Student Debt, Free Public Higher Ed, and Federal Loan Sharks

As I go around the country talking to different groups about my book on how to make public higher education free, I continue to encounter student debt horror stories, but there is perhaps no story more horrible than the recent Congressional Budget Office report on how the federal government raked in over $50 billion last year in profits from student loans. It turns out that after the feds took over the destructive private loan industry, the result was not to give students the best deal possible, but to cash in on the fact that the government can borrow money at virtually no interest and lend it to students at a much higher rate (of course the government profits go up much higher when students default or are penalized for late payments).  In fact, the average student loan defaulter pays a penalty of over 100% of the principal, and the federal government is very good at collecting these debts.  

Although I do not think it was the intention of the Obama administration to turn indebted students into cash cows, a systemic analysis tells us that the federal government is profiting from the state reduction of funding for public higher education, which in turn has helped to cause the increase in student tuition at public institutions, which increases student debt, and at the same time, increases in the number of students going to high-cost, low-performing for-profit colleges. 

I recently had the opportunity to talk to the new UC president Janet Napolitano about the fact that what we need is a new compact among the federal government, state governments, and public institutions of higher education. I believe she is dedicated to working on this issue, but it is hard to imagine the feds walking away from their new profit center – indebted students.   

If there was ever a sign that we need a totally new model for funding public higher education, we now have it in the extraction of profit from indebted students.