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Monday, February 4, 2008

Monday, February 4, 2008

Problems with Private Partnerships

Student loans produced a lot of stories about conflicts of interest last year, and some mild clean-up activity. One pattern there was kickbacks - gifts from private loan companies in exchange for favors from university counsellors. Another was a revolving door between universities and private loan companies that increased collusion between the two. Sallie Mae sought a buy-out that would have given its CEO over $225 million personally (the sale did not go through; I don't know CEO Albert L. Lord's final cut, but he continued to seek a $900 million breakup fee after the deal collapsed). The Department of Education admitted to having overpaid private student loan companies.

The obvious theme here is that the activities of these private agencies increased the cost of obtaining a college degree. There were good stories about just how broke students are in part because of high-tuition coupled with high-priced loans. The most famous response was that some of the country's wealthiest private universities - led by Harvard - switced from loans to grants for lower-income students.

Whatever the response, a core principle remains: increasing the number of steps between the buyer and the seller - the student and the university - increases the costs to the buyer. We used to know that "middlemen" like railroads were bad for people like farmers. We seem to need to learn this all over again with higher ed.


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