Stop Giving Everyone a Student Loan
A group of student-loan borrowers has declared that they're not going to repay their student loans, and they are asking the Department of Education to cancel their debt.
They are former students -- perhaps I should say "victims" -- of a for-profit college operator that lost eligibility for federal student loans last year and has been purchased by a company that specializes in ... collecting student-loan debts. The students claim that before the denouement, the school did everything but turn them upside down and shake the loose change out of their pockets. They're now deeply in debt, with degrees that don't seem to be worth much. And that's those who graduated; those who didn't are in even worse shape. So they want the Department of Education to forgive their loans and allow them to get back on their feet.
I feel their pain acutely. Years ago I paid a five-figure sum in today's dollars for technical training to a for-profit school, financed not by student loans but by my day job as a secretary and my credit card. That's how I discovered what too many students have learned since then: My impressive-sounding certification (CNE, for tech types who want to cringe in sympathy) was basically worthless without work experience. Happily, I lucked into a job that was mostly secretarial, with a bit of network admin thrown in, and that gave me just enough experience to get a full-time job in tech consulting when that company went out of business. But most of my classmates were not so lucky. They basically paid a lot of money, much of it borrowed, for a credential they never used. It was a terrible scam, and it has permanently tainted my view of for-profit education services. But I still have to ask: Should the government really have made us whole?
People get taken by scams every day, often with the help of government money. Should Fannie Mae forgive the mortgages of people if the buyer misrepresented the condition of the house? Should the Small Business Administration forgive the debt of some guy who pledged his house to back a no-hope franchise operation? For that matter, what about people who go to a big, public party school and major in sports marketing or tourism? The taxpayer cannot be made responsible for every unwise decision every individual makes, even if the government finances it.
That's not to say these students shouldn't get relief. They should. Happily, we already have a system for dealing with people who are burdened with excess debt: the bankruptcy system. The government should change the law to make it easier to bankrupt student loans.
But at the same time, this case points to an issue that I've highlighted before: the need for better underwriting in student loans. Simply allowing students to borrow large amounts of money and then bankrupt it is a recipe for big government losses. We should allow people to bankrupt student loans, but the corollary to that is that we need to be more careful about the loans we make in the first place.
Right now the system indiscriminately lends to any marginally well-equipped institution that can claim to be teaching anyone any skill, even if that skill isn't going to increase a student's ability to repay their loan. It's no wonder that institutions are setting up lots of useless programs to collect those tuition checks; the real wonder is that there aren't more stories like these.
So yes, we need to offer debtors like these some relief. But we also need to stop making loans for programs that have poor graduation records, high default rates and little evidence of economic benefit to degree holders. I'm not just talking about for-profit colleges here, but also about the wide array of programs at accredited four-year schools that allow students to amass substantial debt without giving them anything of value in return. The easiest way to do this is to stop making the loans directly, then invite private companies back into the student-loan market -- and force them to eat some of the losses. Let them do the job the government has failed to do: Assess which schools and programs actually add economic value and refuse to fund the ones that don't.
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