Heroes and Villains

Washington -- The collapse and bankruptcy of Corinthian Colleges, the SEC's charges of fraud by ITT Tech executives against its investors, and the substantial enrollment drops at for-profit colleges have recently dominated headlines in the higher education trade press.

What has gone under-reported is the irony that most students themselves cannot take bankruptcies for the student loans they took out to attend these institutions, and that fraud perpetrated on students is a far greater problem than fraud against investors.

Nor has proper credit been given to non-profit organizations and individuals whose work over the years has exposed the sordid and corrupt underpinnings of many for-profit colleges. These dedicated people have done heroic service in the national interest by standing up for students, families, and taxpayers. I cannot name them all, but in the forefront are Veterans Education Success, the National Consumer Law Center, The Institute for College Access and Success, New America Foundation, and Republic Report.

The trade press could likewise pay more attention to the culprits who led the country into the for-profit college fiasco, which would include many in Congress who looked the other way while accepting political contributions from for-profit interests, as well as many people in Washington's revolving doors who circulate through congressional staff positions, lobbying shops, federal agencies, and political campaign staffs. Even as I write this, many with a checkered past are once again lining up with political candidates in the 2016 elections to take advantage of unwary students and taxpayers. The trade press would do well in articles on the higher education positions of the candidates to note as well just who is advising them.

How Germany Limits Student Loan Debt

Berlin -- Those who follow student loan debt issues in the United States -- and that's about everyone now that this form of debt is being recognized as a major national problem -- may be interested in how another country limits such debt.

The major need-based student financial aid program in Germany, the Bafög, awards most aid in a fixed ratio: half grant, half loan. The loan portion carries no interest. It is repayable starting five years after the end of the aid eligibility; in other words, there is a five-year grace period, which can be extended under certain conditions such as child care. No borrower pays back more than 10,000 Euros in total, whether or not more was borrowed.

One advantage of the German practice of making aid half grant, half loan, is that the ratio cannot be manipulated by the institutions students attend. In the U.S., the ratio is badly out of balance in favor of loans. This is partly a function of insufficient Pell grant (discretionary) appropriations compared to Stafford loan (entitlement) spending, but it is also because many institutions routinely capture the Pell grants for themselves (often to make so-called "merit" aid to other students), thereby burdening financially needy students with even more loans.

Germany has no student debt crisis. It is worth mentioning that many U.S. institutions of higher education are modeled in their teaching and research missions after the University of Berlin, as created by the Humboldt brothers early in the nineteenth century. With regard to student debt, it is instructive to look once again at German experience.

Of course limiting student loan debt in the U.S. would entail significant cost, but it could be paid for by limiting (or eliminating) U.S. higher education tax credits and deductions, which total nearly $40 billion annually. Germany allows education fees and student loan interest payments to be tax deductible, but because such fees are low or nonexistent, and most loans are no-interest in the first place, the cost is comparatively minimal. One good reason to tap U.S. higher education tax credits and deductions in order to control student loan debt: much research shows the credits and deductions do not provide better higher education access as promised.