Are good loans going to bad schools?

Unless they are pressed by the government to do otherwise, as they sometimes are in considering mortgage loan applications, private lending institutions look hard at two factors before making loans.

First, the borrower’s ability to repay the loan is considered. Second, the value of the product or service the applicant intends to buy is considered. One reason for that is to ensure that adequate collateral is being provided. Another is that if the product or service turns out to be a lemon, the borrower is less likely to repay a loan taken out to buy it.

Perhaps the government needs to be more rigorous in using that approach with student loans.

Defaults on student loans are a massive problem, especially since the vast majority of them are provided directly by the federal government or guaranteed by it.

By last year, about 8 million student loan borrowers had defaulted on their debts, which totaled $137 billion. Yes, $137 billion.

A report this week disclosed that students at for-profit schools are far more likely to default on loans. The default rate for them was 52 percent, according to the National Center of Education Statistics. That compared to 17 percent for four-year public colleges and universities, and 26 percent at community colleges.

The questions federal officials should be asking are these: What percentage of those private-school defaults were at institutions providing worthless courses and not doing a good job of retaining students? And, should the government be less liberal in granting loans to students at schools more interested in collecting tuition than in educating students?


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