When Corinthian Colleges officially folded in late April of 2015, some 16,000 students were cast into educational limbo. The for-profit educational company collapsed under ten tons of fraud, following years of scrutiny and six months of aggressive action by the U.S. Department of Education.
40 million Americans owe part of the $1.2 trillion school debt costing taxpayers over $3.5 billion! With its demise, so ended the immediate educational prospects of those attending school on any of its more than 100 Heald, Everest or Wyotech campuses. The school's ignominious death did not help the value of degrees held by its graduates either. According to one Department of Education estimate, this accounts for roughly 350,000 former students over just the last five years.
Fortunately, the Department of Education was quick to provide at least one remedy for those who were collateral damage to its implosion. According to Secretary of Education Arne Duncan, those impacted by the Corinthian collapse are now eligible for loan forgiveness under the terms of a provision called “borrower defense to repayment.” Moreover, his Department is streamlining the process by which said students may seek relief. In late June, Duncan also appointed an official adviser to help shepherd the abandoned flock through the forgiveness process.
It is heartening that the Department of Education is taking responsibility for the debacle and, in light of the incontrovertible evidence that Corinthian was guilty of shady dealing, it also seems only fair that these roundly exploited students are shown some good will. Moreover, this does fold into the federal government's rather aggressive campaign in recent years to obstruct the practices of higher education's bottom-feeding organizations. Thus, in addition to those who will be aided by the first-of-its-kind loan forgiveness initiative, many others still may be saved the grief of a poor and costly educational decision.
Student Loans and The Corinthian Corollary
But the student loan forbearance specific to this case may carry some hefty implications. In an era where our collective school debt exceeds $1.2 trillion, Corinthian raises a more fundamental question about the nature of our higher education system. It forces us to ask just how sensible it is to stake teenagers approaching high school graduation to staggering personal debts that will follow them to the ends of the earth.
College loans are predicated on the idea that a seventeen year old is ready to weigh the implications of a purchase roughly the size of a modest suburban home and to assume all the liabilities and responsibilities that come with it. When I was seventeen, I made at least one impulsive decision every week, whether it was sneaking into a movie theater, driving my mother's station wagon 50 mph in a 25, or tasting my first Zima (and yes, I know how much that last one dates me).
The point is, I hadn't the wherewithal to consider the consequences of my actions four minutes down the line, let alone four years. Though Corinthian's students are distinguished by just how obviously and egregiously their chosen Alma mater exploited the inherent shortsightedness of youth (not to mention desperation), they are not otherwise unique in the larger student population.
Like every other low-income or middle-class American that ever sought a higher education, most of Corinthian's students began as teenagers making one of their very first major life decisions. Indeed, more than 40 million Americans today owe some portion of that $1.2 trillion. Even putting aside the impact of for-profit institutions like Corinthian, these figures denote an educational system that institutionalizes burdensome debt for any non-wealthy teenager ambitious enough to pursue college.
Thanks to Corinthian and others, we know beyond a reasonable doubt that there are colleges out there who employ predatory recruiting practices. But the emphasis on loan forgiveness as a measure of resolution places the spotlight less on this specific offender than on the larger specter of students loans.
In fact, the case at Corinthian prompted the Department of Education to open the door even more widely for recompense. Secretary of Education Arne Duncan said of the loan forgiveness intiaitive, “This is our first major action on this but obviously it won't be the last. . . We will make this process as easy as possible for them, including by considering claims in groups wherever possible, and hold institutions accountable.”
This marks a new stage in the U.S. Department of Education's strategy for protecting students from fraudulent colleges, which is important. But does it mark a new stage in terms of contending with the swelling student loan bubble? Does it suggest that we are any closer to preventing its rupture?
Well if the numbers concerning Corinthian are any indication, this action isn't exactly a cure-all for the giant money-hemorrhage that student loans represent to the U.S. economy. As an article in the New York Times points out, it would cost taxpayers roughly $3.5 billion just to write off the federal loans issued to Corinthian's last half-decade of enrollees. Duncan's proclamation may well cultivate a fresh new crop of applicants in search of student loan forbearance, some likely justified and others, perhaps not as much. In any event, the consequences of erasing a statistically significant portion of America's student loan debt could have far-reaching and adverse economic consequences.
It Wasn't My De-Fault
There's another element to contemplate in all of this. If you, as a college graduate recent or otherwise, have spent the better part of your adult life paying student loans that make you wonder what it was all for, you may view Corinthian's graduates with some jealousy.
“How come they get out of paying their loans?” you ask. “My supposedly legitimate college experience was just as crummy as it was expensive.”
When one considers the events at Corinthian, one could read it as an assault on the for-profit college industry. And it certainly is that. But it also smells a bit like somebody dropped a stink bomb in the student loan industry's stall as well.
Until this point, we have largely persisted under the notion that we, the young and college-bound, must reap what we sow. However misinformed or ill-advised the borrowing decision you've made as a teenager, it will become your responsibility as an adult. From the vaunted Ivy Leagues to the suspiciously-accredited clown college that your uncle runs out of a Motel 6 conference room, whatever you borrowed to finance your education, you paid back or else suffered the consequences. It's kind of the American way.
The Corinthian decision and Duncan's subsequent declaration both call this whole shaky arrangement into question, and most certainly for the better. Evidence suggests that the issue is very much on the minds of Americans these days. In early June, an editorial in the New York Times entitled “Why I Defaulted on My Student Loans” attracted considerable attention. For a moment, Lee Siegel's opinion piece was the most-read article on the paper's website.
In it, Siegel explained that he opted as a young man to openly defy his student loan debt rather than allowing it to stifle his creative ambitions. He argued that he had not attended college simply to find himself in a soul-crushing day job that prevented him from pursuing his true calling. In what would appear to be a matter of principle, Siegel has since spent the better part of three decades evading the loan for which his parents co-signed.
And here I am paying my loans back like a sucker.
In Siegel's much-debated editorial, he suggests that a credit rating is like some imaginary bogeyman that bankers use to scare children into eating their vegetables. Oh, but it is quite real, and the day a young person goes to buy a first home, or an automobile, or even just a really cool jet-ski, he or she will find out just how real.
I wouldn't necessarily make the argument that your bank or your college deserves every dollar, or even any dollar, that you must repay. Maybe it does, maybe it doesn't. My college classes weren't particularly illuminating but I still slept in the dorm. I still ate the dining hall food. I still played on a campus intramural water-polo team. (Yes, that's a thing). I'm not sure I owe my college every dollar, but I at least owe it a few.
Siegel views his decision as resistance in the face of an arrangement that is socially-constructed but morally indefensible. His article seems to offer guidelines on how others can also take a moral stand by defaulting on their loans.
But Siegel's advice is dangerous. Take it from me. Through necessity rather than choice, I missed any number of student loan repayments in those lean, early days. And I have to tell you, it wasn't as much fun as Siegel makes it sound.
If you happen to be fortunate enough to marry a sugar-mama or sugar-daddy, more power to you. And if you somehow find yourself in a position to purchase a home with a briefcase of cash (and I don't wanna know where you got it), you'll probably be fine. But for the rest of us, this is not the answer.
I promise you that no matter how many collection agencies that debt transfers through, it will not go away. It will grow. It will stay with you like an appendix scar, or your high-school nickname, or that time you got arrested for accidentally locking yourself out of a hotel room in nothing but a towel. It will follow you and it will only compound, rather than erase, the mistake you think you made as a 17-year-old borrower.
So even if it seems like the Department of Education might agree with you, and even if Siegel's revolution-of-one might seem attractive to you, you can't just stop paying back your loans. The harsh reality is that no matter how young, impulsive, and ill-informed you are as a teenager, the student loan is one of the first truly consequential financial decisions you will make.
Perhaps the greatest obstacle that we must overcome is our failure to ensure that the college-bound understand such a momentous decision thusly.
If college is the next step, why not more focus on teaching high schoolers how to be informed consumers? One could hardly object to the spirit of the Department of Education's intervention. And on behalf of the students from Corinthian who should ultimately have the chance to be forgiven their loans, there is no question that this is a victory. It is, however, a victory mired in a series of defeats, not the least of them is the loss of educational trajectory.
Even if we reach out to help these students, and even if we open channels more widely to help others who may find themselves in a similar bind, we have still failed to protect them from the dangers that lurk within the industry of high education. Corinthian College had become an increasingly known quantity, an organization whose recruitment and marketing priorities far overshadowed the priorities of educational rigor, instructor competence, or post-graduate placement.
But the reality of an educational system in which students and graduates are collectively leveraged for $1.2 trillion dollars suggests that bad borrowing decisions aren't always that obvious. Quite to the contrary, students approaching high school graduation are inundated with a dizzying crescendo of hype, all of it impelling them to seek a college experience that will guarantee a future of health, happiness, and home-ownership. And this is not about the advertising. It's not about the billboards, and radio ads, and late-night television spots where bright-eyed youngsters promise you the world for your enrollment.
This is about the parents, teachers, guidance counselors, and administrators who stand on the sidelines cheering these kids onto the higher education field, only to see them pummeled like Pop Warner punters.
The policy implications of the Corinthian decision aren't necessarily negative but they are reactionary. It is important that we offer assistance and relief to those impacted by fraudulent practice. However, fraud is not the only reason that students don't always get their money's worth. One student may be a poor fit for the high-priced private liberal arts school whereas another may be disappointed by the discount-bin lecture hall education at a sprawling public university. A school's facilities might be lackluster. Its administration might be inefficient. It may just be a terrible school camouflaged in the reputation that comes with age.
Whatever the case, there are a lot of reasons that a student loan may go up in smoke. Much of our focus is on the end game: College is over; Job prospects are low; Loans are burdensome; How do we fix it?
But we must also look to the starting line for a solution, to the moment when that 17-year-old kid is making a decision that could effect the rest of his or her life. Obviously, no shortage of thought goes into the process of choosing a college. Academic focus, extracurricular opportunities, geography…these things factor in. And of course, every non-affluent family with college aspirations must also consider how much it will cost and where this money will come from.
But how many really consider that day, any number of years off, when repayment must begin? How many have honest conversations about future earning potential as it relates to the expense of a specific college? How many are in a position to understand the terms of interest and repayment as they agree upon them? And how many really understand that the college experience they choose will impact the size of the loan and how readily they will have the ability to repay it?
These questions and countless others will be front and center as future graduates join the 40 million already on the hook. It would benefit us all if these questions were also front and center as high school students and their families attempt to navigate the college selection process. Perhaps it would not be unreasonable to make mandatory a high school course of study in financial responsibility with a focus on borrowing, student loans, and how to conduct savvy consumer research in the context of higher education.
If we believe that teenagers should be saddled with a financial decision as consequential as educational borrowing, and if we wish to produce future generations that are willing to take ownership of that decision, we need to arm them with the knowledge to do so.
Education and free-market capitalism are inextricably linked. There is no turning back. Short of the grotesque level of fraud committed by Corinthian, colleges of every quality will compete unabated for enrollees. In any consumer industry, you must know what you're buying and you should probably have a plan to pay for it. Why should the massive investment in your higher education be any different?
Or Else What?
We'll get into that next week, but here's a sneak peek.
Let's just say for a second that one isn't that sympathetic to the whole student debt thing. Let's say one believes strongly in the value of an education and even knows a few stats that prove college graduates historically out-earn those lacking a degree. All of this, one might say, is to suggest that student loans are largely worth the trouble.
We'll examine this claim and others within the context of a pattern some may find disconcerting. According to a recent article in CBS MoneyWatch, college enrollment in the U.S. has declined for four consecutive years. This amounts to a loss of roughly 1 million students in the collective campus population over that span.
This may imply that students are being forced to reconsider the value proposition of college. To an increasing number of people, a lifetime of loan repayment just might not seem worth it.
Next week, we'll discuss what's really behind the higher education's enrollment slump.