Uncle Sam Is Common Culprit In Both Housing Crisis And For-Profit College Debacle

Career College Central Summary:

  • The fundamental restructuring of this once-promising sector of the education market is in full swing. It’s been helped along by the Obama administration’s aggressive investigation of questionable lending and marketing practices at for-profit colleges, who depend heavily on the US government’s generous Title IV loan and grant money.
  • At the heart of the problems faced by for-profit colleges, however, is a political quandary. We as a nation have come to believe that every America deserves and needs a college degree, even though not every American wants or needs a college degree, or has the drive, discipline, let alone capacity, to complete a rigorous four-year program of undergraduate study.
  • As with the housing crisis of 2007, which was stoked by a long-enabled government shibboleth that every American needs, deserves, and should be able to afford, a home, so too the everyone-must-have-a-college-degree myth has engendered all manner of for-profit enterprises willing to serve –- sometimes unethically — this government-engineered “need.”
  • In the housing crisis, the bogeymen were Wall Street investment banks that bundled questionable subprime mortgages for resale as collateralized debt obligations (CDOs) with the tacit and lax blessing of for-profit ratings agencies, who themselves stood to gain financially from future business with these same banks.
  • In today’s for-profit education sector, we have a similar shell game, even though the consequences of its collapse will not be nearly as dire for the U.S. economy, predictions of Big Short savants like Steve Eisman notwithstanding. In both the subprime mortgage crisis and the for-profit education meltdown, we have a common culprit: Uncle Sam. In the housing crisis, Uncle Sam worked his magic via the Community Reinvestment Act (CRA), which punished and rewarded banks based on their level of housing loans to poor and minority borrowers, regardless of a borrower’s ability to repay . In the for-profit college bubble, the policy levers are more varied, but the mandate remains the same.

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