The government has been looking into their "unscrupulousness" for two years and the Obama Administration has come up with some minimal guidelines that could eventually make them move a little closer to honesty in what they do. (Read the story here.) As much as most of us dislike government regulation, this is a case where it would have been easily and readily avoided (and has been) had it not been for crooks in the business. These colleges often charge outlandish tuition, have graduation rates far closer to 0 than to 100 percent and leave students with big debts and no chance in the job market.
The Obama ruling, which follows intense lobbying from the industry (as does any regulation attempt of any industry) has a glaring fault: it gives these jerks three more years to rip off the students and the government before they have to comply with three mandates:
- At least 35 percent of their former students have to be replaying their loans (and $1 decline in the balance over a year is enough).
- The loan can't exceed discretionary income by more than 30 percent (generally indicating the student has a job).
- The loan payment can't exceed 12 percent of total earnings.
That's not much of a demand, but it far exceeds what is expected now, which is nothing in the way of performance. These schools, quite simply, would not exist without government loans for their generally low-income students. It is especially cruel to raise the expectations of those in poverty with the promise of a good education that is mostly subsidized by the rest of us and then deliver a large suitcase full of disappointment in its place.
There is a place for these schools and the truth is that some of them are quite good. This kind of regulation, minimal though it is, should help bring some more of them in line with the norm of education. As long as there are crooks out there, though, it will be a problem and I don't expect those people to go away soon. They have too many effective lobbyists.
(Chart: The Economist)