My friend, a domestic policy maven (he is responsible for most of this post), points out that among the many virtues of the landmark health-reform bill, one is directly related to higher education. The legislation finally puts an end to subsidies paid to banks for student lending with a savings to taxpayers of $61-billion over 10 years. Years ago these subsidies were justified as promoting private “competition” with a government run program.
And the Republicans are howling in protest. They want to restore taxpayer subsidies to private banks. Just this month, former Republican House Speaker Newt Gingrich cited the policy change as part of his evidence that the Obama Administration is “socialist.”
You might say that those billions in bank subsidies are OK if they helped students find better loans at lower prices—after all, that’s the promise of privatization, right? (Though, with billions in government subsidies, “private” student loans were never quite private.) The idea was that private lenders are more efficient than a bureaucratic government lending program. Competition would hold down costs and lead to innovations.
Think that’s what happened? Then meet the unfortunate 26-year-old Courtney Munna, profiled in today’s New York Times. Munna graduated from NYU in 2005 with a degree in religious and women’ studies. She is a photographer’s assistant earning, after taxes, $2,300 a month and—oh yes—she has almost $100,000 in college debt.
Ms. Munna was unlucky in a couple of ways. First, she was going to college in an era where there were no effective limits on student borrowing. She started with Sallie Mae, which lent her around $20,000, but then wouldn’t go further. And then, in what the Times correctly notes as an “eerie echo of the mortgage crisis,” in stepped Citibank, lending her more than she could afford to repay, in the same way that banks and private lenders offered mortgages to people who never should have taken on so much debt.
But Citi, like many other banks, was receiving tax money to subsidize these loans—that is, to guarantee a profit for Citibank. And because changes in bankruptcy law (lobbied for by banks and other financial institutions) now make it almost impossible to discharge student loans, these loans were good investments for banks, as creditors could be kept on the hook for years.
A bad story? Wait, it gets worse. How did Ms. Munna get to Citi to borrow more money than she could afford? She was referred there by her dear university, NYU. But what she didn’t know was that NYU was in a “revenue sharing” (read: kickback) arrangement with Citibank, where NYU got 0.25 percent of the value of student loans made by Citibank. New York Attorney General Andrew Cuomo helped to put a stop to this practice at NYU, Syracuse, Penn, and other universities in 2007, but not in time to help Courtney Munna.
University administrators, trustees and faculty, who are so concerned with their independence in governing universities must admit this exploitation of students is partly their responsibility. As long as students come to the university, and pay for it somehow, even while piling up debt that they can’t work off, with degrees that don’t reward them in the labor market—well, nobody made them take out all of those loans. It is buyer beware. Just like a used car dealer. Or a subprime mortgage lender. Universities should aim higher.
So the next time you hear (and you will, from Republicans and ideologues) about the magic of privatization, or that private markets are always superior to public programs, or that the Obama Administration is foisting “socialism” upon the country, spare a thought for Courtney Munna and her almost $100,000 in debt that she cannot discharge even in bankruptcy. And spare two thoughts for your university systems that lured students into unpayable debt obligations while having backdoor business arrangements with the lenders.