Senator Warns Of A Student Loan Bubble
Each year, the federal government provides more than $150 billion in grants and loans to help students pay for college. And while a bachelor's degree has become increasingly valuable, young people are taking on record levels of debt to earn that degree.
That's the backdrop for a Senate hearing Thursday on reauthorization of the Higher Education Act, the 1965 law that governs the federal financial aid system. As part of a series of conversations about paying for college, Morning Edition spoke with Sen. Tom Harkin, D-Iowa, who will run the hearing.
The chairman of the Health, Education, Labor and Pensions Committee tells NPR's Linda Wertheimer that for-profit, public and private colleges and universities should be more accountable for the federal student aid they receive.
On income inequality in higher education
Right now, if you are a high-income, low performance student, you have an 80 percent chance of going to college. If you are a low-income student, but high-performing with a B or better average, you only have a 20 percent chance of going to college. That's inexcusable.
On student debt's economic impact
There are a lot of indications that this is a drag on our economy. In other words, students who have graduated from college, just starting work can't afford to buy a new house, can't afford to invest in other things. ... How are we going to make it easier for students to go to college and get an education without taking on this huge debt burden?
On investigating for-profit colleges
We found that a lot of these for-profit schools were going after the poorest students so they could get the maximum Pell Grants and loans. A lot of the students were not getting a good education; they were dropping out and ... defaulting. But the for-profits got to keep the money.
Comparing for-profit colleges and the savings-and-loan crisis
I think that's an apt comparison. The housing program started out with, I think, good intentions. But then financiers and others found out how to make a lot of money, so they created this housing bubble. I think what we have now is another bubble in the student loan sector with these for-profit colleges.
LINDA WERTHEIMER, HOST:
Here on MORNING EDITION, we've been looking at the ways Americans pay for college. And today we have questions for someone who knows an awful lot about that - Senator Tom Harkin who heads the Senate committee that oversees education. The Higher Education Act, which includes Pell grants and federal student loans, is coming up for re-authorization, so Chairman Harkin has been holding hearings - including one today on federal student loans. Senator, thank you very much for making the time to talk to us.
SENATOR TOM HARKIN: Well, thank you, Linda. Nice to be with you.
WERTHEIMER: Senator Harkin, you've had a great deal of difficulty in the recent past trying to pass some piece of federal education reform, and this year you're revisiting the entire Higher Education Act. What do you think? Do you think that higher education is in for some big changes from this Congress?
HARKIN: Well, I just think the situation has gotten so serious with the amount of student debt that's out there, the fact that the federal government is providing over $150 billion a year. I intend to report a bailout - late spring, early summer. I think that we just can't continue to kick this can down the road. It's gotten out of hand.
And you talk to any family - and the polls show this - the biggest concerns they have is how are they going to afford to send their kids to college. And we've got to address the inequalities. Right now if you are a high income, low performing student, you have an 80 percent chance of going to college. If you are a low-income student, but high-performing, you only have a 20 percent chance of going to college. That's inexcusable.
WERTHEIMER: I wonder if you could update us on an investigation your committee did a couple of years ago on the for-profit colleges. The report made the point that about 12 percent of college students attend for-profit colleges. But a quarter of federal financial aid goes to them and they account for almost half the student loan defaults. When that information came out a few years ago, people were shocked. Has anything changed?
HARKIN: Well, we found that a lot of these, the for-profit schools were going after the poorest students so they could get the maximum Pell Grants and loans. A lot of the students were not getting a good education; they were dropping out and, of course, as you pointed out, defaulting. But the for-profits got to keep the money.
And a lot of these were run by hedge funds. Some of them paid exorbitant salaries to their presidents who, in many cases, where the founders of the company. One, I remember, was being paid $20 million a year.
HARKIN: Some things have changed but we aren't done making sure that the for-profits are accountable to the taxpayers and to the students.
WERTHEIMER: Now, the for-profit colleges, of course, responded with considerable anger and said you're singling them out, and that all colleges have dropouts and defaulters. Do you think that's fair?
HARKIN: Only to the extent that, yes, students do drop out of community colleges and other colleges. However the loans and the grants that they got to go to those schools sort of stay with the schools...
HARKIN: ...for the teaching, for the infrastructure of the schools. And the for-profits, that money went into the pockets of their stockholders.
WERTHEIMER: This particular aspect of the student loan programs reminds me a little bit of the Savings and Loan Scandal. You know, the money was federally guaranteed, the institutions were going to get the money no matter what, whether the loans were good or not,
HARKIN: Oh, there's been a lot of comparisons that way. I think that's an apt comparison. The housing program started out with, I think, good intentions. But then...
HARKIN: ...financiers and others found out how to make a lot of money. And so they created this housing bubble. I think what we have now is another bubble in the student loan sector with these for-profit colleges.
WERTHEIMER: Do you see, as you look across the whole education system - do you think that the kind of abuses that you are so critical of, where the for-profits are concerned, is anybody else in that same camp, do you think?
HARKIN: Not exactly. Because community colleges and our public institutions, they're not in the business of making a profit. Now, they are in the business of expanding campuses and building new buildings, and all kinds of things like that - that's for sure. And we're going to take a look a look at that, too, because they should be putting more into student support services and education. So in terms of this accountability, believe me, we're going to look at everything, not just the for-profit.
WERTHEIMER: Senator Tom Harkin, Democrat from Iowa, chairs the Senate Committee on Health, Education Labor and Pensions. He spoke to us from the Senate.
HARKIN: Oh, thank you, Linda.
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