can control tuition, and the cost of room and board and other student expenses. Only they can assess which students are likely to gain the benefits that college should provide. Only they can design their curriculums to prepare students to be productive members of society and to make a living sufficient to repay their loans. We should hold colleges accountable so they do all these things far better than in recent decades.

I agree.

58Posted at 6:33 pm by Glenn Reynolds