The Student Loan Scam

Les Pinter


For centuries, the United States has supported the notion of free public education through high school. The purpose was to give citizens enough of an education to be able to make a living and contribute to society, including through participation in the democratic process.

The bar has risen. A college education is now the minimum standard for an educated citizenry. A recent Georgetown University study showed that college graduates earn, on average, a million dollars more over a lifetime than high school graduates do. There are good vocational programs that can prepare young people for a job with a living wage, but a liberal arts education - and I mean that in the sense that Thomas Jefferson meant it - is more likely to produce a well-rounded participant in civic affairs. Sixty-two million American voters just elected a pathological liar, presumably because they couldn't tell he was lying. Knowing how to wire a house might not provide a sufficient level of insight for competent voter participation.

But Houston, we've got a problem. If you've seen estimates of the cost of a college education in recent years, you've probably experienced "sticker shock" - as well you should. College tuition has risen dramatically over the last 20 or 30 years. According to Gordon Wadsworth, author of "The College Trap," a college tuition cost of $10,000 in 1986 would now cost over $21,500 if education had increased as much as the average inflation rate. Instead, the typical tuition that was $10,000 in 1986 has risen to $59,800, or over two and a half times the rate of inflation.

Faculty salaries are only part of the reason. Physical plants have become increasingly palatial, although what that contributes to the quality of the education is debatable. Administrators' salaries have risen as well. The president of my alma mater, Rice University, is paid $1.2 million a year. You have good reason to question high tuition prices.

The cost of a college education, like the cost of a bottle of water, should reflect what it costs to produce, plus a reasonable profit. But for reasons that are not entirely clear, the cost of a four-year degree has spiraled out of control.

Over 25% of colleges in the United States are for-profit institutions. My last book ("Full Disclosure: How a Grocery Shopping Website Can Change America") exposed excess profits and excessive profit margins. If that's the reason they're expensive, shame on them.

Online colleges are another special problem. If charging ten times what it costs to provide us with an education is shameful, what about the scam artists who provide an "education" that costs them practically nothing? No buildings, no faculty, no labs, just some online web pages and no-fail exams, and a degree that may or may not indicate that their graduates know anything. The student loans that they're happy to provide you are in fact the only reason that they exist, and ensnaring you is their only business plan.

In the short term, the problem is how to pay for it. We've traditionally used property taxes to pay for public education. Citizens grumble, but they generally agree to footing the bill for this worthy goal. Taxes are the price of civilization. But college tuition has always been left to the student and his/her family to pay. And often it's beyond the financial reach of an increasingly impoverished middle class. For most of us, the only way to pay for it is to take out student loans.

We need to talk.

Before 1976, all student loans were dischargeable in bankruptcy. That year, the bankruptcy code was changed so that loans made by the government or a non-profit college or university could not be discharged during the first five years of repayment. They could, however, be discharged if they had been in repayment for five years or if the borrower experienced “undue hardship.”

The Bankruptcy Amendments and Federal Judgeship Act of 1984 made it so all private student loans were excepted from discharge too. During the next two decades, minor changes were made to the bankruptcy code. Then in 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which said that no student loan, federal or private, could be discharged in bankruptcy unless the borrower could prove that repaying the loan would cause undue hardship, a condition that is virtually impossible to prove unless the borrower has a severe disability. As of today, student loans are among only a few debts (child support, criminal fines and employer-collected FICA that wasn't sent in) that can’t be discharged.

You can owe a million dollars in income tax, wait two years, and file for bankruptcy, and the debt is gone. You can run up a hundred thousand in credit card debt, declare bankruptcy, and walk away. You can run into a school bus and kill 50 children who burn alive, get hit with judgments for half a billion dollars, pay a bankruptcy court's $325 fee, and walk away scott free. But if you borrowed $120,000 for college, you owe it, plus ten percent interest, for the rest of your life.

College tuition isn't the only culprit. Cal State Fullerton charges $6,200 a year in tuition - a reasonable price. But an apartment near the campus is $1,500 a month. And if a loan looks like free money to an 18-year-old, it's easy to spend $30,000 a year just staying alive. But it's not free money. It's a ball and chain. But young people can be naïve, and lenders exploit their gullibility. These lenders are like child molesters: They cozy up to you, they get you to trust them, and then they (expletive deleted) you. And your elected representatives helped them.

Why did Bill Clinton and George Bush do this to you? Bribes to Senators, most likely. Both parties prostitute themselves to lobbyists, and the financial sector's lobbyists are the most predatory of all. Read Griftopia by Matt Taibbi for a quick refresher course on the wolves of Wall Street. Donald Trump's recent de-fanging of the Consumer Financial Protection Bureau has Elizabeth Warren's hair on fire, and good for her. No one else in the Senate is guarding the guards.

A community college is your best defense from financial ruin. My "adopted" son, a Mongolian student who lived with us for two years, got his start at Foothill Community College in Los Altos Hills, California. He got excellent grades, transferred to Northeastern University in Boston, and then got an MBA at Berkeley. He became the youngest airline president in the world. And his children call me "Grandpa Les."

Young people, their parents, future employers, and anyone who wants to make America great again should demand free university and/or vocational training for everyone. We also need to identify and support jobs that can't be outsourced or replaced by automation. But I'd settle for a good general education that produced quality voters. We can't afford another Donald Trump.

President Eisenhower's National Defense Education Act (NDEA) was passed in 1958 to help prepare American students to compete in the face of growing Soviet technological superiority; they did beat us into space, after all - not just once but repeatedly. Now they're deciding our elections. Perhaps the fear of being skunked by the Russians will convince Congress to resurrect the NDEA and educate our young people based on the growing risk posed by superior education in Russia, China and elsewhere. The government could even offer to exchange two years of national service after high school for free college. There are no jobs for them anyway. An unemployed guy or gal is a terrible thing to waste.

The students at Marjory Stoneman Douglas High School in Parkland, Florida are outraged over gun laws dictated by the National Rifle Association, and they're taking on a battle that no one in either the Senate or Congress appears willing to fight. Good for them. You should take a cue from them and start a fight, too. Your future depends on it.

So get mad and get busy. Like the bumper sticker says, If you're not outraged, you're not paying attention.

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