Is Senator Elizabeth Warren a Paper Tiger? Her Bill to Lower Interest Rates Was a Non-Starter

A lot of people think Senator Elizabeth Warren is a fierce advocate for college-loan debtors, a feisty bulldog who strives mightily to get some relief for the millions of young Americans who are burdened with crushing student loans. I once thought so myself.

But I've become skeptical.  So far,Warren's basic thrust has been to advocate for lower interest rates on federal student loans. Lower interest rates will give college-loan borrowers some relief, of course; but lower interest rates will do nothing to stop the spiraling cost of higher education--which has forced students to borrow more and more money every year in order to attend college. 

And lowering interest rates will do nothing to clean up the fraud and abuse in the for-profit college industry--a problem that Warren says little about.

Earlier this week, Warren's bill to lower student-loan interest rates failed in the U.S. Senate, killed by the Republicans.  The bill never had a chance of passing because it included a provision to raise taxes on the wealthy--something Republicans would never vote for.

And of course Warren knew that. Basically the bill was a cynical attempt to paint the Democratic Party as the friend of indebted college students while embarrassing the Republicans by portraying them as hardhearted protectors of the rich.

All fine theater of course, but did anything get accomplished? No--not a damn thing.

I realize of course that getting real student-loan reforms through Congress will be difficult. The for-profit industry and its lobbyists are very powerful; and the for-profits make strategic contributions to key legislators like Speaker of the House John Boehner.

But Warren could render real service simply by publicizing just how bad the student-loan mess is.  She should demand, for example, that the Department of Education release information about the true default rate--not the watered-down rate that it publishes every October.

In addition, she could team up with outgoing Senator Tom Harkin and publicize how the for--profit colleges are exploiting low-income and minority students.

She could advocate for a reform of the Bankruptcy Code so that millions of insolvent student-loan debtors could discharge their loans in the bankruptcy courts.

But no--she is content to sponsor legislation that she knows will go nowhere simply to embarrass the Republicans.

I suspect that Senator Warren's core constituency in Massachusetts--all those corpulent, self-satisfied and arrogant colleges like Harvard, Boston University, Brandeis, etc. etc.--are quite happy to see their senator engage in sound and fury regarding the student loan program. They know Senator Warren's bombast will never lead to any legislation that would threaten their interests.

So just keep yakking, Elizabeth; go right on yakking.

References

Julie Hirschfield Davis. In School Speech, Obama Deplores Blocking of Student Debt Bill. New York Times, June 12, 2014, p. A20.

Like a Secret Drunk Who Hides A Bottle of Bourbon in His Office Drawer, The Higher Education Industry is Addicted to Student Loans But Won't Admit It

Almost everyone agrees that Alcoholics Anonymous has the best treatment program for alcoholics. AA's simple 12-step program is followed by alcoholics all over the United States, and AA's method for treating alcoholics has been adapted for other addictions as well--including the addiction to drugs.

Perhaps the higher education industry should adopt an AA-style 12-step program to treat its addiction to the federal student loan program.  After all, higher education's dependence on federal student aid money really is an addiction. For-profit colleges in particular could not survive a week without regular infusions of federal cash.

Drinking problem? What drinking problem?
photo credit: twentytwowords.com

But the Obama administration and Arne Duncan's Department of Education treat the student-loan mess as if it were just an irritating  problem and not a full-blown crisis.  It's like Aunt Sally's tolerance for Uncle Ed's drinking binges--she just smiles while reassuring herself that Ed maybe drinks just a wee bit too much.

And President Obama's announcement to expand the Pay As You Earn program shows us that he is in denial about the magnitude of the student-loan crisis.  His administration's decision to expand the program, like its decision to continue strengthening the regulation of the for-profit industry, shows that President Obama and Arne Duncan know that the student-loan mess is serious.  But they want to address the problem like Aunt Sally deals with Uncle Ed's drinking--they just want to water down the whiskey.

Let's face it, in spite of the New York Times' sycophantic praise, Pay As You Earn is nothing more than a plan to stretch students' 10-year student-loan repayment obligations to 20 years.  Yes, this will reduce borrowers' monthly payments, which will give college-loan debtors some short-term relief; but borrowers will be paying on their loans for a majority of their working lives. Is that a real solution?

Second, although I haven't seen any financial analysis to back me up on this observation, I suspect a lot of people who elect the government's income-based repayment options for paying back their loans  won't be making payments large enough to reduce the principal on their debt.  When their loan obligations are discharged after 20 years, millions of people will still owe as much as they borrowed. How can that be a good thing?

So let's look at that 12-step plan.

Step number one is to admit that you have a problem and are powerless to control it.  The Feds could follow that first step by releasing the real student-loan default rate--not that phony three-year rate it releases every October.  According to DOE's latest report, about 15 percent of  recent debtors defaulted within three years of beginning their loan repayment phase; for students who attended for-profit colleges, the rate is 21 percent.

Those numbers are bad but they dramatically understate the true default rate.  Many for-profits, community colleges and some traditional four-year schools have hired so-called "default prevention" firms to contact distressed student borrowers and encourage them to sign up for economic hardship deferments.  Students who obtain these deferments--which are quite easy to get--are not counted as defaulters even though they are not making loan payments.

Just facing up to the reality of how many millions of people are not paying back their loans would be an admission that the student-loan program is out of control.  That's step number 1 of the AA's 12-step plan.

Another important step in AA's 12-step program is to make amends to the people you have injured. I believe that is step number 9.

And of course the Obama administration, Congress and the nation's colleges and universities haven't made amends to the people who have been hurt by the student-loan program.  And until they make amends they haven't done what is necessary to break the higher education industry's dependence on federal student aid money.

What should be done?  As I have tirelessly advocated, Congress needs to amend the Bankruptcy Code to allow insolvent student-loan debtors to discharge their  student loans in bankruptcy so long as they file in good faith.

Second, the federal government should stop garnishing the Social Security checks of elderly student-loan debtors who defaulted on their loans.

And third, the for-profit college industry needs to be shut down.

Of course none of these things are going to happen.  Our government will continue to hide the true magnitude of the student-loan default rate, and it will continue to let millions of people suffer who have no reasonable hope of ever paying off their student loans.

And just like Uncle Ed, who drinks in secret, our nation's colleges and universities will continue abusing students by forcing them to borrow more and more money.  Eventually, Uncle Ed will kill himself from excessive drinking. And eventually, higher education's addiction to federal student aid will destroy the integrity of our nation's colleges and universities, which were once the envy of the world.

No one knows just how Uncle Ed will die--liver disease or a fatal car accident.  And no one knows just how low American higher education will go in terms of its degradation.  But the future is bleak for both of them.

References

Student Borrowers and the Economy. New York Times, June 11, 2014, p. A20.

Bowdoin College Casts Out a Christian Prayer Group: In the Coming Years, Catholics Will Be Pushed Out of the Universities and Public Life

The New York Times carried a front page story today about a decision by Bowdoin College to withdraw recognition of a Christian prayer group as an official student organization.

And what did the Christians do to cause Bowdoin to cast them into the outer darkness? The group refused to allow non-Christians to be appointed as their organizational leaders.

Bowdoin is one of many so-called elite colleges and universities around the country that are withdrawing recognition to Christian student groups, which generally means these groups will be denied access to facilities and services that are open to other student groups--the local S & M club for example.  Vanderbilt has done the same thing, along with Tufts, State University of New York at Buffalo and Hastings Law School in California.

Edith Stein
Later St. Teresa Benedicta of the Cross
(Did not attend Bowdoin)

What happened to the constitutional right to freedom of religion, you may be asking? Didn't the Supreme Court rule in Widmar v. Vincent that a state university could not deny recognition to a Christian student group if it recognized other student organizations?

Unfortunately, the Supreme Court overturned Widmar v. Vincent as a constitutional  precedent, although the Court did not have the courage or the intellectual honesty to say so.  In Christian Legal Society v. Martinez, as cynical a piece of sophistry as anything the Court ever wrote, Justice Ruth Ginsberg upheld a decision by Hastings Law School to deny recognition to the Christian Legal Society because the CLS limited its members to Christians who agreed to abide by traditional Christian beliefs about sexual morality.

Justice Ginsberg said that Hastings had a compelling governmental interest in enforcing an open-to-all-comers policy for all student groups and could deny recognition to any student group that refused to comply. CLS denied membership to anyone who did not commit to the Christian standard of sexual morality, which prohibits all sexual activity outside the relationship of marriage between a woman and a man.

The bottom line is this: According to the morality that prevails at some of America's most prestigious (and expensive) colleges, Christian groups discriminate against people who do not adhere to Christian sexual values.  Thus they should be kicked off campus. In the postmodern academic mind, Christian students who hold traditional religious beliefs about sexual morality are reprehensible--as reprehensible, I suppose as racists.

The universities' anti-Christian policies are not expressly aimed at Catholics.  So far, from what I can gather, it has been evangelical Protestant groups that have been exiled.  But Catholic student organizations are as vulnerable as Protestant groups to expulsion.  Catholics believe, after all, in Christ's real presence in the Eucharist--a belief not held by Protestants. Catholic will never allow a Protestant or non-Catholic to be a leader of a Catholic student organization.

And--under Justice Ginsberg's wacky reasoning, a Catholic student organization that refused to allow an abortion advocate to be an elected leader would also fall afoul of the CLS v. Martinez ruling.

So Catholic student groups are going to be pushed off college campuses. In fact, I'm sure that has already begun happening.

What does this mean? Three things I think:

First of all, the decision by Bowdoin, Tufts, Vanderbilt and other elitist institutions to censor Christian student groups demonstrates just how shallow, vacuous and intellectually dishonest our nation's colleges and universities have become. Based on no basis other than the fashions of the day,  colleges and universities that Americans once trusted to preserve and pass on our nation's cultural and religious heritage have declared that Christianity--or at least traditional forms of Christianity--is a shameful cult that does not deserve to even have a presence on an American college campus.

Of course, the new campus groupthink won't have any effect on the mainstream Protestant organizations--the Methodists, Episcopalians, and the Disciples of Christ.  Those folks don't have any firm religious convictions; their doctrine changes with the whims of the New York Times editorial page. As long as they keep their Times subscription current and do what the Times editorial-page writers tell them to do, they will be fine.

But if you are a Catholic, a Mormon, a Muslim, or a Southern Baptist, then you are a bigot in the minds of many campus administrators; and it will be the job of the university to re-educate you--just as China re-educated its dissidents during the Cultural Revolution.

But at least the Chinese didn't require its nonconformists to pay outrageous tuition to brain wash you.  The rural re-education camps were free!

Second,the higher education communities' accelerating trend into mendacity, deceit, and sophistry will push faithful Catholics out of the nation's leading universities and out of the professions, which have shown a distressing trend to censor Christian views.  The day will come when law, medicine, education, counseling, and academia in general will be closed to anyone who professes a belief in the doctrines and tenets of the Catholic faith.

And third, I think Catholics and evangelical Protestants will grow closer as the kulterkampe expands its reach and America's intellectual elites become bolder in their bigotry.  Personally, I have a growing admiration for our Protestant brothers and sisters who have taken their place in the front lines in the fight against abortion. And I believe evangelical Protestants are looking more tolerantly toward Catholicism.

Now may be an opportunity for Catholics to reach out and evangelize the evangelical Protestants. I think we might be surprised by how receptive they are to our Catholic faith.

Certainly, as evangelical Protestants and Catholics go down into the catacombs together, we will have plenty of time to contemplate the Gospel and to ask ourselves what God requires of us as the Postmodern Age sweeps aside the culture, the traditions and the moral principles that are the bedrock of Western Civilization.

And while we are down in those catacombs, let us mediate on the life of St. Edith Stein, who was a great intellectual who held two doctoral degrees and has been named a Doctor of the Catholic Church.  If Edith were alive today, her views would not be welcome at Bowdoin.  I don't think Bowdoin would gas her as the Nazis did at Auschwitz; but  in the coming years, who knows how far the new anti-Christian bigotry will go?

References

 Michael Paulson. Colleges and Evangelicals Collide on Bias Policy. New York Times, June 10, 2014, p. 1.

For what we have done to you, we are truly sorry: The Baby Boomers should apologize to the Millennial Generation for the student-loan mess

Frank Bruni wrote a long op ed essay in yesterday's Sunday Times about the wrongs the Baby Boomers have committed against the Millennial generation.   According to Bruni, the Baby Boomers are leaving today's youth with towering problems: climate change, a sick economy, and a mounting national debt. Bruni quotes former governor and U.S. Senator Bob Kerrey as saying the nation is spending too much on the last generation (Medicare, Social Security, and Veterans' benefits) and not enough on the next one.

Dear Millennnials: We're Sorry for the Student Loan Crisis (burp)!

Kerrey is right of course, and so is Bruni. The Baby Boomers have bequeathed the young people of our nation with a host of problems--problems that are only going to get worse because this generation doesn't have the courage or integrity to face them.

Bruni's op ed essay was in harmony with an editorial that appeared in the same issue of the Times entitled "Starting Out Behind." The Times points out that young people are graduating from college with massive indebtedness only to face a sickly job market.  Unemployment among people in their early 20s is higher than the national average, and underemployment (those people who are unemployed, employed part-time or who have given up looking for work) is very high--16.8 percent.

The Times editorial quoted statistics showing that 44 percent of today's college graduates hold jobs that do not require a college education.  There was a time, the Times observed, when people working in jobs that did not require a college degree made decent money--tradespeople like plumbers and electricians, union workers, etc. Today, a lot of college-educated young people are working as waitresses, bar tenders and store clerks.

Perhaps the most disturbing bit of data the Times mentioned is the fact that more than half of young adults (55 percent) still live with their parents. Nobody wants to see that number go higher.

The Times editorial did not mention the burgeoning student-loan indebtedness that is crushing this nation's young adults. And this is odd, because  of all the problems this generation passed on to the Millennial generation, the federal student-loan mess is the most egregious and the easiest one to fix.

Addressing climate change,  the national debt, and our sickly national economy are complicated problems with no easy or certain solution. But we could easily do some things to ease the burden of student-loan indebtedness on our nation's young people; and we could do these things today.  Here are a few things we could do that would be helpful:

1) The federal government could remove any higher education institution from the federal student loan program that does not freeze tuition and fees at current levels.   In essence, our government would be telling the nation's porky colleges and universities that the party is over.

2) Congress could amend the Bankruptcy Code to allow insolvent student-loan debtors to discharge their loans in the bankruptcy courts so long as they file for bankruptcy in good faith.

3) The Obama Administration could instruct the Internal Revenue Service to stop garnishing the Social Security checks of elderly people who defaulted on their college loans.

4) Congress could easily shut down the private student-loan industry by making it easier for distressed debtors to discharge their private student loans in bankruptcy.

5) Congress could shut down the for-profit college industry, which has the highest student-loan default rates and which is riddled with fraud and abuse,  simply by making all for-profit colleges ineligible to participate in the federal student aid program.

Of course none of these things are going to happen.  So far, the Obama administration, which is fully aware of the magnitude of the student-loan crisis, can think of nothing better to do than extend students' loan repayment period from 10 years to 20 or 25 years.  Not very bold or creative in my opinion.

But Frank Bruni is right: the Baby Boomers generation owes the Millennial generation an apology.  But it should apologize for more than global warning and the national debt; it should say it is sorry for corrupting higher education with a corpulent and abusive federal student loan program that has put this nation's young people in debt to the tune of $1.2 trillion.

References

Frank Bruni. Dear Millennials, We're Sorry. New York Times, June 8, 2014, Sunday Review Section, p. 3.

Editorial. Starting Out Behind. New York Times, June 8, 2014, Sunday Review Section, p. 10.

Workin' for the Man: President Obama's Disasterous Plan to Expand Income-Based Repayment Programs for Student Loan Debtors

Tomorrow, President Obama is expected to announce an expansion of his "Pay as You Earn" income-based repayment program for student loan debtors. This program,  which Obama initiated by executive action in 2011, allows student-loan debtors to pay roughly 10 percent of their income on their loans for a period of 20 years.  (The exact formula is a bit more complicated that.)  At the end of the 20-year repayment period, any unpaid loan balance will be forgiven.



Passing the student-loan mess on to the next president

Pay as You Earn is popular with student debtors because it is more generous than the other income-based repayment (IBRP) options. One major program requires debtors to pay 15 percent of their income over a period of 25 years.

But a lot of student debtors don't qualify for Pay As You Earn under present regulations. According to the New York Times, Obama plans to extend eligibility to an additional 5 million student-loan borrowers, including those who took out loans before October 2007. 

Is Pay As You Earn a good thing for the nation's distressed student-loan debtors. Yes it is--at least in the short term. For people struggling to pay mountains of debt under the standard 10-year repayment plan, Pas As You Earn will lower monthly payments substantially.  People who are currently paying 15 percent of their income under a 25-year IBRP will be delighted to switch to Obama's more generous Pay As-You Earn program.  People who are unemployed or underemployed will be particularly grateful, because if their income falls below the official poverty level, they won't have to make any monthly payments at all.

Is there a down side to Pay As You Earn? You bet.

First of all, all the income-base repayment plans remove all incentives for student borrowers to limit the amount of money they borrow. If their loan payments are based on their income and not the amount they borrow, then there is no reason not to borrow as much money as you can.

Second, Pay As You Earn and other IBRPs do nothing to slow the burgeoning cost of going to college.  Colleges have no incentive to keep their costs down, because they know students will simply borrow more money to cover tuition hikes.  What do colleges care if their graduates are making student-loan payments for 20 years?

Third--and most significantly, these long-term repayment plans are going to fundamentally change the way Americans view postsecondary education and the world of work. There was a time when low-income individuals worked their way through college, graduated with no debt, and entered the workforce determined to buy homes, start families, and begin the confident climb up the economic ladder.

Now, 18- and 19-year olds are going to begin college knowing that they will pay for their postsecondary education by donating some percentage of their income to the federal government over the majority of their working lives.  In essence, they will become indentured servants for the government--sharecroppers if you will.

I think this arrangement will foster cynicism among the young, because they will realize on some level that they have been forced into unreasonable levels of indebtedness because colleges refuse to control their costs. They will see university presidents like NYU's John Sexton make outrageous amounts of money while they sign up for long-term college-loan repayment plans that they will not pay off until they are in their 40s and 50s.

And, since they won't have to pay anything under Pay As You Earn if they are unemployed or live below the poverty level, I think many of them will postpone going to work. Many will figure that it makes sense to travel or take low-wage jobs in exotic locales rather than seek more remunerative employment. And the incentive to work "off the books" will increase, because people in IBRPS who enter the cash economy will not only avoid paying taxes and making Social Security contributions, they will avoid making student-loan payments as well.

Moreover, once these college-going young people figure out that their payments will be based on their incomes and not the amount they borrow, they will borrow as much as they can.

I appreciate the President's efforts to provide overburdened college-loan debtors some immediate relief by offering plans to lower monthly loan payments while extending the loan repayment period. Unfortunately, in the long run, the results will be catastrophic.

In reality, President Obama is simply passing the student-loan mess on to the next president to deal with.  Millions of people may see their student-loan payments go down in the short-term, but they will be significantly extending the length of their loan repayment period. Most Pay-As-You-Earn participants --I predict--won't be making loan payments large enough to cover accruing interest  or pay down the principal on their notes--which means they won't really be paying their loans back at all. 

And meantime--total student-loan indebtedness--now more than $1 trillion dollars--will continue to grow and grow.


References

Jackie Calmes. Obama Plans Steps to Ease Student Debt. New York Times, June 8, 2014, p. 17.

Transparency--The Last Refuge of a Scoundrel: New York University's Abu Dhabi Construction Scandal

Patriotism, Samuel Johnson remarked, is the last refuge of a scoundrel. But times have changed. Today,self-proclaimed "transparency" is the last refuge of the scoundrel--or at least of scoundrel universities.

Earlier this month, the New York Times broke the story of labor abuses during the construction of New York University's Abu Dhabi campus.  According to the Times, construction workers were required to pay hiring bonuses to get jobs, forced to work long overtime hours in order to obtain the wages they were promised, and crammed into substandard housing--sometimes 15 workers to a room.  Immigrant workers' passports were confiscated, and striking workers were arrested and beaten.

Transparency--the queen of virtues

New York University apologized immediately after the scandal broke, probably pulling a template apology from its public relations department files.  But it never took responsibility for what occurred.  In fact, NYU President John Sexton tried to distance the university from the scandal by claiming that the construction company, not NYU, was responsible for working conditions during the Abu Dhabi construction.

A few days later, NYU held its first graduation ceremony on its Abu Dhabi campus, and Bill Clinton showed up to give the commencement address.  Did he reproach NYU for the labor scandal? No he did not.

This is what Clinton said:

When this story came out, instead of going into immediate denial, the university did something which reflects the values you have been taught here . . . The university, and the government, promised to look into the charges, to do it quickly, to do it honestly and, most importantly, among all the world's skeptics, to do it transparently and if the charges were well founded, to take appropriate, remedial action promptly.

Ah, transparency!  The new queen of virtues.

But then, only a couple of days later, the New York Times reported that the construction company that built NYU's Abu Dhabi campus and apparently abused its construction workers, is run by Khaldoon Khalifa Al Mubarark, a member of NYU's boad of trustees!

So NYU President John Sexton was not being transparent when he suggested that NYU was not directly involved in the Abu Dhabi construction project.  In fact, the construction company's chief executive was sitting on NYU's board.

This is not the first time NYU has been caught being less than transparent. Remember when Senator Charles Grassley tried to get NYU documents pertaining to the low-interest loans it was giving favored administrators? NYU employees finally let Senator Grassley's staffers look at some pertinent documents but they would not permit any documents to be copied or allow Grassley's people to keep any documents for further review.

Some transparency!  Let's face it--New York University, which pays President John Sexton an obscene salary and has a board of trustees packed with Wall Street insiders, is about as transparent as a Louisiana crawfish pond.

Which is fine.  Let NYU run itself any way it chooses.  If it wants to pay its president $1.5 million a year, dispense exit bonuses to guys like Jacob Lew, and give low-interest loans to help insiders buy second homes--I say go right ahead.  But let's kick this renegade institution out of the Federal Student Loan program.


References

Clinton Lauds N.Y.U. Graduates, and Inquiry, in Speech. New York Times, May 25, 2014.

Ariel Kaminer.  N.Y.U. Impeding Compensation Inquiry, Senator Says. New York Times, July 10,2013.  Accessible at: http://www.nytimes.com/2013/07/11/nyregion/nyu-accused-of-impeding-compensation-inquiry.html?_r=0

Andrew Ross Sorkin. N.Y.U. Crisis in Abu Dhabi Stretches to Wall Street. New York Times, May 26, 2014.

Obama's College Rating System: Why Do Something Simple and Effective When You Can Do Something Complicated and Futile?

President Obama Wants to Institute a College-Rating System to Help Bring Down the Cost of Higher Education. Is This a Good Idea?

President Obama wants to create a college-rating system to help prospective students make better choices about where to attend college.  Obama's proposed rating system will consider a number of factors--cost of tuition, graduates' average debt load,  post-graduate earnings, etc.--which will all be weighed with the goal of identifying which colleges provide the best value for students' tuition dollars.

University of Houston's Renu Khator: This woman needs a performance bonus!

According to a New York Times story, Obama's proposed rating system would not rank institutions numerically. Rather, colleges and universities would be given grades like "excellent," "good," "fair," or "poor."

Not surprisingly, many higher education leaders are opposed to President Obama's initiative. Most of them want nothing to do with a college-rating system designed by the U.S. Department of Education.  The New York Times quoted the reaction of several university presidents to Obama's college-rating proposal, who described it  variously as  "clueless," simplistic, and "wrongheaded."

Personally, I have no sympathy for the college presidents on this issue.  Colleges and universities have been jacking up tuition for years at twice the annual rate of inflation, and Americans have wracked up more than $1.2 trillion in outstanding college-loan debt. I commend President Obama for trying to reverse this trend.

But will a complicated, federally designed college-rating system do anything to stop the upward spiral of rising college costs? I doubt it. 

In a way, Obama's college-rating initiative is like the Clery Act, which Congress passed in 1990 to give parents and prospective students more information about crime activity in and around the nation's colleges and universities.  The Clery Act requires higher education institutions to collect and publicly report on various categories of crime in their campus communities.

Unfortunately, there is little evidence that the Clery Act has had much impact on college students' awareness of campus crime.  One study reported that only 10 percent of students considered campus crime statistics when making decisions about where to attend college.

Two authors who surveyed research and commentary on the Clery Act concluded: "It is clear that students remain unaware of the [Clery] Act"  and do not use the information contained in their institutions' annual campus crime reports (Gregory & Janosik, 2002, p. 46). It seems likely that more students choose their universities based on varsity-football rankings than on the crime statistics that higher education institutions are required by federal law to compile and publicize.

Why Not Attack College Costs and Rising Student Indebtedness Head On?

To his credit, President Obama recognizes that soaring tuition costs and rising student indebtedness have reached crisis proportions. As Cecilia Munoz, one of Obama's top advisers put it, "This is a system which perpetuates itself, and is moving in a direction which is unsustainable to the American people." 

Nevertheless, it seems unlikely that  President Obama's federal college-rating system will have any significant impact on rising college costs and rising student indebtedness. On the contrary, Obama's initiative will probably increase administrative costs at colleges and universities because they will be required to hire more bureaucrats to deal with the college-rating regulations.

Shut down the for-profit college industry. Instead of dealing with rising college costs and student indebtedness indirectly, why not tackle the problem head on? For example, we know that for-profit colleges have the highest tuition rates, the highest student-loan default rates and the highest dropout rates of any sector of the higher education industry.  Moreover, although they enroll only about 11 percent of all post-secondary students, they soak up a quarter of all the federal student-aid money.

Why not simply kick the for-profit colleges out of the federal student loan program altogether? The money saved--more than $30 billion annually--could be directed to public community colleges, which can offer post-secondary education at a far more reasonable price.

Shut down the private student-loan industry. We also know that rising tuition is made possible in part by a thriving private student-loan business.  Professional schools in particular could not set tuition rates at their current high levels if it were not for the fact that students have access to a private student-loan market to pay their tuition bills.

Why not shut down the private student-loan industry?  And how could that be done? Simply by repealing the 2005 revision to the U.S. Bankruptcy Code that makes private student loans almost impossible to discharge in bankruptcy.  If the banks knew that insolvent student-loan debtors could discharge their loans in bankruptcy as easily as they could discharge other unsecured loans, the private-loan industry would shut down almost overnight.

Force colleges and universities to cap tuition and executive compensation as a condition of participating in the federal student loan program.  Finally, all colleges and universities should be required to cap tuition, fees, and executive compensation at current levels as a condition of participating in the federal student loan program.

The value of capping college tuition and fees should be obvious. Telling colleges they must freeze tuition and fees at current levels in order to receive federal student-aid money would force higher education to immediately rein in costs.

And capping executive compensation is also important Let's face it, many college and university presidents make obscene amounts of money and their total compensation packages are often not publicly disclosed.  No institution participating in the federal student loan program should be allowed to do what New York University has done--give low-interest loans to favored employees to buy second homes or pay its president a "length of service" bonus of $2.5 million.

No institution that receives federal student aid money should do what the University of Houston did, which was to pay its Chancellor, Renu Khator, a salary of $700,000 a year plus an additional $200,000 a year in deferred compensation along with a $100,000 a year retention bonus and a contingent bonus of $50,000 a year dependent on performance. 

Don't you think that's ridiculous?  Chancellor Khator makes a million dollars a year in total compensation (plus free housing), and then she gets an additional $50,000 incentive for superior performance? So what's Ms. Khator telling the University of Houston? I'll do a pretty good job for a million bucks a year, but for an additional $50 grand performance bonus, I'll do a super job!

These three actions--shutting down the for-profit college industry, shutting down the private student-loan business, and forcing colleges and universities to cap tuition and executive compensation--would help stop the spiral of rising college costs and growing student indebtedness. All three actions would be simple to implement and all would have an immediate effect on the cost of higher education.

On the other hand, President Obama's proposed federal college-rating system will do absolutely nothing to rein in the cost of higher education or reverse the trend of rising student-loan indebtedness. The time for tinkering with this problem is over.  Only drastic action will restore fiscal sanity to American higher education.


References

Dennis E. Gregory & Steven M. Janosik. The Clery Act: How Effective Is It? Perceptions From the Field--The Current State of the Research and Recommendations for Improvement. Stetson Law Review, 32, 7-58 (2002).

Renee C. Lee. UH gives Khator big bucks to stay. Houston Chronicle, December 21, 2012. Available at: http://www.chron.com/news/houston-texas/houston/article/UH-gives-Khator-big-bucks-to-stay-4139696.php

Michael D. Shear. Colleges Rattled as Obama Presses Rating System. New York Times, May 26, 2014, p. 1.