Last week, First Marblehead Corporation, a Boston-based company, saw its stock plummet after cutting its dividend. The problem? First Marblehead is in the business of “securitizing” student loans. A year ago, this would have required some explanation, but the sub-prime mortgage mess has taught Americans – and people all over the world – the meaning of “securitizing.” It is one of those words that means the opposite of what it sounds like. A company bundles together some high-grade debt, some middle-grade debt, and some really doubtful debt and sells it to investors, who only think they are making a secure investment. As we learned with the securitized mortgages, no one really knows what these chimeras are worth. And a little bit of bad debt, like a little bit of ptomaine, goes a long way to making the whole meal undigestible.
First Marblehead isn’t saying exactly what happened, but Matt Snowling, analyst with Friedman Billings Ramsey, told AP report Dan Seymour, that he believes First Marblehead “was trying to sell about $1 billion in bonds.” As Seymour explains, First Marblehead bundles student loans from numerous banks to put together its bond offerings. The deal usually specifies that First Marblehead has 180 days to sell the bonds, and failing that, has to buy the student loans itself.
Apparently, First Marblehead has been trying since October to sell $1.1 billion in these student loan-backed bonds – and found few takers. Meanwhile, banks keep issuing more student loans.
Continue reading First Mortgages, Now Student Loans?
President Bush just signed into law the College Cost Reduction and Access Act, passed by both houses of Congress on September 7. CCRAA – think of a crow signaling to his buddies that dinner is served – comes with the tag line, “The largest investment in higher education since the GI Bill – at no new cost to taxpayers.” The legislation certainly rearranges student financial aid in the United States.
The basic idea is that some of the funds that used to be spent subsidizing private lenders to make loans to college students will now be spent to increase the size of Pell Grants, cut the interest rates students pay on federally subsidized loans, and – in principle – reduce the federal deficit. CCRAA is also stuffed with other morsels. Eligibility for Pell Grants will expand. Students who commit themselves to becoming teachers in “high-poverty communities” will get extra assistance. College graduates who pursue careers in public service will have their loans forgiven after ten years. Historically Black Colleges and Universities, Hispanic-Serving Institutions, Tribal Colleges, Alaska Native and Native Hawaiian Institutions, and the brand new categories, “Predominantly Black Institutions” and “Institutions Serving Asian American and Pacific Islander and Native American Students” will divvy up a $510 million windfall over five years. And a multi-partner scheme will provide “matching challenge grants aimed at increasing the number of first generation and low-income college students.”
What does all this mean? In part it means that the private lenders paid dearly for their transgressions. The still-unfolding student loan scandal that began in January with New York Attorney General Andrew Cuomo’s investigation into Sallie Mae, and that I wrote about here, put the (mostly Republican) defenders of “free market” mechanisms for distributing federal student aid in an untenable position. The “free market” in this case was never anything close to lean and efficient. To the contrary, it was (and still is) inefficient and frequently corrupt, dominated by players who found it easy to bribe college officials, wring favors from politicians by means of campaign contributions, bilk the Department of Education, and live off generous subsidies.
Continue reading Another College Aid Boondoggle?
The New York Times has headlined yet another scandal in higher education: colleges and sometimes individual college officials have been receiving generous “incentives” to steer students into particular study abroad programs. The incentives include financial bounties and free trips abroad for the officials. As the Times points out, the self-dealing by college officials in these programs looks a lot like the self-dealing by college officials caught up in the student loan scandal.
How big a scandal is it that some colleges and some college officials have found another way to line their pockets at the expense of students? Not very big by itself, but coming on the heels of the student loan imbroglio, the study abroad scandal has stilts. From that height we can wonder if study abroad and financial aid are the whole of it: How many other aspects of the university enterprise offer college officials the opportunity to receive “gifts” at the ultimate expense of students?
Once upon a time, a certain kind of student yearned for a semester abroad or sought out opportunities to take a summer course in Salzberg or Poitiers. This was the American version of the “grand tour” with which wealthy Europeans once capped off the education of gentlemen. But Americans, being a pragmatic people, usually made sure that the venture included academic credit for courses that would meet degree requirements at the college back home.
Continue reading The Study Abroad Scandal
An epithet scrawled on a door, a brawl outside a football game, an ill-chosen costume for a Halloween party – over the course of the academic year, college campuses are bound to have incidents of racial friction. Some of them are indeed displays of outright bigotry. And when they occur, the diversity brigade is ready and waiting with its all-purpose solution: the idea that the cure for bigotry is a still warmer embrace of racial (and other identity group) preferences.
It has happened again, this time at Roger Williams University in Bristol, Rhode Island.
In mid-July, Ralph Papitto, the chairman of its board, who had served for 39 years, was forced to resign after making a crude and racist remark. It is not clear exactly what he said, but all parties agree it included the N-word. The shake-up at the board sounds like it was overdue, and Papitto’s slur was only a nasty flourish at the end. Papitto’s racist tantrum came in response to a formal “notice of concern” issued on March 23, by the University’s main accreditor, faulting Roger Williams for its poor governance.
According to the accreditor, the New England Association of Schools and Colleges (NEASC) , the University board had stumbled in lots of ways – by failing to have a conflict of interest policy, by indulging numerous (apparent) conflicts of interest, by ignoring its own by-laws, by not having a separate audit committee, and on and on. But NEASC’s letter to RWU President Roy Nirschel also singled out diversity: “In addition, we understand that little progress has been made on the Board’s goal, established in 2003, to increase the size and diversity of its membership.”
Continue reading The Mystery Of The “Diversity Commitment”
Antioch is no more. The venerable college is closing its doors this fall. Antioch University – which has other operations – will continue, but its flagship college is finished.
Its namesake, the ancient city in Turkey, had its ups and downs too, after it was founded by one of Alexander the Great’s generals. Earthquakes, invasions, rebellions. The usual stuff. At one point Antioch was the world’s third-largest city, behind Rome and Alexandria, perhaps topping 600,000 people. But it was down to 200,000 by the fourth century AD.
The devoutly Christian founders of Antioch College in Yellow Springs, Ohio, however, were no doubt less moved by the exceptional regard that Roman Emperors had for the strategic site than they were by the city’s key role in the book of Acts. Barnabas and Paul begin (Acts 11) their proselytizing there; Paul preaches in the synagogue; but Antioch also becomes the first city in which the followers of Jesus reach out to the gentiles, and the first place the followers were called Christians. Antioch is also the base for Paul’s subsequent missionary voyages.
When Judge William Mills, the Rev. Derostus F. Ladley, the Rev. Henry Whitney Bellows, Elder J. McKee and other Unitarians and members of the liberal denomination that called itself simply “the Christian Church” founded a new college in 1852, they chose the name for their enterprise audaciously. Calling it Antioch College enunciated an emphatically outward-looking Christian mission and a “we’re-going-to-change-the-world” attitude. They asked Horace Mann to be the College’s first president and it took many by surprise when the nation’s leading educational reformer accepted the offer. Mann plunged ahead with building a college that made it strongest stands in admitting women; eschewing “sectarian influence,” and promoting hygiene. The College’s first Catalogue also preached self-control:
The best knowledge is no match for bad habits. But true knowledge and virtuous habits will say to the demons of appetite and sensuality, Get ye behind me.
Continue reading What Happened to Antioch?
In mid-January, a brief item appeared on an inside page of The New York Times, headlined “Student Lender Investigated.” The five sentence article noted that the New York Attorney General’s office was looking into “student loan marketing” by Sallie Mae, “the nation’s largest lender to students.” Attorney General Cuomo had requested information about “preferred lender lists,” i.e. the lenders that colleges and universities recommend to their students. The article also noted that “some loan companies have criticized” such lists, alleging that lenders got onto the list “in exchange for payments or other benefits.”
Continue reading Those Scandalous Student Loans