Tuesday, December 28, 2010

The predatory student loan industry

Yesterday I posted on the OCC shutting down HSBC for Refund Anticipation Loans to low income people's tax refunds.

I wonder when the feds are going to crack down on their own for allowing students to rack up debt to obtain worthless degrees and never achieve the earning potential to pay the loans back. It seems kind of predatory to me..........

When the government subsidizes something, we wind up with more of it. When it subsidizes something heavily—and combines that subsidy with an aggressive campaign encouraging consumption of that thing from the presidential bully pulpit—we wind up with a lot more of it.

Oceans of federal money gush into higher education every day, and every administration promises more to come. That gush obscures the real demand for educated workers. The result is lots of cashiers and waitresses with B.A.s, and lots of people with student loan debt that's tough for them to repay. For most students, the federal subsides geared toward nudging them to consume more education actually result in the acquisition of more education debt.

On the corporate side (and the non-profit side, for that matter) the subsidy encourages institutions to shape their practices around grabbing as much of that "free" money as possible. As critics of for-profit education never fail to note:

Most colleges receive 75 percent of more of their revenue in federal loan funding; at others, like the University of Phoenix's parent company, Apollo Group, federal dollars comprise upwards of 90 percent of the revenue. (The legal limit is exactly 90 percent.)

The government makes the loan getting process easier and faster, and then the schools that live off loan money figure out ways to make the process smoother still. In fact, the getting of education loans has become so seamless that some of the less scrupulous actors out there have figured out ways for students take out and/or retain loans without realizing that they have done so:

Once again, when the government subsidizes you get more of it. Look forward to bailing out some young Women's Studies graduate soon.


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