Student Loans Crunch Starves Greedy Colleges

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.

Student loans aren’t a solution to skyrocketing tuition. They’re its cause.
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.



21 Responses to “”

  1. Angelo Says:

    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.

    …and we are not even talking about that long of a run.

  2. ellwort Says:

    Right on!
    There should be NO college tuition. But the loan racket facilitates ridiculous price=value expectations:
    “Why do colleges raise tuition so much faster than the inflation rate? Because they can.”
    The students in the community college classrooms where I teach work hard and are smart.
    It pisses me off that they should have to pay a dime to brig in the great stuff they bring in.
    College WILL be free!!

  3. Hairhead Says:


    About fucking time someone said this! The entire student loan system (I’m a Canadian, and I include Canada in this) is a scam which serves two major purposes:

    1) Guaranteeing returns to financial institutions who participate in the student loans system. Basically, this is a transfer of money from poor students and their families to the wealthy. NOTHING is produced in the transaction, except debt and the everlasting “vig”.

    2) Ensuring that people who graduate from college or university are trapped and enslaved into the job market; these people, who previously would have started businesses, initiated risky new research, gotten work with start-up companies, been employed by community non-profits, and so on, are obligated to take nasty jobs at low wages, and STAY THERE. Result? A demoralized, non-risk-taking, non-community-involved workforce, perfect for the “wage slavery” infrastructure.

    I got through University by living at home, eating bologna sandwiches, riding a bicycle everywhere, and so on. Remember, back in the “old days” (thirty years ago) students EXPECTED to be as poor as church mice; that was one of the prices of education (and the price of later freedom).

    Nowadays, students expect to live in an apartment and drive a car while going to school.

    Which leads to my final point: NO education, up to the Ph.D. level, should have any charges attached to it. Society should provide its members with all the education opportunities their intellects and ambition can handle. The resulting society is smarter, more responsive, and less authoritarian.

    I have to stop now — too much to say.

    Kudos, Ted!

  4. Aggie Dude Says:

    I must, on principle, protest your thesis and accusations!!!!!!

    Colleges and Universities are beautiful beacons of hope, freedom and enlightenment…..they can do no wrong, Ted!!!!!


    I think it’s a good article and yet another demonstration (although very painful one for someone in my profession) of how, for all the talk of free market economics and ‘letting the market work,’ capitalists almost never ever trust the market to work. They rig systems, then they game them. The issue of higher education is devilish in its complexity, and you make excellent points.

    College ‘presidents’ are increasingly becoming businessmen who are commercializing just about everything these institutions do; rationalizing it to cold hard money. It’s about making money now, as an expressed goal…just business.

    A big part of this was in the early 80s when colleges and universities were granted the right to patent life. Industry research done with tax payer money. Beyond that, look deeper into how the university system changed after World War II. Essentially, every department that COULD BE militarized, was. Those are the departments that get filthy amounts of money.

    We can’t just look at one aspect of society alone and try to solve problems that way, just like I disagree with Joe Carpenter’s argument that we change hearts ands minds one at a time.

    Only 3 months until college football season!!!!! Wooo

  5. pjwexler Says:

    Several good points there Ted.

    I do disagree for two reasons though.

    While public colleges may be as greedy as their private counterparts, part of the problem is that state legislatures have cut back significantly on their support for public higher education over the last few decades. Their tuition raises are more justifiable than those at private schools.

    Second, restricting access to higher education closes many doors in an increasingly credential-obsessed society.

    Massachusetts, for all of its’ liberal reputation, does not have a public law school for instance. If one wants to go to law school in this state, one has to pay private school tuition.

    I would rather strip schools of their tax-exempt status if they don’t kick in X percentage of their endowments into grant-based financial aid.

    In theory going back to the old CCNY days, or California community college days where there was no tuition would be nice, but that would take even more public money. The number of current students who are living luxurious lives is a small percentage of the total. And at many state schools, one cannot graduate in four years even if one can afford and wishes to do so, the number of classes offered is insufficient. Charging some tuition is a small price to pay, so to speak.

  6. devil Says:

    ted, seriously, don’t ever run for public office. as long as you’re just drawing cartoons and writing articles and books, they’ll probably let you live. but the moment you start trying to get some actual power, so that you can implement some of your great ideas and make some real positive changes, you’ll get bobby kennedied faster than you can say “generalissimo” (they’ve already got the groundwork laid, with all the death threats you get– plenty of credibility already in place for the “lone nut” storyline they’ll spin).

    getting rid of student loans entirely is a perfect idea. let the universities cut costs to adapt, and better yet, let them shrink like they should have done a long time ago. fire half the profs, sell off half of each bloated campus, and actually make college hard to get into like it used to be.

    you know, when i look at modern college texts, and compare them to the texts of yesteryear (like the 40s or 50s), i’m blown away by how dumbed down modern books (and courses) are. and it’s due (at least in part) to college becoming a big business in the last several decades– once the schools started focusing on making money over turning out well-educated students, standards went out the window, and now it’s all about “student retention.” colleges and universities don’t give a shit how dumb their grads are are, as long as there are a LOT of them, and they’re shelling out big bucks for their diplomas.

    killing the student loan industry would go a long way towards helping to solve that problem. once you take away the temptation of all that easy money, maybe universities could remember what their real mission is supposed to be. a college degree could go back to being something valuable, and a college education could go back to being preparation for a real career, instead of just being a ticket to a cubicle.

  7. Anonymous Says:


    I couldn’t agree more with this article, and it’s great to see someone get it in print.

    That said, I read an article about 6 months ago that’s pretty stunning. I tried to find the link but couldn’t, so I’ll sum it up: Parents and students look at the cost of college tuition the same way they do television sets. When they comparison shop, they assume that the cheaper schools are not of the same quality as the more expensive schools. In fact, many private schools have seen their enrollments go up – way up – when they raised their tuition to be more in line with the more prestigious schools.

    So there you have it. People think a $15k/semester education is better than a $5k/semester education. How can you fight against a mentality that WANTS to pay more? As if raising the tuition at Slippery Rock University to the same level of tuition as Harvard will lend it the same level of credibility.

  8. Anonymous Says:


    If you want to eliminate students’ loans, then colleges should be free for all brilliant and promising sturdents, otherwise college education will be only for the rich.
    After all the brilliant kids found spot in a college then the remainder spots could be availabe with tuition for the rest.

  9. Anonymous Says:


    Do a find and replace that swaps out the word “college” for “medical care.” Then replace the word “loan” with “insurance”.

    Your article would turn into an equally insightful critique of our overpriced and non-customer driven healthcare system. Your solution would also be valid.

    Does this line of reasoning still sit well with you?

  10. Angelo Says:

    Why did Reagan hate America so much?

  11. Anonymous Says:

    Poor and middle class universities (without big endowments) would go out of business. Rich universities would barely notice. In fact, Princeton has already capped the amount of loans its students are required to take out, at $10k for 4 years I think.

    How about free university education? If Ukraine and Bulgaria can do it, maybe the US can too.

  12. Aggie Dude Says:

    Reagan didn’t hate America, Angelo, he just hated you…


    What’s missing between your series of essays on various completely hosed organizations and markets is what the overall pattern speaks to human civilization heading toward.

    The industrial revolution threw established forms of human interaction into whack, but it did not destroy them. Having modern things does not make us modern, people still operate on a very feudal and tribal level.

    What we’re seeing now with corporate globalization is a steady march back into the serfdom of the middle ages. Of course it does not look the same, it much more resembles Max Weber’s Iron Cage of bureaucratic rationalization. But as the power of the state recedes, the power of citizenship recedes with it. And individuals, groups of people and indeed entire societies are left to tie themselves to whatever leviathan they can.

    These leviathans (massive bureaucracies that have staked out resource turf) protect their vassals and serfs in exchange for good old fashion fealty.

    What we’re witnessing now is nothing more than the painful slow death of the nation state originally founded by Ferdinand & Isabella centuries ago.

    We always believe that we exist at the end of a human history which is linear.

  13. Caradoc Says:

    When I was in school (and dinosaurs roamed the earth), a new student would get an aid ‘package’ consisting of some grant money, a zero interest loan, and often a ‘work-study’ job somewhere on campus. Why couldn’t that still work?

  14. Angelo Says:

    good points aggie. I wonder if after the utter decline of states, pressures similar to those leading to the formation of nation-states will lead to a new type of nation state where the citizens are corporations who’s CEO’s vote to elect other corporations to the legislature and presidency. It could be called a Super State.

    I was reading something about highly evolved democracies which said as policy makers become more sophisticated, they move away from activism and risk taking, and focus only on re-election. People who study congress have known this was fact since the 70s.. So our policy makers have no chance of doing anything about the trend you are talking about.

  15. nietzchuck Says:

    Aggiedude, great thought. I’ve been culling ideas (a couple years ahead of time) for my Master’s Thesis (Sociology) and that is one I’ve been considering. An analysis of modern democracy (and corporations) through the symbols of feudalism. Wal-Mart has already begun the concept of having resident physician on the premises as a ‘perk.’ Making employees more dependent on the company.

    As corporations continue to go global in nature (and they’ve already made the claim that as international companies, they should have diplomatic immunity in the countries they deal in, instead making their own laws; it wasn’t enough to be legally a ‘person’ now they wish to legally be a country).

    In short, it seems far-fetched to envision a day when political boundaries between states are irrelevant, and people owe their citizenship to a corporation; in exchange for their fealty and labor, they are provided with housing, clothing and healthcare as opposed to income. Instead of ‘bound to the soil’ we’d be bound to the logo.

  16. Aggie Dude Says:


    Great idea for a Master’s thesis in Sociology, and entirely relevant. I don’t know what school you’re at, but you might want to check out the work of Vladimir Shlapentokh, who wrote about feudalism in Russia and is now working toward writing about feudalism in America.

    Also, consider looking at the system of “mill towns” of the 19th and early 20th century in the South, especially North Carolina. Cannon Mills, Burlington Industries, American Tobacco Co., etc….these companies essentially owned towns.

    Looking at the way Japanese employees are devoted to their companies, there is a wealth of information regarding feudal behaviors in our so-called modern society.

  17. Jana C.H. Says:

    “…corporations [have] already made the claim that as international companies, they should have diplomatic immunity in the countries they deal in…”

    In China this used to be called extraterritoriality. In was a big issue in both Chinese revolutions– Sun Yat-sen’s and Mao Tse-tung’s. (Forgive me; I don’t remember the pinyin spelling off the top of my head. Most of the books I own on the subject were written while the various battles were going on. A fascinating era.)

    Jana C.H.
    Old Italian Political Saying: The conductor changes, the music remains the same.

  18. Anonymous Says:

    The predictions that the nation/state is fading away is IMH premature. Yes, the corporations
    are getting so powerful but they
    still need some strong states to
    help them impliment their plans.
    So, they will control the state but the state will live on.

  19. Anonymous Says:

    The real question is. While Reagan was acting President, who was writing his script?

  20. Angelo Says:

    Yes, the corporations
    are getting so powerful but they
    still need some strong states to
    help them impliment their plans.

    strong = easily manipulated?

  21. Anonymous Says:

    “In China this used to be called extraterritoriality. In was a big issue in both Chinese revolutions– Sun Yat-sen’s and Mao Tse-tung’s. (Forgive me; I don’t remember the pinyin spelling off the top of my head. Most of the books I own on the subject were written while the various battles were going on. A fascinating era.)”

    You got it right according to the Wade-Giles rules of transliteration…nowadays it’s Mao ZeDong, but I don’t buy into that crap. China in the 1920’s-
    1940’s is interesting to the historian, but it was a bloody horrorshow to live through if you were poor and lived in a area contested either by the Japanese, the Kuomintang, or the Chinese Red Army (and it’s “Eighth Route” sucessor.)

    – Strelnikov

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: