Rajagopalan: College loans a heavy burden

Kavitha Rajagopalan is a senior fellow at the World Policy Institute.

Higher education carries higher and higher price tags. But for a growing number of American students, it can cost their future prospects altogether.

This week, the Department of Education released data showing that the rate of borrowers who've defaulted on their student loans is up to 8.8 percent from 7 percent the previous year -- the highest default rates since 1997. Earlier this year, the Institute for Higher Education Policy, a nonpartisan Washington-based think tank, released data showing that for every borrower who defaults, at least two more fall behind. In a study of student borrowers who began repaying loans between 2004 and 2009, only 37 percent were able to pay them back without delinquency or delay.

The deputy undersecretary of education pointed to high unemployment as a likely culprit for the increase in defaults. But default rates peaked at 20 percent in 1990 -- when the national unemployment rate was 5.6 percent, significantly lower than today's 9 percent. So there's no easy answer.

Tuition rates nationwide are sharply on the rise -- some students take on loans larger than many mortgages, before they have any proven income -- and, according to research from the Government Accountability Office from 2008, the increases don't always improve quality of education. In their 2010 book "Higher Education?," Andrew Hacker and Claudia Dreifus make a strong case for reforming the "$420 billion colossus" of modern education.

But to get a better understanding of today's default figures, it also makes sense to look at a rising sector in higher education: for-profit colleges. Nearly 15 percent of borrowers attending them defaulted during the same period. These colleges account for some 10 percent of the country's undergraduates, but their students made up half of the total number of borrowers who defaulted.

For-profit colleges have recently drawn criticism for predatory and deceptive recruiting practices, which, according to a statement released earlier this week by the for-profit education lobbying group Coalition for Educational Success, they are seeking to combat through a voluntary code of conduct. Higher Ed Watch, a research initiative at the New America Foundation, points out that the establishment of the code is an unexpected admission that abuses have indeed taken place.

Higher Ed Watch warns that the group may just be engaging in a publicity campaign to block possible government intervention, but the statement could instead be an effort to save the industry's bacon. Just last month, The Wall Street Journal reported that enrollment in for-profit colleges is down 45 percent.

A growing body of evidence shows that for-profit colleges target lower income, immigrant and minority students, promising false program features and unrealistic career prospects, then aggressively sell them student loans with predatory features such as ballooning interest rates. A number of these students might otherwise consider far more affordable community colleges.

Just as troubling is the relationship between student debt and Wall Street: Securities and other trading instruments alarmingly similar in size and shape to the mortgage-backed securities are widely traded on the street. The value of higher education bonds rests in high tuition, which requires students to take on debt they may be increasingly ill-equipped to repay. In particular, students at for-profit colleges aren't receiving the kinds of degrees that will help them achieve the income they'll need to pay for their overpriced educations.

We need to truly invest in the next generation of workers, who can secure our long-term economic health. And that means ensuring that students are the primary ones profiting from our higher education system.