Trump Administration Limits Predatory Lending in Education
The New Republic writes “President Trump is banning students majoring in degrees that don’t make enough money from taking out college loans.” Yes, but do note that no student is banned from any major and the lending rule is mild. Undergraduate programs must show:
that their graduates earn more than the typical high school diploma holder…[and] graduate programs will be required to demonstrate that their graduates earn more than the typical bachelor’s degree holder. (emphasis added).
Think about how low that bar is. The comparison group for an undergraduate program is working adults aged 25-34 with nothing more than a high school diploma. A college program that can’t beat that has almost certainly made its students worse off. For graduate programs the bar is the lowest of several bachelor’s benchmarks, including bachelor’s holders in the same field. A master’s in social work need only beat people with a bachelor’s in social work. A program must also fail in two out of three years before it loses loan eligibility. The Department estimates that about 5% of programs will fail in the first year.
I mocked the term “predatory lending” when it first became common in the financial crisis but in this case predatory lending fits the bill because the real borrower isn’t the individual student. Under income-driven repayment, the taxpayer is a forced co-signer, and it’s the taxpayer who gets predated.
Most expansions of the student loan program have been motivated by the picture of an enterprising student who works hard and wants to major in mechanical engineering or nursing but because of their poor circumstances they can’t afford college. “Credit constraints, asymmetric information, you can’t collateralize human capital,” said the economists. Nice theory, what’s the practice?
