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It's all we hear about these days: The U.S. subprime mortgage bubble -- created by poor and at times predatory lending practices and lax banking regulation and creative investment products -- has burst. Of the approximately 7.7 million subprime loans outstanding, over 2 million are at risk of foreclosure and 600,000 borrowers are expected to lose their homes this year. The majority of us are left in shock as we watch the devastation unfold, the bubbles aftermath wreaking havoc on the U.S. (and increasingly global) economy, ensuing fears of recession and economic pain to come, and leaving politicians, economists, and regulators all scrambling to pick up the pieces.
However, in the meantime, the 2006 Nobel Peace Prize winner on Tuesday proudly hailed microfinance -- the innovation of providing small loans to poor, traditionally financial excluded individuals, mainly women -- as "sub sub sub subprime" lending. That means that globally, more than 3300 microfinance institutions provide such "super-subprime" loans to over 100 million clients and growing. Just to be clear: I'm a huge fan of microfinance. However, I'm left perplexed by this dichotomy: How can a lending practice that is almost singlehandedly dragging the whole of the U.S. economy in to a hole simultaneously and sustainably end third world poverty?

Dr. Benjamin Brewer, in his Wall Street Journal column (subscription, or read a summary in the Wall Street Journal health blog) wonders: who will take care of the 47 million uninsured in a system that already undervalues family medicine and primary care?

We would suggest that the uninsured are getting care – not enough care, too- late care, expensive emergency room care instead of more appropriate and cost-effective primary care. But Dr. Brewer’s central point is correct. Our system gives short shrift to primary care and is chockfull of incentives for fragmented specialization. In the health care system we envision for the future, primary care doctors (internists, family doctors, pediatricians, geriatricians, perhaps for some women OB/GYNs) would play an elevated role in coordinating patient care. And they would be paid for doing it well.

The Los Angeles Times recently provided a disturbing example of how some for-profit trade schools like Corinthian Colleges have been pushing subprime, high-risk students to assume heavy levels of debt that they may never be able to repay. In an article on the credit crunch, the LA Times quoted a 20 year old student, with a 10 month old baby, who is taking classes at Everest College in West Los Angeles to become a medical assistant. To pay for an eight week course at the Corinthian-owned school, this student has had to take out an $8,000 private loan with an 8 percent interest rate. The student, and several friends with similar loans, told the newspaper "that they knew that repayment would be difficult on the $9 an hour or so they expected to earn if they got jobs." The course, they said, gave them "75% to 90% of what they need to get and keep a job."

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PHEAA May Pay $15 Million For 9.5% Loan Payments

The Department of Education has asked the Pennsylvania Higher Education Assistance Agency (PHEAA), one of the country's largest nonprofit student loan providers, to repay as much as $15 million in federal payments it improperly obtained by exploiting a subsidy program that guaranteed loan providers a 9.5 percent rate of return on government-backed student loans. The request comes two months after an audit by the Department’s own Inspector General found that PHEAA had improperly obtained $34 million in subsidy payments. The Department rejected these findings and suggested the $15 million price tag but is ultimately letting PHEAA decide how much it has to repay. A PHEAA spokesman suggested to The New York Times that the lender may end up with "zero liability." PHEAA is the first party in the 9.5 scandal to be held financialy accountable for its actions. In 2006 another lender, Nelnet, was caught with $278 in improperly obtained Department funds.

As the old adage goes, you reap what you sow. For many years colleges and university endowments, which receive very advantageous government tax breaks, have grown at extraordinary rates. Now, two high-powered senators are starting to ask questions about just what these wealthy institutions have been doing with their funds. While we applaud Congress’ efforts, we are afraid that too much of a focus by the Senators on tuition, rather than low-income student access, could lead to more improperly tilted financial aid policies — and an increasingly bifurcated educational system.

[slideshow]What prompted this latest attention to school wealth was the release of the 2007 Endowment Study by the National Association of College and University Business Officers. Going beyond the massive returns already disclosed by individual colleges, the study found that schools with endowments over $1 billion earned an incredible 21.3 percent rate of return for the 2007 fiscal year, only slightly more than the 19.3 percent return for colleges with endowments between $500 million and $1 billion. Even in aggregate, the 785 schools surveyed reported an average return of 17.2 percent.

Recent announcements by Harvard and Yale universities to expand financial aid are good news for the small number of students helped, but do little to dispel the impression of an ivory tower still removed from regular people.

Here’s a primer for those who may have missed the flurry of media coverage on the Ivory aid plans. Harvard’s plan, announced in December, would spend $22 million to cap parental contributions at 10 percent of income for all students coming from families making between $120,000 and $180,000 a year. Yale’s new policy, released on Monday, is slightly more complex, using over $24 million to cap parental income contributions to less than 10 percent for families making $120,000 or less, while significantly reducing expected contributions of families making between $120,000 and $200,000. The Yale plan would result in reductions of one-half to one-third for affected families.

New York Unveils Ambitious Plan to Boost Prestige of Public Colleges

New York needs to significantly increase spending on its state college systems and hire thousands of new professors if it hopes to compete with other prestigious public universities, according to a

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

In October and again in November, we warned that Congress might try to cut the Pell Grant program for low-income college students. We argued that after passing a new law in September that rightly whacked excess student loan bank subsidies to increase Pell Grant funding, Congress might later…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Dodd Bill Proposes to Make Private Loans Dischargeable in Bankruptcy

Democratic presidential hopeful Sen. Chris Dodd (D-CT) announced last week that he plans to introduce legislation that would allow private student loan borrowers who have taken on unmanageable…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.