Another Insider's Game

As most parents know all too well, financing a college education today is not for the faint of heart. The cost of a degree from an elite private or Catholic college long ago crossed the six-figure mark for tuition, room and board, and will soon break $200,000, if it hasn’t already.
By the time my two pre-teens are ready for college, the nation’s top schools no doubt will be charging a quarter-million dollars for an undergraduate degree. Anticipating this crushing burden, I had planned to auction off some rare first-edition copies of books I’ve written, but my publishers have informed me that first editions of my books actually aren’t all that rare. In fact, they are available for less than 50 cents on most remainder shelves. Oh, well. There’s always the spare kidney.

Meanwhile, families with children in middle-tier schools, whatever that means, are paying $30,000 a year or more for non-commuting students. Even relatively affordable public universities and colleges may cost six figures for an undergraduate degree.

So it’s beyond maddening to learn that the student-loan business, an $85 billion-per-year industry, may resemble an insider’s game. New York State’s attorney general, Andrew Cuomo, has begun an inquiry into the dubious relationship between private lenders and financial aid officers on some campuses.

Mr. Cuomo’s investigation already has shed some light on how this huge industry works. His office discovered that financial aid officials at three universities owned stock in a private student-loan company that the universities designated as their preferred lender. That apparent conflict of interest has prompted a flurry of investigations in other states, but Mr. Cuomo’s is the one to watch.

Were I an undergraduate about to borrow tens of thousands of dollars to qualify for an entry-level job, I would assume that my college’s preferred lender was chosen because it was an ethical institution intent on keeping interest rates low, with no hidden fees or other predatory practices. In other words, I’d assume that the college and its financial aid officers were looking out for me, not for themselves. How naïve!

This is not to say that all such arrangements are fraught with peril for students. But Mr. Cuomo’s investigation is far from finished, and the guess here is that he will uncover a good deal more about this unsavory business.

There is a larger issue here, though, and it has gone unmentioned thus far. Why are so many students being forced to borrow money through private loans? Whatever happened to our commitment to educating our children so that they might learn the skills we say they needand, by the way, so that they might grow intellectually as well?

The growth of the college loan industry obviously reflects the high cost of higher education in the 21st century. Tuition in public colleges and universities has increased by 35 percent over the last five years, according to the College Board. Tuition at four-year private colleges increased by nearly 6 percent in the 2006-7 academic year. The good news is that these figures actually are lower than in years past, a sign that many colleges and universities are better managed and have found alternative funding sources.

What’s more, the formidable four-year sticker price for an undergraduate degree is somewhat mitigated by financial aid. Nearly 66 percent of the nation’s full-time students benefit from outright grants that ease the financial pain to varying degrees. According to the College Board, college students received $134 billion in aid from the universities themselves or from public and private sources in the 2005-6 academic year. Of that figure, the Board found, 44 percent was delivered in outright grants, and 51 percent came in the form of loans through the federal government.

There is no question that government, particularly at the national level, has played a role in helping students get a college education. It is troubling, however, that this commitment apparently is not enough. If it were, the college loan business would not be the $86 billion industry that it is, and private companies would not be so eager to become a college’s preferred lender.

No doubt there are many reasons why the U.S. government cannot serve as the preferred lender of every college and university in the country. But surely Washington and the 50 state capitals can and should be doing better by their young people. Less than two years ago, Congress cut planned spending increases for federal student loan programs, in part because of the unanticipated costs of the war in Iraq.

That tragic turn of events, and priorities, speaks for itself.

If, as seems to be the case, we have allowed private lenders to become the preferred financial agents of today’s college students, we are performing a disservice that seems destined to haunt us in years to come. Students who graduate with private debt loads in the tens of thousands will find it difficult if not impossible to live adult lives until their 30’s. Debt service will control their budgets, their consumption habits (or lack thereof), their housing choices, their decisions about marriage and family.

Combine that crushing debt with the retirement of baby boomers and you have a generation of young workers who might well wonder for whom they are workingfor themselves, or for preferred lenders and retirees.

That is not a recipe for domestic peace and tranquility.

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