Students are cash cows, and schools the predators

Good article, I suggest reading it. There are a lot of factors in the downfall of the university, and this article covers some interesting angles.

That said, of all these factors, I put a lot more emphasis on the availability of toxic loans than this article does [1]. Here's what I think happened.

People across the political spectrum decided that college is important, and were concerned that students couldn't afford it. But rather than focusing on the availability of affordable college, they instead focused on widely available credit, with very high limits and relatively low interest rates. They congratulated themselves on a job well done.

Here's the problem - now that students had access to massive amounts of credit, colleges raised their tuitions to reflect the purchasing power of these new students. Ranking systems like US News, which reward spending money but don't reward low tuition, provided an extra incentive to set a high tuition.

This is bad enough, but it comes with one extra twist that makes it really tragic. The student loans aren't dischargeable through ordinary bankruptcy, and they're guaranteed by the federal government. So while the loans may carry relatively low interest rates, they can be massive, and it's nearly impossible to get out from under them.

So take a look at what this did to a student. Colleges that might have made an attempt to be affordable in the absence of all this cheap (to them) credit now raised their tuitions. The more affordable path never emerged, or at least didn't to the extend it would have. Without these loans, many colleges simply wouldn't be able to exist, they would be unaffordable, because nobody in their right mind would privately loan $100K+ to an 18 year old who might finish a BA in art history at an unknown college. But in the absence of these huge loans, perhaps a more efficient market might have emerged.

The huge loser here is the student, who now has massive debt that can't be discharged through bankruptcy. The next big loser is the taxpayer and federal government, who are stuck holding the loans (they'll bleed these debtors in a way that a private lender never could have, but even then, can we really extract 150K with interest from a college dropout?) Society and the economy at large will also suffer, as debt-laden young adults aren't able to buy houses or start families.

The big winners are the colleges that were able to benefit from this bubble of free money. They benefit from the easy credit, and get the money, but leave others holding the bag.

The part that really rankles me is the sanctimoniousness. Some of these universities really do try to act like they're doing some kind of charity work for humanity by giving young people a BA in art history in exchange for 100k.

I do have to say one thing here: all this while, it was possible (out here in California, at least, but my guess is that something similar exists in most states) to go to community college, transfer to a CSU or UC school, major in something with good employment prospects, and graduate with a very positive earnings to debt ratio. Ignore the rankings, look at quality, outcomes and cost, and make wise decisions.

Even so, that's a tall order for someone who is 17 plus a day. The government did set a trap for young people, all while singing the praises of higher education and acting like they were doing young people a favor.

[1] The article does mention this: "Student loan debt should be universally refinanced to carry little or no interest and should be dischargeable in bankruptcy, like any other form of debt.").