The Silver Lining of Economic Collapse: Student Loans Crunch Starves Greedy
Colleges
By Ted Rall
Created May 14 2008 - 9:55am
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 tax dollars into private
colleges
and universities as well.
The push comes from two fronts: a desire to make sure that student loans
keep flowing in spite of the credit crunch, and to raise benefits for
veterans returning from Iraq and Afghanistan who are guaranteed an
education
under the GI Bill.
Student loans are a big segment of the banking industry, amounting to
about
$85 billion last year. Until recently, they were also hugely profitable.
But
the credit crunch has caused some lenders to pull out of the federal
program. As a result, the pool of money for college loans available has
fallen 13 percent.
Congress is considering various ways to make sure students can continue to
borrow the money they need. The Ensuring Continued Access to Student Loans
Act of 2008 (ECASLA) would increase the amount lent directly by the
government. Another Senate bill, supported by Bush, would let the
government
buy student loans from banks to free up capital for additional loans.
Other bills seek to make college more affordable for veterans, many of
whom
say they are getting screwed. "They were rather good at saying, 'Join the
Marines and get an education; you'll have an opportunity to go to
college,'"
recalls Kevin Grafeld, 23, a part-time student from 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 as a part-time student.
"I was 18 and a little naïve," Grafeld told Newsday. A bill sponsored by
Jim
Webb of Virginia, a Democrat, would pay for tuition up to the 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 like Iraq: no one knows. Sponsors
say
the feds would actually come out ahead on ECASLA, earning a cool $450
million a year in interest and fees on the backs of college kids.
I have a better idea. Do nothing.
The economy may suck, but the last thing the nation'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 at private institutions has gone
up at triple the rate of inflation, and twice the rate of people's
salaries.
As Timothy Egan noted in The Times, "If the cost of milk had risen as fast
as college since 1980...a gallon would be $15."
Private schools, especially the elite, are getting an enviable return on
their misbegotten windfall profits. Seventy-six colleges hold endowments
over $1 billion. Harvard has $35 billion--more than the GDP of 100 of the
world's 179 nations.
Nationally, colleges got a 17.2 percent return on their investments in
2007--while spending a mere 4.6 percent of that tsunami of cash on their
students.
Public schools are nearly as greedy. Over the last five years, they've
hiked
tuition 31 percent faster than inflation. According to the AP, it's "the
worst record on college prices of any five-year period covered by the
survey
dating back 30 years."
Why do colleges raise tuition so much faster than the inflation rate?
Because they can.
Since 1981, when President Reagan got rid of a 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 as much as he or she
needs--or, to put it another way, however much a college decides to
charge.
It's simple supply and demand; with no downward pressure on tuition, the
warlords of college have an overwhelming temptation to gouge.
And gouge they do.
No one seems to question the wisdom of lending tens of thousands of
dollars
at above-market compound interest rates to children 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 degree will guarantee them high enough wages 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--in a non-existent job market.
Saddled with crushing monthly payments as high as a home mortgage in some
areas, millions of young people are forced to move back home. According to
a
2002 study for the student lender Nellie Mae, student loan debt 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 to have
children.
Bankruptcy rates among young adults in their 20s are soaring, but default
rates on student loans remain relatively low, under five percent. (Laws
have
been changed so that bankruptcy doesn't relieve your obligation to repay
student loans.)
Students and taxpayers get poorer. Colleges get richer.
But what if the worst fears of the credit crunch worrywarts came to pass?
What if the student loan system collapsed entirely?
For several years, few poor and middle-class kids would be able to afford
college. To be sure, it would be a painful transition. Millions of kids
would drop out, forced to defer their dreams. But it would be good in the
long run--for the country and even for them.
College CEOs (let's not call the heads of these mega-for-profit vampire
capitalism firms mere "presidents") who wanted their companies to survive
would be forced to recognize the new market reality. They would streamline
their operations and reduce wasteful spending so they could cut tuition
and
other expenses. As Harvard and other Ivy League schools have already begun
to do, they'd dip into the hundreds of billions of dollars currently
sitting
idly and uselessly in endowment investment accounts. And tuition would
drop.
The collapse of the student loan racket--banning them entirely would be
ideal--could be one of the best results of the recession. But only if we
let
it happen.
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"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are
at
stake."
-Thomas Jefferson
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