Student Loan Defaults: The Blame Game

by Daniel L. Bennett

The big news in higher ed thus far this week has been the ED's release of the latest data on federal student loan default rates. No big surprise that default rates are up all across the board, given that college tuition continues to soar while the state of the economy has made it more difficult to find good-paying jobs for fresh grads. Here are the figures:

the FY 2008 national cohort default rate is 7.0 percent, up from the FY 2007 rate of 6.7 percent. The default rates increased from 5.9 to 6 percent for public institutions, from 3.7 to 4 percent for private institutions, and from 11 to 11.6 percent for for-profit schools.

ED Secretary Arne Duncan took the opportunity to single out and harangue the for-profit sector:

This is a disservice to students and taxpayers

rapid growth of enrollment, debt load, and default rates at for-profit schools in recent years prompted the Obama Administration to embark on a year-long negotiation with the higher education community to develop a set of proposals that strengthen the integrity of the federal student aid programs and ensure that taxpayer funds are used appropriately

Duncan's words are actually reflective of the entire higher education system and the government's misguided entrance into the student loan business. After all, default rates continue to rise among all college students as we pour more money into student loans for all, which has become a de facto entitlement.

My colleague Andrew Gillen predicted awhile back that we are experiencing the inflation of a tuition bubble as a result of generous federal aid programs. This is not unlike the housing bubble that recently popped and sent our economy into a tailspin. Rather than singling out the sector which enrolls only 10% of all students for being a a disservice to students and taxpayers, we should be questioning the federal government's takeover of the student loan business as a disservice to the entire public and a source of economic rent-seeking for universities of all stripes.

But then again, as my colleague Richard Vedder described, we do have an Administration that:

has taken control of iconic private automobile and financial-service companies, has viciously attacked Wall Street greed, has tried to manipulate more than ever the private use of money and credit, is favoring a huge increase in taxes on capital gains