The education bubble is going to burst. It has to happen. On a daily basis, we hear about the bursting of the housing bubble. Housing values were over inflated. Millions of people found themselves with mortgages they could not afford to pay-whether through hard times and job loss, racial profiling and predatory lending by unscrupulous, avaricious banking institutions, or other reasons.
But neither can many Americans pay their college loans. Few people really talk about the unholy alliance made between institutions of higher learning and educational lenders to create a travesty in American education-that hot mess known as the student loan hustle.
Here is yet another reason why American capitalism is the scourge of the global community.
Colleges, grad schools and professional schools have become profit centers, cash cows and vocational processing plants, rather than places to expand one’s mind and understanding of the world.
And each year, the cost of a college education increases far in excess of the rate of inflation, twice the rate of inflation to be exact. Private law school tuition increased nearly three times the rate of consumer prices between 1990 and 2003. In this time of economic gloom, parents-financially straightjacketed, perhaps unemployed or underemployed, no savings, or their investment portfolios eviscerated- cannot afford to send their children to school.
According to the College Board, the average cost of four years at a private college is $136,000, $57,000 at a public university. Meanwhile, the student loan industry makes $85 billion a year. Federal loans are at $544 billion, up $42 billion from 2008. And students borrowed a record $17.3 billion in private student loans in 2005-6, a 913% increase from a decade earlier. In 2008, according to FinAid.org, there was nearly $131 billion in outstanding private student loans. These private loans, the fastest segment of the student loan market, often have exorbitant and variable interest rates, highly punitive late fees and charges, and are based on the borrower’s credit rating rather than his or her need. Thanks to the power of the student loan industry- and hack politicians who believe we must leave no corporation behind-these loans, unlike mortgage foreclosures, are not covered by bankruptcy protection.
And then there are those unscrupulous and unduly influenced university officials who accept kickbacks, gifts, trips, revenue sharing agreements and other goodies from the lenders (who are eager to earn even more profits on the backs of students), in exchange for access to students. Andrew Cuomo, New York State attorney general, uncovered much of this scandal in a 2007 investigation. For example, the financial aid director at the University of Southern California owned 1,500 shares of Education Lending Group, parent company of the university’s preferred lender, Student Loan Xpress. In addition, the financial aid directors at Columbia University and University of Texas owned stock in that company, with the former selling his shares at a $100,000 profit. All three officers were terminated by their respective universities. The director of student financial services at Johns Hopkins University resigned after Cuomo’s probe revealed that she had received $65,000 from Student Loan Xpress, giving the impression that she was an employee of the lending company rather than of the university. And Matteo Montana, a Bush Department of Education official, held at least 10,500 shares (at least $100,000) of the company’s stock, and he was supposed to be overseeing that lender, as well as others who participated in the Federal Family Education Loan Program (FFELP).
When greed rules the student loan process-not unlike financial deregulation and the Wall Street meltdown, the Madoff scandal, and the subprime mortgage mess- no one is looking out for the interests of ordinary students. The result is that students get shafted, and the banks and their enablers get rich. People of meager or modest means, just hoping for education as a way up and a way out, are crushed under the weight of loans they cannot afford to pay when they graduate. They emerge no better, or even worse off, than the previous generation, with six-figure, mortgage-sized indebtedness, and monthly payments that exceed all other expenses, if not their entire paycheck. Some young people must forego homeownership because they cannot afford a mortgage, or must live with their parents until things get better, if they ever get better.
BlackCommentator.com Editorial Board member David A. Love, JD is a journalist and human rights advocate based in Philadelphia, and a contributor to the Progressive Media Project and McClatchy-Tribune News Service, among others. He contributed to the book, States of Confinement: Policing, Detention, and Prisons (St. Martin’s Press, 2000). Love is a former Amnesty International UK spokesperson. His blog is davidalove.com.