Tuesday, October 26, 2010

Who's Really Lying to Students?

By Jonathan Robe

Over the past year, for-profit colleges have come under heavy fire, with many within higher education circles and the government criticizing them for a number of things related to the quality of education the for-profits offer to their students. Some, including the GAO, have even gone so far as to accuse the for-profits of lies, deception, and even outright fraud (if you want to see more examples, go here and here and here and here). These accusations, despite the heated rhetoric, are not necessarily wholly without merit. Have for-profit colleges encouraged students to enroll who are ill-prepared both for collegiate study and good employment? Undoubtedly. Have there been instances of misleading advertising by for-profits? Yes. Do for-profits rely too heavily on federal aid dollars for their revenues? Perhaps. But does all of this mean that the entire for-profit sector is dubious? Certainly not, as this recent CCAP report details.

The problem with this focus on for-profits is not that there are no flaws within the for-profit sector. Rather, the problem is that most, if not all, of the charges leveled at for-profits can also be leveled at almost any institution of higher education in the United States today, a point that was driven home in a recent panel discussion at the Heritage Foundation in which CCAP’s Richard Vedder participated. The reality is that, whether the school in question is Corinthian Colleges, the University of Texas at El Paso, the University of Michigan, or Cornell University, students are overburdened with debt, many graduates face poor employment prospects (not all of which are due to the sour economic climate), schools rely heavily on government payments, and accountability is lacking in terms of what students really learn while in college. Many schools perpetuate what Chad Adleman calls "The Old College Lie" by enrolling students known to be ill-prepared for college.

However, even recognizing the wide-spread nature of educational malfeasance misses what may be the most important point: namely, the federal government’s complicity in misleading students by understating the costs and exaggerating the benefits of higher education. After all, it is the Department of Education itself which classifies student loans, along with grants and work-study, as “aid.” But there is a fundamental distinction between grants (which don’t have to be repaid) and loans (which do, with interest). Of course, because some of the loans are subsidized by taxpayers (by delayed repayment, below-market interest rates, etc.), classifying these loans as “aid” is not a complete lie. It is, however, deeply misleading to students by giving them an incorrect picture of the true cost of their college education.

Let me use a little anecdote to illustrate this problem. One of my college friends several years ago told me how he used excess financial aid in his student account to pay for a summer trip to Europe. It wasn’t until sometime later that it dawned on me, then a na├»ve sophomore, that what he called “aid” was really excess student loans. This same friend graduated a year or so later and promptly got a position working at McDonald's and, for obvious reasons, began to worry about his financial outlook. He has since moved on, though the current reality of his debt burden is far from fictitious.

Now I’m not claiming that my friend is not responsible for making poor financial decisions, nor am I claiming that his experience is necessarily typical for all students, nor that taking student loans out by anyone is unjustified. Instead, I use this anecdote to illustrate how our common practice to categorize student loans as aid can lead students financially astray. I therefore partially sympathize with students who, after several years in school, come to the sudden realization of how much debt they truly have. While in many (perhaps all) cases they really should have known what they were getting into in the first place, the ED isn’t doing that much to help by continuing the mis-characterization of the nature of student loans. It’s almost like a used car salesman selling cars by convincing his customers that if they take out loans to pay for their cars, they are lowering the cost of the purchases. Of course buyers in this instance will have distorted views of the true costs, just like students who view loans as just another form of aid.

In the final analysis, the ED itself may not be misleading students, but it sure is aiding and abetting those who do. Students confused about the nature of financial aid are particularly susceptible to claims by higher education advocacy groups that, by taking out loans, students can reduce the net price they pay for college. It’s also the schools themselves who, as Edububble noted, manipulate the debt statistics by redistributing loan burdens from students to parents, with the result that the debt doesn’t show up as “student” loans. If we are ever to see real reductions in college costs, the government and colleges have to upfront and honest with students about the full extent of college costs and that, at the end of the day, somebody has to pay the whole bill.

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