Can We Stop Bleeding the Taxpayers to Cover Unpaid Student Loans?

In one of the nation’s greatest blunders, we (that is, our representatives in Congress) decided to subsidize higher education with easy-to-get loans for anyone who wanted to give college a try. The total of student loan debt is $1.7 trillion; some of the debtors can’t pay back what they owe, and our “compassionate” political leaders are doing all they can to make sure that most will never have to.

The cost of higher education has become a huge drain on the taxpayers and a huge waste of resources, since much of what passes for education in college these days is of minimal or even negative, value. Have you heard about the course at Johns Hopkins, “Climate Fiction and Capitalist Accumulation”?

Many Americans go to college, learn little, graduate (or sometimes not), only to wind up working at jobs that only require basic trainability, not advanced study in any field. And in doing so, they accumulate a lot of debt – debt that now spills over onto the taxpayer.

How did this come to pass? It used to be the case that the federal government had nothing to do with higher education and college debt was unheard of.

In 1944, Congress passed and President Roosevelt signed into law the Servicemen’s Readjustment Act, usually known as the G.I. Bill. Among the benefits for military veterans was money for college tuition. Many used it, but a problem quickly arose, namely disreputable or even fraudulent institutions luring the veterans into educational programs that delivered little or nothing. In an effort to prevent that from happening, in 1952, Congress amended the law to say that G.I. Bill educational benefits could only be used at accredited colleges and universities.

College accreditation arose late in the 19^th century as a way for institutions that offered true college education to distinguish themselves from dubious correspondence schools. Around the nation, six regional accreditation associations formed, composed of colleges that had campuses, libraries, and qualified faculty. Any new school wanting to join had to meet the standards of the accrediting association. 

Accreditation was entirely voluntary. It functioned as a consumer-friendly stamp of approval to help students know that the school offered a real college education. So it made sense for Congress to restrict G.I. Bill benefits only to accredited institutions. The veterans wouldn’t be cheated at accredited schools.

Then, under President Lyndon Johnson, the US made the disastrous leap of enacting college subsidies for everyone. The Higher Education Act of 1965 set up federal backing for private loans, and the college lending industry was off to the races. Congress also stipulated that only schools that were accredited would be eligible to receive any of the loan or grant money it was making available. Therefore, the accrediting associations became the gatekeepers for eligibility for federal student aid money. Most colleges and universities badly wanted that money, which meant that obtaining and keeping accredited status was very important. In fact, for many schools, losing accreditation would be fatal.

Here is a crucial fact about accreditation. Although people tend to think that if a college is accredited, that means that its educational programs are of good quality, accreditation does not ensure that. All that accreditation means is that the school complies with all the association’s standards. A school can do so and still have many feeble courses that are poorly taught by faculty who demand little of the students. The accreditors look at the institution’s inputs, which are fairly easy to assess, but not at its outputs.

Consider the standards of the Southern Association of Colleges and Schools (SACS). When it gets to “Student Achievement,” what the association calls for is having policies for the assessment of student learning. A college can have such a policy on paper and still let professors teach whatever they want to with minimal standards. SACS doesn’t nose into classroom details to find out if courses are challenging or are academic jokes.

One of the great scandals of recent years involved a SACS-accredited institution, the University of North Carolina at Chapel Hill, where courses that called for negligible work, and existed mainly to keep star athletes eligible to play, went on for years. The facts were never discovered by SACS, but instead by some whistleblowers on the faculty.

I’m not just picking on SACS for one instance of negligence. All of the accreditors are paper tigers when it comes to the quality of courses and student accomplishment. One looks in vain for cases where a college lost its accreditation because too many of the students were just coasting through to their degrees without much effort. On the rare occasions when colleges do lose their accreditation, it’s almost always because the school’s finances have become hopelessly bad.

What’s wrong with this system?

For one thing, it is unconstitutional. Shannen Coffin and I recently made that argument in the Wall Street Journal. In brief, the problem is that Congress alone has the legislative authority. It is expected to make the laws, and is not permitted to delegate its law-making power to other branches of the government or to private entities. The accrediting associations are private entities and the standards they impose have never been approved by Congress.

The reason why Coffin and I took an interest in this point is that the University of North Carolina’s board of trustees recently announced plans for a new program on campus, a School of Civic Life and Leadership. After the announcement, the president of SACS declared that the new school was problematic under its standards, which say that curricular changes have to originate with the faculty. Whether that is a good idea or not (and I don’t think it is; the faculty has no monopoly on sound educational ideas), Congress has never said that colleges must abide by such a rule. Thus, we have a constitutional problem.

Second, relying on accreditation to ensure that students won’t waste their federal student-aid money is foolish. Accreditation does not guarantee that a college provides high-quality education. Academic standards have plunged pretty much across the board, and where they have remained strong, it’s not because school leaders fear the loss of accreditation.

The essence of the problem is that no one ever says “no” to students who want to borrow large sums to pay for an education that is unlikely to lead to earnings sufficient to cover the debt. The colleges want the money, and it’s not their problem if the students they graduate can’t repay what they’ve borrowed. The accreditors stand to lose nothing if they put their stamp of approval on institutions that have chosen to become little more than degree mills that pay lip service to educational excellence. And of course the government officials who approve the loans aren’t liable if students don’t repay their loans.

Only the students themselves may suffer from poor decisions, but they’re immature and shouldn’t be making big financial decisions when they don’t yet have the resources to stand behind large borrowing.

I have argued many times that the federal government should not be in the business of lending money for college (nor for any other reason), but as long as we have student loans, we should limit the losses by requiring that someone other than the students be responsible for their debts. That party should be the college itself.

If the schools that receive the government money had to pledge to reimburse the Treasury for loan losses when the students they purported to educate default, their incentives would change dramatically. Rather than accepting almost any applicant, no matter how weak his academic record, to maximize revenue inflow, school officials would have to consider the prospect of default. Currently, many schools operate with low academic standards and try desperately to retain students even after several semesters of poor performance. The longer those students are enrolled, the more money the school rakes in. But if they had “skin in the game,” they would have to consider the losses they’d face when weak students default.

And with financial responsibility hovering over their heads, college officials would have strong reason to look carefully at their curricula and costs. Graduates in fields like engineering and accounting are presumably heading for solid careers and there is little risk that they’ll default, but what about politically driven majors like Ethnic Studies? The prospects for those majors are very questionable. College leaders have allowed “identity,” and other majors that deal in opinions rather than knowledge, to proliferate over the last several decades. With “skin in the game,” they might see those as financial millstones around their necks.

Also, schools would think more seriously about the cost of attendance. The less they charge, the less students need to borrow, so they might decide that they don’t need a Vice President for Diversity, Equity, and Inclusion, after all.

Wouldn’t this change mean that many students wouldn’t get to go to college? Yes, and that would be a good development. As it is, far too many students who are neither prepared for, nor really interested in, serious academic work go to college. This entails a large waste of time and resources.

Finally, what about the accreditors? They would no longer have the gate-keeping power that they now do, and would therefore lose their chokehold position over colleges. If schools still wanted whatever benefits might come from accreditation, they could keep up their memberships, but if not, they could drop their association, perhaps seeking other means of demonstrating to prospective students that they are worthwhile.

Irresponsible student lending has cost the US a great deal already. It is time to stop the bleeding by saying to colleges, “If you want to receive federal student aid money, you’ll have to stand behind the loans.”