Saving College Really Means Saving Securitized Student Loans

The Administration has a bold plan designed to keep American youth flowing into the post-secondary education pipeline.  This plan will rate institutions of higher education on the quality of after-college careers their graduates achieve and steer more federal grant money to those colleges that score well.  I think this plan is brilliant in several ways (from a plutocratic perspective, anyway).

It will reward those universities whose graduates gravitate toward high-paying occupations.  The Ivies and Seven Sisters alumni who go into law, finance, and corporate management will see their schools richly rewarded.  The for-profit diploma mills whose grads head back to the fast food counter will get nothing.  This will accelerate the college market shakeout that is long overdue.  A large number of people don’t belong in college, so fewer colleges means more workers don’t need to waste their time with something beyond their ability.

The next part of the plan’s brilliance lies in its perpetuation of student loan indebted servitude.  It does little  to control students’ costs.  It continues funding Pell grants and does not make student loans dischargeable in bankruptcy.  Helping economically disadvantaged students is nice but it will come at the expense of middle class students who will continue to be priced out of college unless they take out enormous loans.

Most significantly for the financial markets, the plan grandfathers pre-2008 loans as ineligible for income-based repayment plans.  This preserves the value of cash flows from students to loan servicers to holders of securitized student loan pools.  The Administration’s plan is thus a backstop (or “bailout” if you please) for the valuations of collateralized Sallie Mae securities in the portfolios of every pension fund in the US.  That is the single most important thing to know about any plan for education reform in the US.

I like the plan’s allowance for experimentation with competency-based models and MOOCs.  Those concepts will succeed just fine without federal funding so this federal “help” will probably end up corralling them into something the educational establishment can control.  That control will never succeed, of course, but regulators are going to try.  Information wants to be free and much of what we know as education will soon be free thanks to MOOCs.

The myth that credentialing leads to rising income and social status has served the nation’s elite well as a cash cow.  It will disappear only after much resistance and probably a round of hyperinflation.

About Anthony Alfidi 128 Articles

Affiliation: Alfidi Capital LLC

Anthony Alfidi is the Founder and CEO of Alfidi Capital. His firm publishes free investment research with honesty and humor.

Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame (cum laude) and an MBA in finance from the University of San Francisco. He is a life member of Beta Gamma Sigma, the academic honor society for business majors. He has been a private investor since the 1990s.

Visit: Alfidi Capital

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