Right Hooks

Why Are Taxpayers on the Hook for Student Loans?

Obama targeting ITT Tech is only part of the story.

Business Review Board · Sep. 16, 2016

We recently relayed the story of Barack Obama’s efforts to pick winners and losers in the for-profit college market. Obama yanked federal aid from ITT Tech, leading to the entire operation shutting down — leaving 40,000 students and 8,000 teachers out in the cold. Our aim was primarily to note that Obama attacks the private sector at every opportunity, but that isn’t the only angle. The Washington Post reports, “Former students at ITT Technical Institutes are refusing to repay their federal student loans in a protest designed to pressure the government into canceling the debt of everyone who alleges they were defrauded by the now-defunct for-profit chain.” The Post quoted one 39-year-old graduate with $80,000 in student loans who said, “We’re not irresponsible brats whining about our loans. ITT lied to us. It’s fraud.”

Simply being a for-profit company doesn’t make a business the good guy, and if the accusers are correct, then the college network didn’t deserve to survive. The Post reports that “ITT spent years battling allegations of fraud, deceptive marketing and steering students into predatory loans.” Indeed, by the accounts of many former students, ITT provided a terrible education, handed out a worthless piece of paper, and charged ridiculous rates for it. ITT is hardly alone either. Corinthian Colleges went out of business in 2014 after evidently running a similar scam, and last year Obama agreed to forgive millions in student debt for that institution. We warned last week that the government may end up forgiving as much as $500 million in federal student loans to ITT students. ITT has about $90 million on hand to cover loan forgiveness. Who will be stuck with the bill for the remaining $410 million? Got a mirror handy?

Indeed, that’s just it. The larger problem is guaranteed access to federal money for education, which puts taxpayers on the hook. Guaranteed access means every education entity public or private is going to do whatever’s necessary to get a slice of the pie. Nowhere does the Constitution enumerate such a federal power or individual right to the fruits of someone else’s labor. Americans now owe $1.3 trillion in student debt, of which $1 trillion is held by the federal government. The policy consequences of the federal government’s massive role could be a greater fraud than anything ITT or Corinthian ever dreamed of.

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