Schools of Sharks

As one of the few people I know who has attended both a four year college, and a trade school, I'm particularly interested in stories like these, which would challenge all but the most doctrinaire libertarian's love of free markets:

Jeffrey West was working at a pet store near Philadelphia, earning about $8 an hour, when he saw advertisements for training programs offered by WyoTech, a chain of trade schools owned by Corinthian Colleges Inc., a publicly traded company that last year reported revenue of $1.3 billion. 
 After Mr. West called the school, an admissions representative drove to his house to sell him on classes in auto body refinishing and upholstering technology, a nine-month program that cost about $30,000. 
Mr. West blanched at the tuition, he recalled, but the representative assured him the program amounted to an antidote to hard economic times. "They said they had a very high placement rate, somewhere around 90 percent," he said. "That was one of the key factors that caused me to go there. They said I would be earning $50,000 to $70,000 a year." 
Some 14 months after he completed the program, Mr. West, 21, has failed to find an automotive job. He is working for $12 an hour weatherizing foreclosed houses. With loan payments reaching $600 a month, he is working six and seven days a week to keep up. 
"I've got $30,000 in student loans, and I really don't have much to show for it," he said. "It's really frustrating when you're trying to better yourself and you wind up back at Square One."

Sadly, this is not at all atypical.  Many, many trade schools take a ton of money from both the government and their students, drive those students deep into debt, and then leave them stranded on the job market, no better off than they were before.  In my class on network administration, two people ended up with jobs in the business:  me, and a guy who'd already been doing it as an office manager.  And I only found one because I happened upon an office that needed someone who could play with the computers a little bit, but more importantly, type 90 wpm.

Of course, the libertarian defense is that these schools are very dependent on the government.  And they are.  If it weren't for federally subsidized student loans, students would not be able to borrow money to enroll unless the bank thought there was a reasonable chance that the course would actually pay off.  The students, too, would probably investigate things a little more closely, if they had to earn the money before they enrolled in the school.

Still, these institutions are sharks, praying on the most vulnerable members of society as they try to improve their earning power and get a toehold in the middle class.  You often hear people claim that generous financial aid and student loan programs are necessary to help lower income people--but it is lower income people who are likely to find themselves trapped by one of these schemes.

I think this highlights two points:  bad government rules make people worse off; but also, government rules are necessary to make markets work.  The government has all the information on job placement; that should be published on the internet, and promoted so that virtually every potential student knows where to look.  Schools that make misleading claims about future earnings should be subject to fraud investigations.  And perhaps the rules of student loan programs should be rewritten so that any school whose graduates don't usually significantly improve their earning potential, can't use the federal student loan program.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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