Even with Congress coming to its senses last month and agreeing not to double student loan interest rates overnight, America’s future workforce still is more than $1 trillion in debt. That’s a serious obstacle to a lasting and stable economic recovery.
So it’s disappointing that a federal judge has rejected the Department of Education’s attempt to crack down on for-profit colleges that are handing out student loans like Halloween candy. Judge Rudolph Contreras of the U.S. District Court in Washington determined June 30 that new rules intended to protect students from graduating with huge debt loads and poor job prospects were arbitrary.
The Department of Education must get back to the drawing board and submit a better set of rules. Much like the congressional decision on student loan rates, there is little time to waste in finding a workable solution.
Here’s why: All over this country, from St. Louis to Schenectady, young high school graduates and returning veterans are being seduced by slick presentations from for-profit schools promising high-quality educations and tremendous employment prospects.
The truth is that many of these educational snake-oil salesmen promise more than they can deliver.
So say not one but two recent studies published by the National Bureau of Economic Research.
One of the studies, from Harvard University economists, found that for-profit college students pay higher tuition, graduate with more debt and default on that debt faster than students at traditional colleges and universities, whether public or private institutions.
With student debt in this country exploding into the next financial bubble, that makes the industry worth a much closer look.
Because of the growth of such schools, including FastTrain College, a Florida nonprofit that was raided by the FBI in May on suspicion of false marketing practices, the student loan debt bubble is growing faster than ever. A small percentage of American college and university students attend for-profit schools, but they carry about half of the nation’s student loan debt. This is a result of higher tuition and deceptive marketing practices.
The second study, by two Boston University researchers, found that students who did get jobs after graduating from for-profit schools didn’t make higher wages than other college graduates.
The problem with the Department of Education rules that Judge Contreras threw out wasn’t that the government didn’t have a role in making sure student loan money was well invested, but a provision that schools receiving federal loan money had to meet a 35 percent repayment standard.
Judge Contreras kept in place elements of the rules that required disclosure to students of graduation rates, job placement rates and median debt load. This information will give students and their parents more information with which to make decisions.
The Education Department needs to do its homework and perform a statistical analysis that offers a reasonable basis for cutting off poorly performing for-profit schools. Some simply are taking advantage of generous government aid programs intended to help poor or middle class students gain the education that would allow them an opportunity to improve their economic standing.
Not all for-profit schools are scams, but the high performers should prove their success and show their work.
With fair regulation, the free market can take it from there.
©2012 St. Louis Post-Dispatch
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