Joe Nocera wrote in the New York Times last week that profits and education shouldn’t have to be such an ugly combination. Nocera notes that defenders of the for-profit higher education industry are often ignored when they point out that their higher student loan default rates are inevitable given the higher risk populations they serve.
Nocera then twists this demographic determinism argument on its head by repeating suggestions by the CEO of Strayer Education that the government should force for-profit schools to share in the losses when a student defaults. Presumably the rationale would be to help lower default rates. This is an interesting idea, but how can financial incentives help lower default rates if as Nocera claims, default rates will be high no matter what because of the population being served?
The truth is that the demographic determinism argument is mainly an excuse for schools to take the government dollars, offer shoddy educations and leave countless students in debt. If making schools pay for defaults would encourage them to take smarter risks on the students they enroll, why aren’t they doing that now? If they can serve their students better, why aren’t they doing that now?
In fact, many institutions that serve at-risk populations have chosen not to rest on the “we can’t help it, our students are going to default no matter what” argument and figured out ways to lower default rates.
The situation is bleak as default rates in the for-profit sector are shockingly high. Students at for-profit colleges are more than twice as likely to default on federal student loans than students at public institutions. More than half of the recent increase in federal student loan defaults came from students who attended for-profit schools.
Yet Nocera never even mentions how defaults harm individual student borrowers. The government has extraordinary powers to collect student loans, far beyond those of most unsecured creditors. The government can garnish wages without a judgment, seize tax refunds, even earned income tax credits, seize portions of federal benefits such as Social Security, and deny eligibility for new education grants or loans. Even in bankruptcy, most student loans must be paid. Unlike any other type of debt, there is no statute of limitations.
The stakes for students have never been higher. The student loan policy in the U.S. has been to rely on loans rather than grants to meet the growing cost of education and then dole out loans with little or no credit requirements and minimal accountability for participating schools. Yet there is no safety net or second chances for the huge numbers of students who do not complete their educations or leave with worthless certificates.
We should absolutely think of creative ways to hold schools more accountable, but we also must rethink the draconian collection policies that leave vulnerable students with nowhere to turn.
