K-12 Education Loans: The Other Private School Profit Center

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Whenever the right wing privatization profitization fetish is the topic of a post, it's usually in the context of direct profiteering on the privatized activity. Talking about private prisons raises the ethical question about turning crime into a profit center, not to mention the racial issues. Talking about private libraries raises an ethical question about content, and whether private providers have an obligation to make all books available or only those books which the provider approves.

When it comes to education and the privatization fetish, most discussion centers around the private school industry and related profit centers. Those centers are usually textbooks, lower wages for teachers and support staff, and reduced compliance and credentialling requirements for private schools. Oh, and testing. Of course, we can't forget testing.

There's another profit center that no one is really talking much about, but which has the potential to do lasting and deep harm to our economy: K-12 private loans. Just as the college loan industry has bolstered for-profit colleges and driven college debt balances up to levels higher than all car loans and credit card balances, the for-profit K-12 loan industry has the potential to really drive up debt, and along with it, defaults on that debt.

Via WSJ SmartMoney.com:

It used to be that families first signed up for education loans when their child enrolled in college, but a growing number of parents are seeking tuition assistance as soon as kindergarten. Though data is scarce, private school experts and the small number of lenders who provide loans for kindergarten through 12th grade say pre-college loans are becoming more popular. Your Tuition Solution, one of the largest lenders in this space, says demand for the upcoming year is already up: This month, the total dollar amount of loans families requested rose 10% compared to a year ago; at that pace, the company expects its total funding to rise to $20 million for 2012-13. Separately, First Marblehead, which exited the market in 2008, reentered last year as demand for loans began to rise.

It should come as no surprise that the families seeking loans for Johnny and Judy's Superior Kindergarten Education At Exclusive School They Registered In At Birth are, in general, high income families. It always starts with them, it seems.

Much of this demand is coming from high-income families. Roughly 20% of families that applied for aid to pay for their children's kindergarten through 12th grade private school education had incomes of $150,000 or more, according to 2010-11 data, the latest from the National Association of Independent Schools. That's up from just 6% in 2002-03. Those who don't get approved for free aid, like grants, increasingly turn to loans, experts say.

For parents who sign up for pre-college loans the risks can be significant. To begin with, they could be repaying the loans for a long time. Sallie Mae's and Your Tuition Solution's pre-college loans have repayment periods of up to three and seven years, respectively. Loans at the Hawken School in Chesterland, Ohio, don't have to be repaid until after the child graduates college. That means parents could be on the hook to repay K-12 and college loans simultaneously. Already, about one in six parents of college graduates have loans, and they're projected to owe nearly $34,000 on average this year, according to FinAid.org. Taking on loans before college leaves parents at risk of owing larger sums of debt, experts say.

And that debt comes with an interest rate of 7.9%, minimum. That 7.9% is based on today's almost non-existent federal funds rate, but families without a stellar credit rating can be charged as much as 20%. Just you wait until that rate rises, and along with it, the payments Johnny and Judy's mommy and daddy make for them to attend that posh private school.

This is where I ask the rhetorical question of Republicans: Is it better for our children to be saddled with higher taxes to pay off government debt or better for the economy to crash as a consequence of self-indulgent, out-of-control debt incurred to enrich profitized education enterprises?

I think we all know how the wingers would answer that question, but what about the rest of us? This is the path reformers are relentlessly marching toward, on both sides of the aisle. Earth to politicians: This is not reform. It's robbery, and it shouldn't surprise anyone to learn that Wells Fargo Bank is on the cutting edge of the boom.

Wouldn't it be better to focus our tax funds toward improving all schools, public and private? Why, for example, is it necessary to create a "charter school" for innovative education? Why not simply allow school districts to innovate and place resources where their districts need them?

There will always be the elitist Johnny and Judy crowd whose parents insist they absolutely must go to Posh Snobbery Day School in order to get into the best universities money can buy in order to continue feeding the ranks of the right wing, but that shouldn't even begin to be what the ordinary, middle class parents come to expect. What the majority of kids in this nation need is a solid education in a solid public school system that isn't constantly being rocked by budget cuts and testing goals. That education may be delivered in a number of different ways, but it is something we should be paying for as a nation through our tax dollars, rather than subsidizing Posh Snobbery Day School and encouraging families to take on more debt in order to educate their kids.

Finally, this idea of borrowing money for necessities like an education is one that needs to stop before it becomes something we accept. Already, it's assumed that students at public universities will take on thousands of dollars in debt in order to attend that university. That's insane. On a personal level, I received several different financial aid offers in the past month to different universities that had accepted my daughter. Every one of them assumed that she would take on a minimum of $5,000 in debt, and that we, as her parents, would be perfectly willing to sign paperwork to take on a minimum of $15,000 (all the way up to $23,000 in one instance) per year to send her to a PUBLIC UNIVERSITY.

What is wrong with that picture?

I'm not sure we can turn the boat around on the university loan situation very rapidly or very soon. But this K-12 loan idea is one that needs to die a very, very early death. Why aren't we scoffing this out of existence? There is absolutely no need -- none whatsoever -- for parents to put themselves thousands of dollars in the hole to send their children to private schools when they can pay far less and send their children to public schools. It's ridiculous to assume otherwise.

Just think of what could be done for our schools and our teachers if those funds weren't being put in the pockets of financialists -- the money boys who pocket the 7.9% interest and walk away with a smile on their face.

Let's call this what it is. It isn't just the profitization of education. It's also the securitization of education, carved up into tranches and distributed to the Ones With Money so they can take more of ours.

The Wall Street Journal article profiles a middle class family who is taking these loans to educate their two children. Bill Dunham explains their decision this way:

That's the case for Dunham who says he and his wife haven't saved for college for their two children. Instead, he says, they're trying to give them the best education now in the hopes that it'll open doors to better colleges. "We'll figure out how to pay for it then, or with any luck they'll get scholarships," he says. "Right or wrong, we're hoping our experiment works."

Sadly, the Dunham family has bought into the premise that a public school education cannot open the doors to a great college education. Nothing could be further from the truth. The name of the school doesn't matter. What gets kids into great colleges is their own hard work, school performance, and SAT/ACT scores. And if Dunham thinks his kids will somehow magically raise their odds of college scholarships, I can tell him to give that idea up right now. My advice? Send the kids to public schools, start saving like a madman for college, and don't expect any scholarships to fall into your kids' laps even if they're terrific students. There's a huge hunger for scholarships and not enough available. But the very worst possible scenario I can see is digging yourself into debt for private schools for the kids only to turn around and have to dig farther in to pay for their college education, while lining the pockets of fat cats and bankers.

Bonus Read: The Assault on Public Education

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