

Subprime, Student Edition - and what happens when the system crashes? - cwan
http://www.thebigmoney.com/articles/money-trail/2010/06/17/subprime-students

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philk
Making providers pay back part of the tuition if graduates default on their
loans would at least make them market useless courses solely to people who can
afford them, so I suppose that's a positive.

I can think of two other things we could do to fix the problems with tertiary
education:

1) Force providers to publish detailed statistics stating the average salaries
before and after tuition and the employment prospects of graduates afterward.
This would (hopefully) keep people from choosing to undertake useless courses
even if they can afford them.

2) Remove the federal backing and bankruptcy protection attached to
educational loans. If students aren't likely to be employable after going to
one of these for-profit courses then no one would be willing to lend them the
money.

These would also serve to curtail non-profit universities that have been
foisting overpriced and worthless degrees on students.

~~~
earl
philk -- I love your idea about forcing colleges to provide stats on how many
graduates have jobs and how much they earn say 1,2,5,10,15,20, and 25 years
out, but I think in practice it's pretty tricky to do -- how do you classify
eg someone who got a philosophy degree and makes a living as a software
developer? Don't get me wrong, I agree 100%, if for no other reason than
students and the state should be able to see what we're buying for our money,
but there are some hard details to work out.

But in general, I can't agree more. There's no reason for the thieves running
banks to have bribed their way into risk free loans to students. Especially
since we didn't have an epidemic of problems before 1998. Let's let them live
by their market discipline credo.

~~~
izend
And plus I know I would not be willing to give my University the details of my
salary, unless they retrieve them from a salary survey company.

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yummyfajitas
This is just FUD directed at competition to the entrenched players in the
college industry.

OMFG, Ashford got 85% of their money from the government? Rutgers got about
70% of their money from the government (state and federal) [1]. CUNY gets at
least 65% of their money from the government, probably considerably more if
any of their students get financial aid [2]. Unlike Rutgers or CUNY, Ashford
is 100% dedicated to education (rather than partially education, partially
research).

While I'm all in favor of reigning in spending on education, for-profit
colleges are not the only problem here. Non-profits are just as bad, the only
real difference is that profits are given to overpaid and underworked
employees instead of shareholders.

[1] For the general budget:
<http://budgetfacts.rutgers.edu/pdf/revenue_sources_pie.pdf> Some of the
"tuition" money also comes from the govt, see the tuition page which gives the
average financial aid package:
<http://admission.rutgers.edu/costs/TuitionAndFees.aspx>

[2]
[http://www.cuny.edu/about/administration/offices/bf/2010-201...](http://www.cuny.edu/about/administration/offices/bf/2010-2011CityExecBudgetAnalysis.pdf)
. I can't find numbers on the average amount of student aid at CUNY.

~~~
philk
From the article:

 _For-profit schools now enroll 8 percent of students—but as Eisman’s report
shows, they take in a full 24 percent of federal student aid._

This suggests that they are exploiting the system more than the non-profit
colleges[1].

Also from the article:

 _Last year, BPE’s two schools took in $454 million in tuition and fees from
their students. If Ashford’s academic reputation has not grown as fast as its
enrollment, it is no surprise, considering where all that money went: $145
million was spent on marketing and recruitment, which is $25 million more than
the colleges spent on instruction._

Hence they've only been spending ($145m - $20m)/$454m = 27% [2] of their fees
on education.

[1] Not that they're blameless either. I'm just saying they're less bad on
this particular axis.

[2] Or 32% of the federal aid money they receive.

~~~
yummyfajitas
No, it suggests they are exploiting the _federal student aid_ system more than
non-profit colleges.

And even so, all it does is _suggest_ that. It may also just suggest that non-
profits have more lower income students than for-profits (what middle class
child goes to DeVry?). Note that federal student aid is means tested by income
of the student's family, as opposed to things like state aid which go directly
to the school.

~~~
joe_the_user
Uh yes, it's _possible_ that for profits are providing better services at a
lower cost and this justifies them tempting more customers to take out large
loans to pay for their services.

It's _possible_ but I'd rule it highly unlikely given the motives of the
schools, the dynamics of the markets and recent history.

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patio11
An elephant in the room regarding student-aid originations: for-profit schools
have disproportionate success marketing tertiary education to non-traditional
older, working class, black/Hispanic students, in much the same way that
subprime mortgages successfully got those same folks home ownership. They tend
to require more student aid than traditional (white, middle class,
20-something) students because they lack familial resources to write a five
figure check.

For better or worse, it is the (enormously popular, bipartisan) public policy
of the United States that increasing access to education and home ownership is
valuable in and of itself. It is not possible to achieve that public policy
and have all students have default rates comparable to those of Andover
graduates.

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memoryfault
Frontline did a great piece on this called College, Inc.

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makmanalp
>"Both the subprime-mortgage business and for-profit colleges are built on
giving loans to people who can’t pay them back."

I think they're missing the slight point that a college graduate will
hopefully turn into a person who has a constant and decent inflow of income.

~~~
joe_the_user
No, they simply aren't missing that point.

Yes, a college graduate is likely to have a higher income. That doesn't mean
they can't barrow more than they are able to pay back. In the subprime days,
the line was "a house has intrinsic value". Yes, it has intrinsic value but
not unlimited value - especially when the market starts to experience a glut.

