Tuesday, May 4, 2010

In a free market world, anyone is game - even the most vulnerable

I am pleased to see that reporters are going after for-profit schools like the U. of Phoenix. It is disgusting that the U.S. has allowed this sort of thing to, for lack of a better term, flourish as a result of Pres. Obama's higher education plans, among other things.

When it comes to the sordid tales of how for-profit schools recruit, there's another telling piece of evidence in this recent article entitled, "The Homeless at College." Even worse, the infamous name of Goldman Sachs appears. As far as I am concerned, when that name comes up, you know something is going to be bad. Moreover, and thanks to Bush's relaxing of regulatory rules on online classes, the reporter writes, " [this particular sector of the] industry is now fully mainstream. Goldman Sachs (GS) owns 38% of the for-profit Education Management Corp. in Pittsburgh, which has 136,000 students in programs ranging from fashion to culinary arts, and former President Bill Clinton took a position as honorary chancellor of Laureate International Universities, owned by Baltimore-based Laureate Education. Investors are flocking to the industry, drawn by the stability of government funding and the profit potential of online classes [my emphasis]. But some of the unsavory practices that spurred Congress to act are springing back to life, with a new wrinkle or two." (It's nice to see President Clinton's name there, too. Oh, and as I recall, he's been defending Goldman. Indeed, it's all the more "shocking" when you think about his future son-in-law who, if memory serves me, works for that despicable outfit).

On another financial front, Sallie Mae recently struck a deal with Goldman Sachs. That's right. Sallie Mae raised $1.5 billion for private loans, all of which is being financed by Goldman. [Whack! Take that regulatory reform.]

All the while, people raise hell about taking "personal responsibility" for pursuing higher education. What about the concept of corporate responsibility? Do these critics ever step back and think about that? From the posts I read and the nasty emails I receive, I'd say they don't.

The focus shouldn't be solely on for-profits and their relationship to the student lending industry. It is my view, that they are easy targets. While I think this form of higher education is enormously problematic, they are not the only ones who are responsible for the student lending crisis. Why aren't we going after the colleges and universities, too? Aren't they culpable for the increased cost of tuition, too?

If the Obama Administration truly values higher education and accessibility to it, they need to take a hard look at the financing behind it. Why is it the individual is burdened with financing higher education? Why do we accept that tuition will just continue to sky-rocket (even in a deflationary economy)? Why can't we come up with some strategies to help those who are being taken advantage of (I'm using that term broadly too)? Do we not see a connection here between the financial sector and the student lending industry? I'd say it's pretty clear how they're intertwined, and if it's a free market, well, . . . we've seen in other sectors what that leads to . . . it ain't good for U.S. citizens, but I guess who gives a damned? We stopped being "citizens" and instead have become consumers of shitty products, and that includes higher education "products." If we can't get our act together when it comes to financing higher education, I see a bleak future, one that will send the U.S. to the lowest of levels in performance on the global stage.



27 comments:

Lisa RM said...

The Obama administration isn't going to protect students- they got a *lot* of money from the financial sector. Same way they're not going to do much about financial reform. Obama was a wild card from the get-go, and he's proving to be more of 2 of hearts than an ace of spades. Just more of the same.

Anonymous said...

Whenever the Federal government subsidizes something, the costs go up. Look no further than health care and mortgages. Student loans are no different. For more on how government interference causes tuition to skyrocket, check out the following video.
http://www.youtube.com/watch?v=ei2CH9A3H8U

C. Cryn Johannsen said...

Sorry, Anonymous. You're just dead wrong. It's not about "government interference." What went wrong? The market running according to its own laws and EXCESSIVE deregulation. That's why the U.S. is in such a mess, and you can point to health care and mortgages. So, it's the absolute opposite of what you're arguing. That goes for student loans.

Anonymous said...

Well, technically it IS about government interference when you think about it since tuition costs have risen at more than twice the rate of inflation for the last 20 years or so, the exact period of time in which the market was flooded with seemingly "free" money in the form of student loans. Because of the existence of these no-risk (to the lenders) loans, colleges and universities are incentivized to continue to increase their tuition because enrollment isn't going down, it's going up. Thus, from a macro perspective, a strong argument could be made (and I think I just made it) that the well-intentioned existence of student loans, which are handed out to anyone and everyone, contribute heavily to the overall problem.

C. Cryn Johannsen said...
This comment has been removed by the author.
C. Cryn Johannsen said...

But you cannot forget the the student lending industry is privatized. That's my point. It's related to the same markets that resulted in the housing bubble (for instance). So, in the last few years, everyone got involved in this area, because it's where money was to be made. But I think it's safe to assume you defend free markets. Is that correct?

Anonymous said...

They may be (partially) privatized but they're still an outcrop of the Congressionally-created student financing regime. Private loans masquerading as federal loans didn't exist prior to the federal government getting involved and, therefore, the original point of costs going up when the government gets involved remains valid, hardly a point of view that can fairly be classified as "dead wrong."

C. Cryn Johannsen said...

Again, is it safe to assume that you are a defender of free markets? Schiff is presenting one view on the issue, and you're wrong when you write "Private loans masquerading as federal loans didn't exist prior to the federal government getting involved." From whence did Sallie Mae emerge?

Conrad S. Bane said...

@Anonymous

There is, indeed, some truth to what you're saying, but you're oversimplifying things dramatically. Federally-subsidized student loans have been around since 1965, and for the first 20-30 years of their existence, the rise in tuition rates generally corresponded to the rise in the cost of living and wages. It wasn't until the late-1990s, when suddenly it seemed anyone and their dog could get a credit card (and in fact, some dogs did) that tuition rates started to skyrocket (I actually witnessed this first-hand). I don't think it's a coincidence that tuition rates started going up at the same time that credit card companies started camping out on campus offering unemployed credit risks free lines of credit (albeit small ones, but still). Also not coincidentally, Sallie Mae privatized in the late 1990s (1997 or thereabouts).

I think one of the points that Ms. Johannsen is making regarding "government interference" is that in the past 10-15 years, as Sallie Mae privatized and many other lenders joined the fray, student lending became irrevocably tied up in the markets (in fact, student loans are now bundled up in investments in a similar way that mortgages are, though with less risk at least for the investor), and that this kind of market encroachment has led to an increase in student borrowing (under often execrable terms) and the concomitant rise in tuition. At the risk of speaking for her, it seems to me that the point is that we need to get back to simple, straightforward student lending - no private lenders, no hidden fees and escalating interest rates, and if possible, tie loan disbursement to schools keeping administrative costs down.

Oh, and I meant to add that tuition also skyrocketed at the same time that the Republican Revolution swept anti-tax crusaders into office in States all over the country, and universities saw their funding slashed (not to mention endowments getting whacked by the dot-com bubble bursting).

Anonymous said...

Check out this music video, which explains how the Federal government created the housing bubble.
http://www.youtube.com/watch?v=d0nERTFo-Sk

Conrad S. Bane said...

@Anonymous

On another note, Peter Schiff has obviously had some great insights in the past 8 years or so, but he's also oversimplifying the student loan issue. The fact is, student loans HAVE helped a lot of people go to school who otherwise wouldn't have been able to. In that little video you posted, does he look at historical trends in tuition rises, especially in comparison with other cost-of-living and wage increases? Does he put those tuition rises in context? I agree with him about student loans - I don't like them either, and I'm for the student. But until we become civilized enough to fully subsidize higher education (and I don't think we ever will), part of the burden will be on the student, and there will always be a good chunk of the student population who can't swing tuition, books, etc., without a loan.

He's also naive with respect to what would happen if student loans disappeared. One of the problems with education in the past 15 years or so is that universities are being run on corporate models - students are now customers, and universities do whatever they can to go after their market share, building fancy workout centers, lush dormitories (with personal maid service!), and so on, all the while pushing those costs (which as I explained above are financed less and less by tax dollars and endowments) on to students (customers - whee!). If student loans disappeared, most likely tuition would go down some, but not dramatically, and a huge segment of people would be cut out. Sure, universities would have to adapt, but what we know is that most would go after the market segment that could afford their services, and the rest (i.e., the lower-middle class and the poor, inordinately comprising minority communities) would be left to fight for the low-cost scraps - the McDonalds and KFC of the education "industry" (I wonder what a community college Double Down would look like).

Peter Schiff is right - the government did contribute to this problem, just not the way he thinks it did (i.e., as a de facto source of the problem). It created the problem by letting Sallie Mae privatize and getting in bed with the finance industry (thanks Bill Clinton!). But unlike Schiff, I don't believe that free market principles should be applied to education in an open, democratic society. And I don't believe that any government automatically equals bad government. I, like the Founding Fathers of this great nation, believe that good government is possible, and that good government can help people get educations without bankrupting them.

Anonymous said...

Conrad: you're making my point for me - everything you mentioned is the result of GOVERNMENT ACTION. Creating federal student loans, privatizing Sallie Mae (the details about which the lovely moderator of this blog has apparently decided to censor because it demonstrated her complete lack of comprehension about what I'm saying - unless of course by the time I post this comment, she'll have posted my prior comments where I make that point), deregulating and re-regulating the industry - ALL of it is based upon governmental action. If student loans were a true free market, there'd be no federal subsidies and guarantees and, thus, the lenders would then have to engage in cost/benefit analyses before giving out loans to anyone who asks for one. Profit without risk is not capitalism and as long as the federal government plays the role it's been playing with regard to student loans, tuition will continue to skyrocket precisely because the colleges and universities know how much "free" money is available to them.

Conrad S. Bane said...

Yep, you're right, but if you're going to get reductive and spout objectivist platitudes, there's no point in continuing this conversation. As I said in my last post, I think that government action can be beneficent, and I don't believe that a "free market" (whatever that Platonic form is) in the student lending industry is going to help disadvantaged people go to school. Republicans and Democrats alike have screwed up our economy and politics, but that doesn't mean Ron Paul by default presents the best solution. But sure, why the hell not - let's just blow up the whole beautiful grand experiment, endure a few decades of mythically atavistic internecine carnage, and emerge from the crucible of savage civil war economically and ideologically pure. Sign me up!

Conrad S. Bane said...

Also, one more and then I've got to get back to work:

"If student loans were a true free market, there'd be no federal subsidies and guarantees and, thus, the lenders would then have to engage in cost/benefit analyses before giving out loans to anyone who asks for one."

Yeah, exactly - why would anyone want a free market when it comes to education? That's not how you foster a civil society, especially in a post-industrial world. I never understood how Ayn Rand, someone who experienced the Russian Revolution first hand, could espouse a philosophy that so consistently eschewed historical contextualization. There is no such thing as objectivity, because we're always SUBJECTS, living in eras and societies and economies and polities and cultures, all of which touch on us in ways (too many of which to know) we can't control. What the hell is a free market? Because I've never seen one. These solutions ignore a reality in which "free markets" and "liberty" are ideas or goals - at times noble ones to be striven for, but still just abstractions. I live in the world, and I like the stability, creature comforts, and security that civil society has thus far ensured, even if it cost me some measure of "liberty" that I wouldn't otherwise be able to enjoy anyway.

Anonymous said...

Please don't put words in my mouth. I didn't say I supported a Ron Paulian free market for student loans, I merely pointed out that governmental interference into the free market almost invariably causes costs to increase. Like you, I believe that higher education should be fully subsidized by the federal government because students are NOT customers, they're students without any understanding of what they're getting into when asked to sign on the dotted line. Moreover, I believe that everyone benefits from an educated population and that it is in society's best interests to do everything we can to ensure educational opportunities for everyone who wants to avail themselves of them, without being saddled with enormous debt as a result of that decision. I fully agree that the lower and middle classes suffer disproportionately under the way we do things now and they'd suffer even worse if we did employ a truly "free market." My personal beliefs about how we should fund higher education, which apparently you agree with, have nothing whatsoever to do with the basic economic principles I was trying to discuss above.

Conrad S. Bane said...

@Anonymous

I wasn't necessarily putting words into your mouth, and I apologize if it came across that way. I was in large part replying to the Peter Schiff angle (Schiff advised Ron Paul) and the fact that some objectivist types post negative things on this blog. I've also seen this stuff on the Facebook side and in news articles, so whenever there are references to that angle, I get a little riled. In other words, I wasn't responding directly to you, per se, but to a common criticism of the student loan reform/forgiveness movement.

Obvoiusly, though, I do disagree that government subsidies of student loans will necessarily drive tuition costs up. Again, I think that has more to do with the exploding, unregulated finance sector of the late-1990s. I know the government DID play a big role in that, I'm just saying there was an opportunity to take things in hand and impose some reason and restraint on the market, and had that happened we might not be where we are today with the student loan problems and outrageous tuition rates.

Anonymous said...

@Conrad

You talk about a *democratic* society as the grand experiment, when the grand experiment is actually the American *republic*. There's an important distinction to be had there. And I would say that we as a nation all but abandoned the grand experiment over the last century or so, first with FDR's New Deal and later with LBJ's Great Society. We will be suffering the consequences of abandoning the grand experiment for some time yet.

Anonymous said...

Again, I agree that deregulation of the market has a direct causal relationship with the increase in tuition costs, however, my original point, which the moderator accused me of being "dead wrong" about remains true. The market exists in the first place solely because of governmental interference, despite the moderator's apparent lack of understanding of the history of the student loan industry, i.e. Sallie Mae being a creation of the federal government, from which all other private lenders sprang up.

C. Cryn Johannsen said...

Of course you're right about government involvement, but that's a given. Since that's a basic assumption (i.e., "common knowledge"), I didn't think that was the point you were making! I was assuming you were being critical of government involvement necessarily.

Anonymous said...

Your incorrect assumptions notwithstanding, nothing I said was "dead wrong." And since you decided to censor my earlier posting that highlighted YOUR errors, let me state again: Sallie Mae was a creation of the federal government which was later privatized and which bought the name from the government so as to give the impression to the general public that they were still an arm of the government. Thus, my other point about the private student lending industry not existing prior to the government getting involved is also a true statement, another thing you accused me of being wrong about. Your emotional, knee-jerk reactions to my verifiably true statements beg the question: what is the basis for your alleged expertise since you obviously don't even have a clear understanding of the basics of the student lending industry, never mind the intricacies thereof?

Conrad S. Bane said...

Wow, pedantic much? I think Ms. Johannsen made it abundantly clear in her last reply that she is aware of the role of the federal government in creating Sallie Mae and the current student lending environment. I suspect she did something that happens frequently on Internet message boards (you should check some out some time, they're a hoot) - she mistakenly assumed you were saying something that you weren't saying.

But then again, did she? Why belabor a fact that all of us are well aware of unless you have a larger point to make. Like her (I assume - uh oh) I read your post to be less a statement of fact than a judgment about what kind of role the government *can* (or can't) play in the current crisis. And if you followed this blog, you'd know that she works tirelessly to try to make government more responsive to the problem and to make a bad situation better for a lot of people. Like her (again, I'm making assumptions - sue me), I believe that government can be better than it is now. Maybe we're starry-eyed dreamers, but you gotta dream or you're as good as dead. It seemed to me that you were suggesting that government not only won't, but is functionally unable to, improve the state of higher education (at least within the context of financing and student loans). So in that respect, her response that you are "dead wrong" is understandable. Perhaps it was based on a misreading of your comment, but as you can see, she's not the only one that read it that way.

And while your supposedly neutral factual statement about the role of government in student lending is a verifiable fact, who cares? We all know this already. We're trying to move beyond verifiable fact to the possible (i.e., change).

Finally, no offense, but you sound kind of like an a-hole. I'm not saying you are one, but the end of your last reply would warrant a virtual punch in the neck if I were the manners sheriff of cyber-town. Lighten up.

C. Cryn Johannsen said...

I'm smelling apples fallen from a ROTTEN TREE here.

C. Cryn Johannsen said...

Sorry. Anon, I am not following when you refer to the "lovely moderator" not posting things. Please enlighten me. Thanks!

JD Underdog said...

I love and respect the work of CCJ, but I come out on the other side politically. If I had it my way, there would be no DOE. There wouldn't be such "easy access" to college that causes costs to soar. I believe that in a perfect world people wouldn't rely on college to begin with and they would receive training at a much lower cost. Maybe it's the price of an information society rather than an agrarian or industrial one? I don't know.

Spekkio said...

I'm entering this discussion against my better judgment, but there are a couple of points I want to make.

Point the First:

I don't understand how the New Deal, the Fair Deal, and the Great Society ended the American "experiment" in democratic republican government. All of those programs were proposed and enacted by duly elected representatives of the people. Corporate lobbyists weren't nearly as powerful then as they are now, either. Unions were more powerful, yes - but they, too, are democratic groups. These programs swung the economic pendulum to the left, as a professor once explained it to me. That doesn't mean that the social side swung to the left as well. They're not necessarily connected. (Check out political-compass.org or Political Compass on Facebook; it's very, very helpful for understanding the separation between the economic left/right and the social left/right and the various permutations that can happen.)

Point the Second:

I think that the idea of making college education accessible to as many qualified people as possible is wise. We often lose sight of the "liberal arts" aspect to education, i.e. that it's supposed to be more than job training. People much wiser than any of us felt that education made for better citizens.

And yes, I think that our information-based society requires more than job training. Maybe it would be different if high school was more demanding than it is now and so many people finish without being able to read and write really well. The opposite end of that argument might that if high school becomes too intensive, then people who intend to go into trades won't finish and will be worse off for it. But as it stands, I don't think that job training can provide the education and skills needed for the 21st century jobs that grow our economy (the hard sciences, computer science, mathematics, accounting, medical research) - or the social sciences that help keep things in perspective and running smoothly (history, political science, social work, library science, psychology, medical practice).

And incidentally, I think it's interesting that our public school (i.e. K-12) costs don't "soar" the same way that higher education costs do, despite how much the demand for public schooling has risen over the decades as our population has exploded. Perhaps it's because public schools are part of government - kept out of the marketplace, away from profit motive, and funded well enough to avoid things like tuition, student loans, corporate donations, etc.

luvmesomebrandon said...

did you see Sallie Mae posted a big fat profit?
http://www.marketwatch.com/story/sallie-mae-reports-quarterly-profit-of-240-mln-2010-04-21

Anonymous said...

Just a litte diversion: I have a number of friends within the 'for-profit' legal education system -- soem in newly created schools. When you hear the stories and motivations, its truly scary. They know and understand the student-loan hurt that they've put on graduating student and they don't care. Its about the bigger house, more travel, summers off and 3 classes a semester.