Opinion

Manhattan Moment: Federal student loan programs need greater oversight

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Federal student loans have recently come under fire for indebting a generation of students. Many families are slowly realizing that it might not be worthwhile to take out copious federal loans for an expensive education that offers poor employment outcomes. As it turns out, however, these loans might be paying for something else entirely.

The Wall Street Journal reported Saturday that an increasing number of students are using federal loans to pay for living expenses unrelated to their education.

Two examples stick out: One student who enrolled in a Florida community college borrowed federal loans to pay for the rent he owed his mother and his cellphone bill. Another used federal student loan dollars to pay off debts she owed to other creditors and her cable bill.

The problem extends beyond a few anecdotes. The Department of Education found that at eight online education programs, students were using more than half of their federal funding to pay for non-education-related expenses. According to its report, more than 42,000 students who did not record spending any time in class still received more than $5,000 in federal aid.

To that end, there's reason to believe that at least some students are enrolling in post-secondary programs without any intention of learning anything. They're in it for the easy money that allows them to stay afloat in the face of their other debts.

The structure of the student loan program can explain why this is happening. When students apply for federal financial aid, the Department of Education determines their maximum eligibility for federal funding by subtracting their expected financial contribution from their college’s total cost of attendance. The COA is an expansive category which includes tuition, school fees, additional school expenses and, most relevant to our discussion, room and board or “living expenses” for students who live off-campus.

Students who are eligible for both need-based and non-need-based federal aid can spend the funding allotted for “living expenses” on amenities such as phone bills and movie tickets, and more serious but no less unrelated-to-education expenditures such as credit card debt. Though students are required to affirm that they’ll use their student aid “only for educational purposes,” the federal government is currently limited in its ability to ensure that this is the case. Moreover, student can appeal to the vagaries of the “living expenses” concept to justify just about any purchase.

The deeper problem, however, is that just about anyone can receive federal financial aid, regardless of their desire to actually receive an education. Unless you’re incarcerated or have past convictions for drugs or sexual assault, the standards for federal student aid eligibility are incredibly low.

Indeed, if you're a U.S. citizen with a valid Social Security number and a high school diploma or GED, and you're accepted into a federally-recognized program, you're eligible for aid. You don’t need to prove that you have any intention of employment upon graduation or even that you’ll graduate. To that end, it’s not terribly surprising that students are abusing the federal largesse.

There’s a larger story here. For the past 50 years, federal higher-education policy has been premised on the notion that the federal government should assist just about anyone to attend college. While increasing college access is certainly an admirable goal, the federal government has not yet figured out how to do this in a deliberate fashion.

Perhaps this new research will inspire some serious soul searching in the Department of Education.

Judah Bellin is an associate editor at the Manhattan Institute, where he researches higher education policy and edits Minding the Campus, the Institute's higher-education website.
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