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THE REAL LOAN SCANDAL

By NEAL MCCLUSKEY

April 25, 2007 -- STATE Attorney General Andrew Cuomo will testify before Congress today about the abuses he's uncovered in higher education - but he's unlikely to get to the real scandal.

Cuomo has given us fresh proof that federal officials and administrators at non-profit universities - people who supposedly work for the "common good" - are trying to get as much for themselves as they possibly can. Yet the greed of U.S. higher education goes far beyond that.

Cuomo has shown not only that lenders and colleges cooperate to profit at students' and taxpayers' expense, but top financial-aid officers at major institutions (including Columbia University) personally profited via stock deals from companies on their schools' "preferred lender" lists.

The corruption alone is shameful - but the true scandal goes to the heart of federal aid to higher education (which includes subsidized loans, among much else).

First is the fact that government aid increases the costs it's meant to defray - that is, that a college degree actually costs more because of all the subsidies.

From 1996 to 2006, the College Board reports, the average, inflation-adjusted, per-pupil cost of tuition, fees, room and board rose 28 percent at four-year private schools and 38 percent at four-year public ones. Meanwhile, inflation-adjusted aid provided through federal programs rose 95 percent, from $48.3 billion to $94.4 billion.

The expense might be tolerable if most students were needy, but with graduates who took loans each shouldering an average of less than $20,000 in debt, and a college degree bringing in nearly $1 million in additional wages over a lifetime, even that's debatable.

The fact is that most college students are better off than the average American. Just this month, UCLA's Higher Education Research Institute reported that the families of college freshmen last year had median incomes 60 percent higher than the national average.

The well-to-do get their aid: In the 2003-04 academic year, more than 30 percent of dependent students from families earning $100,000 or more got federal loans.

Schools lobby hard for "student aid" - because it's the colleges and universities that actually pocket the money. As long as aid keeps ballooning, students can pay ever-escalating tuition and fees - and Greedy U. can keep boosting salaries, building new facilities and making life cushier for faculty and staff.

According to the Center for Responsive Politics, education interests spent over $80 million lobbying federal policymakers last year.

When Cuomo testifies before the House Education Committee, congressmen are likely to push for further investigation into corruption and conflicts of interest at lenders and universities, but most likely not into the cynicism of the student-loan system itself.

Of course, Congress is unlikely to turn off the politically popular student-loan spigot any time soon. The truth, however, is that even absent government help, lenders would continue to float private loans to students with promising futures, because both lender and student would profit. But since both lenders and borrowers would have only their own money on the line, the rampant inflation in college costs would halt.

Neal McCluskey is a policy analyst at the Cato Institute's Center for Educational Freedom. His book "Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education" is due out in May.

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