Politics & Policy

Obama’s Student-Loan Bailout for Corinthian Colleges: Is It Just the Beginning?


It’s just another day in President Barack Obama’s Washington. This time, Secretary of Education Arne Duncan decided to have U.S. taxpayers bail out students who attended the now-defunct Corinthian Colleges. Bragging that he was combating “the ethics of payday lending” in higher education, Duncan unilaterally ignored chunks of federal law so as to make more than 100,000 students eligible for billions in loan write-offs.

In the words of a report by USA Today’s Greg Toppo: “Once among the USA’s largest for-profit college chains with more than 100 campuses, Corinthian ran afoul of the federal government five years ago when the congressional Government Accountability Office found that the chain’s recruiters encouraged students to commit fraud on financial-aid applications.” Corinthian was clearly a shady operation that engaged in unacceptable behavior. Even before this announcement, the Obama administration had decreed that students would be off the hook for more than $480 million in Corinthian’s high-cost private loans.

Duncan used the opportunity to announce that he also intends to develop a process that will let any student from any college have his loans forgiven if he has been “defrauded” by his college. As Tamar Lewin reported in the New York Times, “Taxpayers could pay a huge price for forgiving so many federal loans; the government has never before opened debt relief to such a potentially large pool of students. The department estimated that if all 350,000 Corinthian students over the last five years applied for and received the debt relief, that cost alone could be as much as $3.5 billion.”

Duncan voices no interest in protecting taxpayers or in determining which students were actually defrauded. What matters, as he explained earlier this week, is that “you’d have to be made of stone not to feel for these students.” He noted, “This is our first major action on this but obviously it won’t be the last.”

Federal law makes students eligible for debt relief if they were enrolled when their college closed, or up to 120 days before the closure. However, Duncan has announced (in a now familiar move) that he is unilaterally extending the eligibility window for 40,000 students, at a cost of $544 million. Meanwhile, the Department of Education announced that Corinthian students whose colleges were not closed would be able to apply for relief under a provision that has rarely been used.

What’s especially worrisome here is the frontal attack the administration is mounting on notions of students’ responsibility, and the precedent being set.

It’s not as if the Obama administration has ever shown much concern for the laws of the land or for safeguarding taxpayer funds. But what’s especially worrisome here is the frontal attack the administration is mounting on notions of students’ responsibility, and the precedent being set. As Senator Lamar Alexander (R., Tenn.), chairman of the Senate education committee and former U.S. secretary of education, wryly noted, “Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done. . . . This is one more reason it was a bad idea to make the U.S. Department of Education the banker for students as well as the regulator of their colleges. If your car is a lemon you don’t sue the bank that made the auto loan; you sue the car company.” But Duncan is making the U.S. Treasury the target of first resort.

The backdrop for all of this is the push for “debt-free college.” This is a push led by Elizabeth Warren, Hillary Clinton, and the like, but one that also has an intuitive appeal for conservatives worried about opportunity, middle-class families, and the cost of college. As my AEI colleague Andrew Kelly has argued, conservatives are right to tackle this issue — and it should be a natural fit for the party of deregulation, bureaucracy-busting, and marketplace solutions.

The danger is that Obama and the Left will poison the well, pushing to make higher education one more taxpayer-funded entitlement. Just this week, culture critic Lee Siegel took to the op-ed page of the New York Times to urge students to follow his example and default on their student loans. If the Left is offering the giddy pleasures of irresponsibility and free money, conservatives risk winding up in an unwinnable bidding war.

Students who got ripped off by Corinthian are entitled to sympathy. Those eligible under federal law should absolutely get the relief to which they’re entitled. But the federal government shouldn’t be bending the rules to give away taxpayer funds or seeking opportunities to forgive loans. Federal bailouts are a lousy way to make college more affordable, reward responsible students, or protect taxpayers. Conservatives need to say this, loudly and clearly. At the same time, they need to offer proposals to enhance college affordability that emphasize responsibility as well as opportunity, and that do right by students and taxpayers.

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