Thursday, December 22, 2011

Student Loan Reform? How About College Reform?

For-profit universities are some of the worst offenders in the student loan arena.

I receive an e-mail today from a "reader" who invites me to their blogsite.  The article has a list of the "10 people who are fighting for student loan reform" and lists Barack Obama as #1.  This might come as a surprise to him.

But as I am looking at the article, I noticed sidebar ads. The article is unfortunately undercut by a sidebar ads for..... for-profit colleges! Actually, they are plastered all over the page - I just noticed another one  below the "comments" section.  Oh, wait, there is another one at the top of the page!

For-profit colleges are the worst offenders in the Student Loan arena - encourage the poor and minorities to sign up for a bogus education, and then charging even more than private universities.  Of course, the helpfully "steer" the student to a loan officer to pay for it all.

What is so odious about this, is that these poor people are hoping to better themselves.  Not only are their dreams crushed, but so is their credit rating.  They spend the rest of their lives trying to pay off these debts.  And no doubt, they figure that the whole system is rigged and why bother even trying?

Pretty odious, no?  And yet they have ads for THREE OF THESE COMPANIES on their website!

But wait, what is this copyright notice at the bottom of the page?  The entire page and website is run by a place that steers people toward "online colleges".

The entire page is a put-up job.  It purports to be for students when in fact it is run by the for profits.

This is how the Internet works these days.  Sometimes it is pretty obvious, as this example illustrates.  You look around, critically, and see that the page is not designed to steer you away from bad deals but rather toward them.  The "bait" they use is an article supposedly about student loan reform.

You have to wonder how these people sleep at night.  And I'll bet they tell you "pretty well".  After all, the "OWS" people are not camped out on their door.  No one will every picket a con artist, a raw deal, or a screw job.

For-profit colleges, of course are wildly profitable, and since their schemes make them a lot of money (paid for by government guaranteed student loans) they can afford to make huge political campaigns of unlimited money to Political Action Committees (PACs).

Suddenly, an odious rip-off is a "legitimate business being hounded by the government with regulations!"

Hounding, in this case, being the government threatening turning off the tap of guaranteed student loan money.

Unintended Consequences is a big problem with government actions.  If you say that you will guarantee student loans, it isn't long before some clever fellow figures out that he can get that guaranteed money, hand out a second-rate education, and leave his students hanging on the hook with all that unpaid debt.

You could try to create more regulations to rein-in the abuses of the for-profits.  But how is what they do any different from some "legitimate" Universities?  A friend of mine went to Big Profitable University and spent $40,000 on a worthless "communications" degree.  They made money from him, he has to pay the government back, and the degree landed him no job.

Perhaps, just perhaps, student loans are not the answer.  When you flood the market with cheap loan money, whether it is for houses or an education, people grab at it, and as a result, prices skyrocket.

The market for overpriced homes has collapsed.  It appears we are seeing signs that the market for overpriced educations is set to collapse.

Unfortunately, the "OWS" crowd isn't criticizing the cost of the education, but the profits made by the loan companies.  I think they are barking up the wrong tree.

When people become more price-conscious about college, prices will drop.  The law of supply and demand could fix this, if we convince parents and students that college is not the end-all to life anymore, and moreover that they should shop on price, as well a reputation.