Tidying up the Student Loan Mess…but Who’s Paying?

The federal government is out to right a wrong.

The administration has directed the Department of Education to assist student loan borrowers who were defrauded by an institution of higher learning.

The story goes that Everest College and other branches of the Corinthian Colleges franchise used false information to lure students into borrowing money to pay tuition.

Corinthian paid a temp agency to hire its grads for a few days, just to improve its employment rates post-graduation. This gave prospective students a false sense of future employment prospects when it came to attending these colleges, and therefore taking out student loans.

Which brings me to beer.

I think the government should take issue with yet another scheme crafted to lure helpless consumers like you and me into spending our hard-earned dollars — drinking beer.

I’ve found that consuming beer doesn’t actually make us cooler, as many ads would suggest. It doesn’t cause gorgeous women to flock to us, or even allow us to watch a football game among horses, as was shown in a Budweiser ad years ago.

Typically it brings no more pleasure than quenching a thirst and leaving us a bit more relaxed. In fact, (sometimes) it makes me concerned about the empty calories I’m consuming over what I would have gotten from a simple glass of water.

Where’s the justice?! All of those commercials on TV make it seem like I’ll be transformed if I just drink a certain label of beer. To make sure I’m not wrong, I’ve tried many different brands. Still, nothing spectacular has happened.

To be fair, the government’s efforts to address fraud in this case don’t speak to people who simply spend money. They are directed at people who spend borrowed money.

So let’s try cars.

I’ve not bought many brand new cars, but I have bought a few. As with beer, my life hasn’t been instantly changed to include lots of young, good-looking people, and I’m not suddenly ecstatic just because I’ve got several thousand pounds of newly financed steel in the driveway.

Maybe the government should nail car companies for false advertisement, too.

Granted, the government would look a little foolish going after carmakers since it gave GM and Chrysler $60 billion in bailout funds, so this is probably a non-starter.

But in all seriousness, the student loan situation appears to be a case of picking winners and losers, and you probably know who the losers will be ‑ us!

The Department of Education is using a federal law that allows those enticed to borrow through fraudulent means to discharge the debt. The agency is setting up a process by which those with student loans can apply to the department to have their debts forgiven if they can prove fraud on the part of the learning institution.

Silly me, I thought a process for such a claim already existed:  The judicial system.

But no, apparently we needed a new system, this one inside the executive branch, where those with political agendas can decide which colleges are committing fraud with their advertising and which ones aren’t. The case of Everest seems to fit the bill. But what about others?

Think about law schools. With their applications falling almost as fast as job offers, many schools have funded positions for recent grads, effectively puffing up their placement rates.

These aren’t second-rate institutions. In 2011, Yale funded positions for more than 12% of its recent grads to make their figures look better. Is that fraud?

And what will happen when the Department of Education finds a college guilty? Will it direct the borrower back to the college with a demand for repayment? Doubtful.

Instead, I imagine it will forgive the student’s outstanding balance. Sure, that wipes away the obligation for the borrower… but not the guarantor.

In case you’ve not put the puzzle pieces together yet, the guarantor is the U.S. government… or rather, taxpayers.

So… an agency staffer gets to take the place of a judge and jury, decide when fraud has been committed, and determine whether or not to drop greater liabilities on taxpayers, while borrowers get to wash their hands of debt. Brilliant.

I think I need a beer.

Rodney Johnson

Rodney

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Categories: Education

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.