NEW YORK — First came school vouchers,subsidizing private schools with public money. Now, as the economy contracts,the government faces mounting pressure to pour increasing amounts of our taxdollars into private colleges and universities as well.
The push comes from two fronts: a desire tomake sure that student loans keep flowing in spite of the credit crunch, and toraise benefits for veterans returning from Iraq and Afghanistan who areguaranteed an education under the GI Bill.
Student loans are a big segment of thebanking industry, amounting to about $85 billion last year. Until recently,they were also hugely profitable. But the credit crunch has caused some lendersto pull out of the federal program. As a result, the pool of money for collegeloans available has fallen 13 percent.
Congress is considering various ways to makesure students can continue to borrow the money they need. The Ensuring ContinuedAccess to Student Loans Act of 2008 (ECASLA) would increase the amount lentdirectly by the government. Another Senate bill, supported by Bush, would letthe government buy student loans from banks to free up capital for additionalloans.
Other bills seek to make college moreaffordable for veterans, many of whom say they are getting screwed. “They wererather good at saying, ‘Join the Marines and get an education; you’ll have anopportunity to go to college,’” recalls Kevin Grafeld, 23, a part-time studentfrom Long Island, New York. Despite serving five years in Iraq, he gets a mere$875 per month — not even enough to pay for the community college he attends asa part-time student. “I was 18 and a little naive,” Grafeld told Newsday. Abill sponsored by Jim Webb of Virginia, a Democrat, would pay for tuition up tothe cost of the most expensive public university in a veteran’s home state,plus room and board.
How much would these bills cost? It’s likeIraq: No one knows. Sponsors say the feds would actually come out ahead onECASLA, earning a cool $450 million a year in interest and fees on the backs ofcollege kids.
I have a better idea. Do nothing.
Student loans aren’t a solution toskyrocketing tuition. They’re its cause.
The economy may suck, but the last thing thenation’s colleges and universities need is more money. There are exceptions,but most are awash in cash.
It’s easy to see why: Since 1980, tuition atprivate institutions has gone up at triple the rate of inflation, and twice therate of people’s salaries. As Timothy Egan noted in the Times, “If the cost ofmilk had risen as fast as college since 1980 … a gallon would be $15.”
Private schools, especially the elite, aregetting an enviable return on their misbegotten windfall profits. Seventy-sixcolleges hold endowments over $1 billion. Harvard has $35 billion — more thanthe GDP of 100 of the world’s 179 nations.
Nationally, colleges got a 17.2 percentreturn on their investments in 2007 — while spending a mere 4.6 percent of thattsunami of cash on their students.
Public schools are nearly as greedy. Over thelast five years, they’ve hiked tuition 31 percent faster than inflation.According to The Associated Press, it’s “the worst record on college prices ofany five-year period covered by the survey dating back 30 years.”
Why do colleges raise tuition so much fasterthan the inflation rate? Because they can.
Since 1981, when President Reagan got rid ofa financial aid system mostly based on grants (which don’t have to be repaid),easy credit on student loans has made it possible for any student to borrow asmuch as he or she needs — or, to put it another way, however much a collegedecides to charge. It’s simple supply and demand; with no downward pressure ontuition, the warlords of college have an overwhelming temptation to gouge.
And gouge they do.
No one seems to question the wisdom oflending tens of thousands of dollars at above-market compound interest rates tochildren whose employment history amounts to, at most, a year at Burger King.17-year-old borrowers have no idea what they’re getting into; parents imagine(usually wrongly) that kids’ college degrees will guarantee them high enoughwages to pay it all off and then some.
The average college graduate comes out owing$24,200 in student loans. And that’s an average. Many owe more — much more — ina nonexistent job market. Saddled with crushing monthly payments as high as ahome mortgage in some areas, millions of young people are forced to move backhome. According to a 2002 study for the student lender Nellie Mae, student loandebt forced 38 percent of college graduates to delay buying their first house,14 percent to get married later, and 21 percent to wait until they’re older tohave children.
Bankruptcy rates among young adults in their20s are soaring, but default rates on student loans remain relatively low,under 5 percent. (Laws have been changed so that bankruptcy doesn’t relieveyour obligation to repay student loans.)
Students and taxpayers get poorer. Collegesget richer.
But what if the worst fears of the creditcrunch worrywarts came to pass? What if the student loan system collapsedentirely?
For several years, few poor and middle-classkids would be able to afford college. To be sure, it would be a painfultransition. Millions of kids would drop out, forced to defer their dreams. Butit would be good in the long run — for the country and even for them.
College CEOs (let’s not call the heads ofthese mega-for-profit vampire capitalism firms mere “presidents”) who wantedtheir companies to survive would be forced to recognize the new market reality.They would streamline their operations and reduce wasteful spending so theycould cut tuition and other expenses. As Harvard and other Ivy League schoolshave already begun to do, they’d dip into the hundreds of billions of dollarscurrently sitting idly and uselessly in endowment investment accounts. Andtuition would drop.
The collapse of the student loan racket —banning them entirely would be ideal — could be one of the best results of therecession. But only if we let it happen.
Ted Rall is the author of the book “SilkRoad to Ruin: Is Central Asia the New Middle East?,” an in-depth prose andgraphic novel analysis of America’s next big foreign policy challenge.
