Corinthian's collapse and the student loan scam

Higher-ed stocks: Corinthian closing its last schools
Higher-ed stocks: Corinthian closing its last schools   

If a greedy salesman and a corrupt politician met and had a demon baby, that baby would look a lot like the now-shuttered Corinthian Colleges. And that demon baby could only have been born from those two parents, neither could have spawned this thing on their own. Now that Corinthian has shut down its entire operation, the demon's victims are getting screwed again as they have to scramble to find new schools.

I define greed as a desire for wealth or power that is so powerful that it's more important than following the law or any ethical norm. Wanting to make more and more money is not greed, but doing so by breaking the law or otherwise swindling your customers is. And a lot of greedy and unscrupulous people just couldn't help themselves when it came to the government-backed student loan system that put their greed on steroids for years. Remember that student loans of almost any amount are readily available to any breathing person who has been accepted to any American institution of higher education. While the schlubs borrowing for a house or a car still have to fill out mountains of paperwork or show extensive income verification, a pulse and an acceptance letter is still all you need to secure hundreds of thousands of dollars in student loans. Now that's the kind of "easy money" that attracts crooks, and crooked people have been attracted to that easy government money for a long time. Corinthian's alleged crooked acts included falsifying its graduates' job placement rates. For that alone, the Department of Education is fining Corinthian $30 million. But God knows how many more millions and billions the same government pumped into the hands of Corinthian executives over the years.

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And this all is such a terrible shame. Because for-profit colleges are essentially a good way to break up an often antiquated traditional college and grad school model. The more flexible, and vocational course offerings you find at places like Corinthian and DeVry are a lot more accessible to students of all ages. And it's a shame because while for-profit schools like Corinthian are the ones being caught and scrutinized for this unethical behavior, can we honestly say that the so-called "non-profit," traditional colleges aren't just as guilty? Haven't we allowed all our institutions of higher learning to jack up tuition way, way, way more than the rate of inflation? And isn't that really only possible because of our ridiculous student loan system?

There's more and more evidence that this government-backed higher ed bubble is starting to pop. Delinquency rates on student loans are accelerating, not slowing down, despite the improving economy. Outstanding student loan debt is more than $1.1 trillion right now. And these scary numbers are starting to act as a chilling effect on at least some potential higher education students. That's especially clear for law schools, where applications are down again this year in a trend that began in 2011. It's one thing to mortgage the house or borrow a quarter of a million bucks to go to Harvard, but it costs almost the same money to go to lots of universities you probably haven't even heard of. That's simply not a model that can last much longer.

Again, none of this would be possible without Uncle Sam indirectly pumping those trillions into the hands of college administrators for decades. The easy path to getting student loans is a winner with the voters, so there's hardly any political reason to stop the party. In fact, President Obama seems to be doubling down on this corrupt model by simply looking to make small reforms to create more income-based repayment plans and to limit lending fees. But none of those changes will give greedy college administrators any reason to freeze tuition hikes. The recent call to tie student loan money to graduation rates at all schools would accomplish that goal, but the White House seems to have backed off that idea for non-profit colleges.

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So while Corinthian Colleges may have been one of the worst examples of the government-enabled higher education cash machine, this is no time to be smug about all the other "respectable" schools that aren't exactly innocent in this scenario. The only question is will more consumers, (in this case the parents), will wise up and demand something better for their kids' tuition on their own or will we have to wait for more unselfish and wise politicians to do it for them?

Commentary by Jake Novak, supervising producer of "Power Lunch." Follow him on Twitter @jakejakeny.