17 July 2012

More on Deadbeat Colleges and Student Loans


A couple of months ago I commented here and here on the timebomb of student loans and its causes. Fundamentally, I argued, there is excessive student loan debt because of federal loan subsidies. As with the collapse of the housing market, loan guaranties enable unscrupulous schools and lenders to lend money to students who have no reasonable prospect of repaying them. Coupled with their nondischargeablility in bankrupcy, student loans will be albatrosses around the necks of many folks for years to come.

For some years the Department of Education has developed rules by which it hoped to separate the wheat of schools that at least try to educate from the goats of educational scammers who are in the higher education “business” only to get tuition dollars. Thirty-five percent of the school’s gradutes must be repaying their loans. Not a very high bar, if you ask me.

Unfortunately, even this effort has failed, at least for the time being.  The federal district court in Washington held that the rule lacked a rational basis and so must be stricken. Read all about it here.

Colleague David Wagner is the local expert on the Supreme Court Chevron decision so I’ll defer to his opinion on whether the Court failed to give the rule the deference it was due. But in any event it strikes me as at least imprudent to permit educational scammers to continue to suck the lifeblood of future earning from mal-educated students at taxpayer expense.

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