The American Interest
Analysis by Walter Russell Mead & Staff
Higher Ed Ponzi Scheme Hurts the Poor Most of All

Howard University and several other historically black colleges and universities around the country have been facing serious financial shortfalls this year. Earlier this month, the vice chairwoman of Howard’s board of trustees sent a letter to trustees sounding the alarm on the university’s financial situation. Days later, the chairman of the board announced that there was nothing at all to worry about, and that Howard remained “financially and operationally strong.”

The Washington Post has gotten to the bottom of just what’s going on: a 2011 technical adjustment by the Department of Education tightening lending requirements has led to a precipitous drop in the approval rates for loans to parents of students—11 percent nationwide but up to 36 percent for historically black schools, a reflection of the fact that their students are more likely to come from poorer families with lower credit scores.

Predictably enough, the lobbying knives are out, reports the Post:

For the Obama administration, the uproar over parent loans at HBCUs poses a political challenge. Leaders of the United Negro College Fund and the Thurgood Marshall College Fund have pressed Duncan for relief for parents and students they say have been unjustly deprived of loans. The administration has helped with loan appeals but has shown no indication that it is willing to reverse the 2011 action.

Credit is due to the Obama administration for holding the line on this for now. While our heart goes out to the students scrambling to cobble together tuition payments in order to complete their studies, a set of statistics in the article points to the true culprit in this story:

Federal data show that tuition and fees at Howard doubled from the 2000-01 school year to 2011-12, to about $20,000 a year. In that span, the volume of federal loans approved for parents of Howard students more than quadrupled, to about $45 million. Tuition and fees at Howard are now about $22,700 a year.

You’d be hard-pressed to find a more concise illustration of the term “bubble.” This is a clear sign of how the unconscionable upward drift of college tuition and fees are stressing the most vulnerable. The pressure on Washington to ease the lending standards for these loans is happening so that this game can go on for yet another round. But at some point, the game will have to end, and a generation of young people will be left with loan payments that will stretch lifetime earning potential to the breaking point. To deny this ugly truth is just delusional.

Published on June 24, 2013 9:00 am
  • rheddles

    Yet another example of how Obama takes his black voters for granted.

    • bpuharic

      Howso? 90% of GOP voters are white. They’re in a poor position to speak for anyone except us old white males, and they don’t even speak for all of US.

      • Kavanna

        Why drag the GOP into this? It has little to do with the student loan-higher ed bubble. Like the civil rights and Vietnam war crises of the 1960s, this is internal crisis within the Democratic party. The GOP should sit back and let it play out.

        • bpuharic

          Because the OP dragged race into it and conservatives are generally white. This isn’t a ‘crisis’ in any sense of the word, unless you think the results of the last 2 presidential elections were evidence of the strength of the GOP

  • ljgude

    Because no one is against college education or healthcare these two public/private institutions in our society have become way too expensive in what has been since 1946 the richest society on the planet. Healthcare costs about double what it does in other countries – 17.5% of GDP in the US as opposed to 8.5% in Australia or 11% in Switzerland. Higher education costs have ballooned way beyond reason too because colleges and universities have found a way to milk the system. Disintermediating these bums is just fine with me.

    • teapartydoc

      The best way to disintermediate medicine is to abolish government licensing. Read Chapter nine in Capitalism and Freedom by Milton Friedman. The same thing can be done in education by eliminating the ability of acreditating bodies to coerce institutions of learning. Deregulation is the path to a free society.

      • bpuharic

        Garbage. Economic fundamentalists have a theory that’s never been tried in the real world yet they believe they’ve found the Theory of Everything.

        Information is not free. Govt licensing for high information specialities, like airline pilots, doctors, etc. serves a role

        If you have an MD, a PhD in every single science in the world, are a pilot, metallurgist, etc, THEN your view makes sense. Until you DO then your view is childiish.

        • snowfarthing

          Speaking as someone who has both a PhD in mathematics, and some experience working as a computer programmer in a few companies, I think your reliance on credentials is a bit naive.

          I have seen people who are expert at what they do, who dropped out of college because they thought that what was being offered was plain wrong. I am also aware of PhDs and MDs who, despite having their credentials, are incompetent (and sometimes even dangerously so!).

          Furthermore, by only allowing credentialled schools to educate others, you are mandating that everyone get a degree in exactly one way: to sit through classes until they pass enough tests to earn a degree. This prevents other ways of acquiring knowledge–including apprenticeships and self-study–from being recognised as “valid”.

          (For what it’s worth, I plan on taking on apprentices is the future, as soon as I can afford to do so…)

          • bpuharic

            I appreciate your comments but you’re missing the mark on 2 points…one, a matter of law, the other a matter of economics

            The concept of ‘agency’ is well established in law. An agent is someone who acts with your authority. An agent is someone who has more information than you do and acts on your behalf. Again, unless you have a PhD in aeronautical engineering, you’re probably unprepared to evaluate the safety of airplanes.

            Agency establishes liability. An agent who acts incompetently is liable for his actions. That’s the law

            The 2nd is economics. It deals with ‘opportunity cost’. You have PhD in math. Are you REALLY prepared to get an MD to evaluate EVERY medical treatment you’ll get, a PhD in engineering to evaluate EVERY plane, a PhD in microbiology to evaluate EVERY grocery store where you buy food?

            Let me know if you are.

            Those of us in the physical sciences are familiar with Maxwell’s demon. This was a conundrum in physics until it was realized the demon costs energy.

            We haven’t had a plane crash in years in this country primarily because of the agency charged. Are you prepared to deal with every single aspect of safety in a highly developed society…in addition to preparing for a PhD in math?

          • snowfarthing

            I still think you put too much faith in the competence of government, and their ability to make sure everything is safe, and everyone is knowledgeable. But government is NOT infallable, and is even a bit incompetent when it comes to enforcing standards as well.

            I do not plan on getting an MD, but I don’t see that as an obstacle for finding a doctor; indeed, I have chosen my doctor by evaluating word-of-mouth testimonials, and by having personal experiences with her. If she had decided to take on a 15-year-old apprentice, and nurture him to doctorhood, I would trust her (and her office) to produce a fantastic doctor.

            Nor do I see the need for getting a PhD in microbiology to “make sure” my food is safe. I’m generally pretty good at determining if my food has spoiled, and since it *is* food, I am also aware that I’m always taking a risk when I buy something. I have some idea of what the inspection process is like; our food supply in too large for it to be reasonably inspected by government agents (and I doubt that those agents have PhDs; at most, they likely have Bachelors degrees).

            Finally, that knowledge has to come somewhere. The “aeronautical engineering” PhD wasn’t around 100 years ago; the knowledge that goes into such a PhD was developed by many people, some of which probably didn’t even have Bachelor’s degrees! Is it really unreasonable to believe that the ONLY way to pass on that knowledge to future generations, is through formal University education?

            It is a cliche that companies will pass up excellent people for employment or promotion simply because they don’t have the “proper” credentials. Sometimes such people even have more knowledge and experience than the PhDs that are favored for those positions!

            Indeed, I would propose that, once companies and people decide that they don’t need formal State-approved “credentials”, is the day that the education bubble we are currently witnessing pops.

      • ljgude

        I just don’t know Friedman well enough to respond directly, but having worked in higher ed I understand accreditation. If MOOCs work then employer groups could set up their own accreditation bodies and let the brick and mortar institutions and the accreditation bodies pound sand. In medicine the Time article ‘Bitter Pill’ pointed to price gouging hospital billing practices as a big part of the problem. I am not sure it is the doctors and their certification system that cause the 17.5% problem. We have similar rigorous standards for Doctors here in Australia and run the both the government and private medical system for 8.5% of GDP.

  • Jim__L

    Luxury accommodations at institutions of higher education have exactly the overawing effect they’re meant to have, on poor students. You have to have high tuition fees to cover that.

    If the ivory tower weren’t made of ivory, how would they maintain their illusion of power, superiority, infallibility, and unassailable status?

  • Notjack

    The KKK laughing the hardest. Lets impoverish black students and families as much as possible. Lets saddle them with loans and make them serfs.

  • Omar

    Easy money that the colleges capture through precipitous rate hikes – all on the backs of poor kids who get stuck with massive, non-dischargable student loans. Yup, it’s a bubble and despicable besides . . At least the market drove the increase in housing costs that accompanied easy access to home loans pre-’08. These increases were deliberate, intentional and driven by flat out greed.

  • RestlessLegs

    At my university of 10,000 students, our enrollment has dropped by 1,700 in just six years. All departments across campus have been ordered to cut 20% from their budgets for next year. Faculty travel budgets have basically been eliminated. When someone retires, the position is often not filled. I just talked to a former student who now works at a major private university in the midwest, and they’re doing 20% cuts as well.

    It was bound to happen. For years, government grants have allowed universities to raise tuition rates. Students could “afford” the hikes because the government kept footing a lot of the bill. Well, at a recent campus-wide meeting, we were shown how government subsidies have been cut, and that means more students are having to pay more of the inflated cost. Guess what? Many can’t afford it. As a result, we have more students going to community college for their first two years. We also have students who don’t enroll or who drop out because they can’t afford it.

    We were also told that 25% of our students come from families making less than $30,000 a year… but it costs more than $21,000 a year for tuition/fees/room & board. It’s a recipe for disaster.

    So… our university decided a good answer was to raise student costs 4.5% for next year.

    • Eric Brown

      Perhaps your university could shed 20% of the administration. Naaah. Never mind.

  • R Doom